Earnings before interest and tax (EBIT) dropped 19 percent to 1.97 billion euros (625 million pounds) in the three months through the end of September, less than the average analyst estimate of 2.67 billion in a Reuters poll.
Car sales growth has been shrinking in Europe, with Germany the only major market in the region to expand in September, and the boom in China that has bolstered German carmakers in recent quarters has tempered to a milder pace for now.
Mercedes-Benz Cars sold 2 percent fewer vehicles in Western Europe in the third quarter, with stagnating German sales, and its EBIT was down 15 percent from last year.
The slump comes just as Daimler fired the head of Mercedes-Benz USA, leaving the business in turmoil after reaching record monthly sales figures of almost 24,000 vehicles in September.
France's PSA Peugeot Citroen
Daimler affirmed its outlook for 2011, saying it saw full-year EBIT up very significantly from 2010, with revenues of significantly more than 100 billion euros, but warned that the economic environment was becoming more gloomy.
At the beginning of the fourth quarter of 2011, the outlook for the world economy is distinctly less favourable than just a few months ago, the company said in its quarterly financial report.
Daimler Trucks, which generates more than a quarter of group revenues, was a bright spot in the quarter, its EBIT of 555 million euros exceeding consensus.
This contrasts with recent statements by Volvo
(Reporting by Maria Sheahan)