Chrysler's parent company, German car giant DaimlerChrysler, has also warned it may miss its target for a full-year operating profit of 5.8bn euros by nearly 1bn euros.

The world's fifth largest car maker is conducting a tough cost cutting programme at its US unit. However, stiff competition and the cost of boosting sluggish demand are hitting profit expectations.

Nearly all US car makers have resorted to offering interest-free credit, cash rebates and extra accessories to lure buyers. This has lifted overall sales, but profits are close to non-existent.

'Nasty shock'

DaimlerChrysler's warning sent its shares down 11% on Wall Street on Tuesday.

The news was a double blow for investors following the company's previously upbeat prediction that it would beat last year's 5.8bn euro profit.

"This is a nasty shock and I would expect it to have a major impact," said one German-based analyst.

But DaimlerChrysler was not the only carmaker with bad news.

General Motors and Ford both said on Tuesday they would be cutting production in North America because incentive schemes had failed to lift sales.

Ford's sales for May fell almost 6% against last year's figures and the group signalled further weakness ahead as it cut production targets by 15% for the next three months.

General Motors, the world's biggest carmaker, said its May sales were up 4% on last year. But it said it cut North American production by 12% and was planning a further 6% cut in output for the coming three months.