FRANKFURT -- Daimler AG said customer demand remains strong even as a regulatory crackdown on diesel cars and a 13 percent sales slowdown for Mercedes-Benz cars in Germany weighed on third-quarter earnings.
Earnings before interest and tax (EBIT) fell 27 percent to 2.49 billion euros ($2.85 billion), hit by a 35 percent EBIT fall at Mercedes-Benz Cars to 1.37 billion euros.
"The automotive industry and thus also Daimler are still in a very challenging environment. The continued high demand from our customers makes us confident for the fourth quarter," CEO Dieter Zetsche said in a statement.
The profit slide is accompanied by continuing friction between the German government and automakers over whether to fit expensive emissions-reducing exhaust systems to older diesel vehicles and an ongoing U.S. investigation into emissions.
Earnings were also hit by a provision taken after a court ruling confirming a ban on the R134a air conditioning fluid used in Mercedes-Benz cars, Daimler said.
Sales of Mercedes-Benz Cars, a division that includes the Smart brand, are expected to reach last year's level, Daimler said after reporting a 6 percent drop in deliveries in the third quarter.
Daimler last week said its full-year operating profit would fall by over 10 percent because of "government proceedings and measures in various regions" in what amounts to the company’s second profit warning in four months.
Negative spillover from a new European Union emissions testing regime caused higher inventories. This is expected to normalize toward the end of the year.
Germany’s transport ministry has also ordered a mandatory recall of 774,000 diesels in a crackdown on polluting cars.
In May German prosecutors searched Daimler's offices as part of a fraud investigation related to possible manipulation of diesel exhaust emission levels and U.S. authorities have asked Mercedes-Benz to explain emissions levels on certain vehicles.
Daimler, like rival BMW, also is exposed to higher trade barriers between the U.S. and China. Both ship SUVs from U.S. plants to China.
Rattled Chinese consumers are delaying purchases of big-ticket items, leading Volkswagen to lower sales forecasts for its biggest market.
On a more promising note, cooperation talks with largest shareholder Li Shufu have started bearing fruit with a planned premium ride-hailing joint venture in China to challenge market leader Didi Chuxing in the world’s most populous country.
Bloomberg contributed to this report