DaimlerChrysler AG managed to beat expectations during the second quarter as the company's major automotive units both turned in better than expected performances.

The biggest surprise came at the Mercedes-Benz Group, which managed to post a narrow operating profit of $15 million despite a $376 million charge for the restructuring of smart, the group's floundering small car unit. Juergen Schrempp, DaimlerChrysler's departing chairman, said during the conference call with reporters and analysts, the operating profit marked a turnaround of almost $600 million in just one quarter for Mercedes. Most analysts had expected the Mercedes Group to report a loss, he said.

The operating profits from the company's Chrysler Group increased by 4 percent to $652.26 million from a year ago. Sales were down 1 percent to $15.62 billion largely because of the pricing pressures created by the ongoing price war in the U.S car market, where the Japanese manufacturers have been gobbling up market share.

Dieter Zetsche, who is now scheduled to replace Juergen Schrempp as DaimlerChrysler CEO at the end of the year, said the company has not yet decided whether it will extend the employee-discount incentives that have boosted sales during July. The number of Chrysler cars sold rose 4 percent to 812,200 from 781,400 during the second quarter.

Schrempp noted the competition in the U.S. is expected to remain tough for the balance of the year but total sales in the U.S. should reach 17.2 million units. In addition, the success of Chrysler's new models, including the new Dodge Charger, will help Chrysler, said Schrempp.

Sales by the company's commercial vehicles unit, which includes Freightliner, helped push up that unit's operating profit 12 percent to $628.28 million on sales of $12.71 billion. DaimlerChrysler said the number of trucks, buses and other commercial vehicles sold during the quarter rose 20 percent to 221,600 from 184,900 the year before.

The operating income from DaimlerChrysler Services, the company's financial arm, dropped by roughly 20 percent to $471 million as higher interest rates took a toll on the unit's finances. DaimlerChrysler Services also was hurt by the impact of the strong euro, which reduced the value of profits denominated in dollars.

Bodo Ubber, DaimlerChrysler's chief financial officer, noted that the strength of the euro has declined in recent weeks and the company has been moving to reduce its risks from future swings in the value of the dollar by hedging.

Overall, DaimlerChrysler net income increased 28 percent to $892 million and net revenues increased by 4 percent to $46.5 billion.  The net liquidity of the industrial business also increased from $4.4 billion at the end of the first quarter of 2005 to $6.7 billion at the end of the second quarter.

The Mercedes-Benz Group's profits were down for the quarter, a 98-percent drop from the same quarter last year and revenue also dropped four percent. Eckard Cordes, Mercedes-Benz Group chief executive, blamed the results on fewer sales by its compact car business smart. Last year, the unit sold 319,400 cars.

Cordes, however, said the plan for turning around smart's fortunes has taken hold. The employees have signed off on the plan and the company has signed up 193 more dealers to help the smart brand into new markets, he said.

Schrempp also said the acceptance of the Mercedes-Benz brand's new products has been excellent. The new A-Class and the SLK Roadster have done particularly well, he said.

Cordes also noted that Mercedes-Benz also scored higher this year than it did last year in all of J.D. Power & Associates' key studies such as the initial quality and appeal surveys. In the IQS study alone, the Mercedes-Benz brand improved by 5 places and was one of the industry's top five brands.