Mercedes, once the most-coveted luxury car with its famous star on the bonnet, is seriously damaging DaimlerChrysler's profits while formerly troubled Chrysler, the prosaic US auto division, is keeping them going, new figures revealed yesterday.

The German-American group reported a collapse in profits at Mercedes, which six years ago was the leader in the US luxury car market and has now slipped to fourth place.

It said group fourth-quarter earnings in 2004 fell 63%, to €526m (£362m) from €1.4bn a year earlier, while operating profits at Mercedes plunged to just €20m from €784m as sales dipped 2% to €12.8bn.

Mercedes has been hit by the failure of innovations - and even standard equipment - to work properly.

Angered by the division's poor performance, Jürgen Schrempp, Daimler's chief executive, proposed a "road map" to improve this by 2007, cutting costs, probably including jobs.