July 24 (Bloomberg) -- Daimler AG, the world's second- biggest luxury carmaker, cut its forecast for earnings this year after second-quarter profit declined 25 percent.

Daimler fell as much as 7.6 percent in Frankfurt trading. Net income dropped to 1.395 billion euros ($2.19 billion), or 1.40 per share, from 1.85 billion euros, or 1.74 euros, a year earlier, the Stuttgart-based automaker said in a DGAP statement today. Six analysts surveyed by Bloomberg News had forecast profit of 1.38 billion euros.

Profit before earnings and taxes will be above 7 billion euros, compared with an earlier forecast of ``well above'' 7.7 billion euros because of slowing growth, rising costs for steel and energy and the dollar's decline, Daimler said. The company, which also had a 373 million-euro charge related to its former Chrysler unit in the U.S., said it will ``adjust'' production of the Mercedes E-class model.

Daimler sold 80.1 percent of Auburn Hills, Michigan-based Chrysler to New York-based buyout firm Cerberus Capital Management LP in August 2007, severing a nine-year relationship that cut Daimler's market value by $12.6 billion. Daimler Chief Executive Officer Dieter Zetsche plans a 6 billion-euro share buyback to win over investors as the company's stock has fallen 35 percent this year.

Faltering Trucks

Trucks sales in the U.S., where Daimler makes Freightliner, Sterling, and Western Star trucks, have faltered as freight companies struggle with soaring fuel prices and lower demand as the U.S. economy slumps. Daimler's Mercedes-Benz unit has been helped by demand for Smart models as consumers look for thrifty small cars and turn away from the trucks and sport-utility vehicles of U.S. automakers.

Daimler's earnings drop follows profit gains reported yesterday by PSA Peugeot Citroen, Volkswagen AG and Fiat SpA, boosted by job cuts and demand for small cars.

Mercedes-Benz Cars has cut 9,700 factory jobs since 2005, reducing costs by 7.1 billion euros. The unit's earnings will rise this year and operating profit will reach 10 percent of sales by 2010, Daimler has predicted.

Mercedes-Benz is counting on the A- and B-Class models to help it achieve record sales this year and wrest back market share from Munich-based Bayerische Motoren Werke AG, while fending off Volkswagen's Audi unit and Toyota Motor Corp.'s Lexus division. The Stuttgart company's 20 percent stake in Chrysler, the third-largest U.S. automaker, wiped 491 million euros from first-quarter earnings as rising fuel prices hurt sales of Chrysler's trucks and SUVs.

Falling U.S. Sales

BMW increased European deliveries in June, even as the market declined overall, thanks to an 8.3 percent surge in registrations of its Mini small car. Car sales have fallen 10 percent in the U.S. and 2 percent in Europe this year as customers hold back spending.

General Motors Corp., headed for its ninth consecutive annual U.S. sales decline, said in June it plans to cut North American truck production capacity by 700,000 vehicles. That effort includes closing four plants that make pickups, SUVs and medium-duty trucks by 2010. The company may sell its Hummer SUV division.

Daimler lowered the value of its Chrysler stake by 40 percent in April as it reported a 32 percent decline in profit in the first quarter.

Lowest in 15 Years

Deutsche Bank said yesterday that auto sales in the U.S. may drop to 14 million cars this year, down from a previous estimate of 14.5 million. That would be the lowest in 15 years. J.D. Power and Associates today lowered its forecast to 14.2 million sales from 14.95 million in March.

The average price of a gallon of gasoline in the U.S. rose 24 percent during the second quarter to $4.09, according to motorist group AAA.

The carmaker is cutting 1,500 factory jobs and eliminating one shift at the Freightliner trucks unit in the U.S. The unit employs 20,000 people in the North American trucks division.

Volvo AB, the No. 2 truckmaker, yesterday said orders slumped 28 percent in the second quarter as higher fuel prices and slowing economies prompted customers to hold off increasing fleets. The Swedish company's profit gained on increased demand in Europe and Asia.

Daimler and BMW are also shifting their attention to Russia and China as a way to offset the weakening U.S. market.

Daimler is expanding in eastern Europe and Asia to benefit from lower wages and economies that are growing at a faster pace. Daimler last month said it will build a Mercedes-Benz factory in Hungary, its first new plant in almost a decade, as part of a 1.4 billion-euro expansion of small-car production.

Zetsche has said 2008 operating profit from continuing operations will be ``well above'' last year's 7.7 billion euros, as higher vehicle deliveries lead to ``moderately'' higher sales, reiterating previous comments.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

Last Updated: July 24, 2008 06:01 EDT