DaimlerChrysler says it has resolved the quality problem in new Mercedes cars and has cut the level of provisions it takes for vehicles rolling off the production line.
But the German-US carmaker has greatly increased the charges it takes for older Mercedes models - analysts estimate it cost about €500 million or more last year.
Mercedes, the traditional cash cow of Daimler, was long renowned for the reliability of its cars but its reputation has been besmirched by a tendency for its vehicles to break down.
Daimler chief executive Jürgen Schrempp has said the group will regain control of the situation at the Mercedes Car Group, which includes the loss-making Smart small car brand, within 12 months after profits crashed to their lowest level in 13 years.
Daimler took €4.8 billion in charges for new products in 2004 compared with €5.4 billion a year earlier, with officials ascribing most of the reduction to Mercedes.
At the same time, provisions for cars already on the road rose sharply to €1.2 billion in part due to problems at its Fuso heavy trucks unit but also significantly due to Mercedes. Daimler officials have repeated recent comments by Eckhard Cordes, head of Mercedes Car Group, that new Mercedes cars have the best quality the company has ever produced.
But many analysts expect further provisions for quality among older vehicles in the coming quarters, something Cordes refused to rule out.
Daimler has pledged to resolve reliability problems for customers even when the cars are no longer covered by guarantee. Many of the problems arose from the large amount of new technology Mercedes crammed into its cars. The company is now checking whether the various complicated electronic systems work properly with each other.
Mercedes is currently implementing an efficiency plan to boost earnings by €7 billion in the next three years and job cuts, thought to be through natural wastage, have not been ruled out.