The group's Smart car has failed to make money since its launch

The US-German firm, the world's fifth largest carmaker, said its first quarter net profits fell to 288m euros (�195m; $371m) from 412m euros in 2004.

DaimlerChrysler's Mercedes unit, itself beset with quality problems, recently launched a costly restructuring of its troubled Smart car brand.

The group's weaker profits follow similar losses at rival US carmakers.

Earlier this month, Ford reported a 40% fall in its first quarter net profits to $1.21bn, while General Motors - the world's biggest carmaker - unveiled a net loss of $1.1bn in the first three months of 2005.

Strong euro

DaimlerChrysler said its German-based Mercedes division reported an operating loss of 954m euros, from profits at the same time last year of 639m euros, linked to restructuring costs at its Smart car business totalling 800m euros.

The first quarter was characterized by intense competition among automakers - it was a tough environment Bodo Uebber, DaimlerChrysler chief financial officer.

The distinctive minicar has consistently lost money since its debut in 1998.

Mercedes has also been struggling to deal with the impact of the strong euro and quality problems at its flagship luxury Mercedes-Benz brand.

Sales of Mercedes-Benz cars slipped 7% from the previous year, with 247,000 vehicles sold.

In the US, the group's Chrysler division reported a 17% fall in first quarter operating profits to 252m euros, from 303m euros at the same time the previous year.

"The first quarter was characterized by intense competition among automakers. It was a tough environment," said Bodo Uebber, DaimlerChrysler's chief financial officer.

However, operating profits rose at the company's commercial vehicles business, to 714m euros during the quarter, amid strong global demand for lorries.

DaimlerChrysler said it expected worldwide demand for new vehicles to be slower in 2005 than last year.