Daimler AG Annual Report 2005

← All annual reports

FY2005 Annual Report · Daimler AG

Loading PDF…

Driven by Values
Annual Report 2005

Key Figures

DaimlerChrysler Group

Amounts in millions of €

Revenues

Western Europe

of which: Germany

NAFTA

of which: United States

Other markets

Discontinued operations

Employees (at year-end)

Investments in property, plant and equipment

Research and development expenditure

Cash provided by operating activities

Operating profit

Net income

per share (in €)

Total dividend

Dividend per share (in €)

2005

2004

2003

05/04

Change in %

149,776

142,059

136,437

47,337

20,948

77,611

67,015

24,828

–

48,845

22,315

73,266

64,232

19,948

–

51,157

24,182

73,477

64,757

13,736

(1,933)

382,724

384,723

362,063

6,580

5,649

12,353

5,185

2,846

2.80

1,527

1.50

6,386

5,658

11,060

5,754

2,466

2.43

1,519

1.50

6,614

5,571

13,826

5,686

448

0.44

1,519

1.50

-3

-6

+24

–

-1

-0

+12

-10

+15

Divisions

Unit Sales
Structure

Divisions

Amounts in millions of €

Mercedes Car Group

Operating profit (loss)

Revenues

Investments in property, plant and equipment

Research and development expenditure

Unit sales

Employees (Dec. 31)

Chrysler Group

Operating profit (loss)

Revenues

Investments in property, plant and equipment

Research and development expenditure

Unit sales

Employees (Dec. 31)

Commercial Vehicles

Operating profit

Revenues

Investments in property, plant and equipment

Research and development expenditure

Unit sales

Employees (Dec. 31)

Financial Services

Operating profit

Revenues

Contract volume

Investments in property, plant and equipment

Employees (Dec. 31)

Other Activities

Operating profit

Revenues

Investments in property, plant and equipment

Research and development expenditure

Employees (Dec. 31)

2005

2004

2003

05/04

Change in %

(505)

50,015

1,629

2,418

1,216,838

104,345

1,534

50,118

3,083

1,710

2,812,993

83,130

2,093

40,634

1,743

1,281

824,867

117,183

1,468

15,439

117,724

11,129

591

2,396

109

240

18,164

1,666

49,630

2,343

2,634

1,226,773

105,857

1,427

49,498

2,647

1,570

2,779,895

84,375

1,332

34,764

1,184

1,226

712,166

114,602

1,250

13,939

102,399

11,224

456

2,200

134

228

20,636

3,126

51,446

2,939

2,687

1,216,938

104,151

(506)

49,321

2,487

1,689

2,637,867

93,062

811

26,806

958

946

500,981

88,014

1,240

14,037

98,199

11,035

1,329

4,084

169

420

20,192

-30

-8

-1

+16

-1

+57

+17

+47

+16

+17

+11

+15

-51

-1

+30

-19

-12

Unit Sales Structure

Mercedes Car Group

S-Class/SL/Maybach

E-Class/CLS

C-Class/CLK/SLK/Sport Coupe

A-Class/B-Class

M-Class/R-Class/G-Class

smart

22%

33%

21%

10%

Chrysler Group

Passenger cars

Light trucks

Sports tourers

Minivans

SUVs

Commercial Vehicles

Trucks

Vans

Buses

23%

21%

11%

19%

26%

62%

33%

Doing business means creating values that last. One of these

values is mobility – our customers’ independence to get to

wherever they want to go, whenever and in whatever manner

they choose. To fulfill our customers’ desire for mobile

independence, we have been developing and producing inno-

vative passenger cars and powerful commercial vehicles for

120 years. We also offer our customers a full range of sophisti-

cated financial services. We at DaimlerChrysler are working

on this all over the world. Responsible and open to innovation,

we deliver top performance day after day.

Mercedes Car Group

Chrysler Group

Commercial Vehicles

DaimlerChrysler
Financial Services

Contents

Annual Report 2005

4
Essentials

28
Management
Report

70
Divisions

4 Our Values
7 Driven by Values
16 Chairman’s Letter
20 Board of Management
22 Important Events
24 DaimlerChrysler Shares

72 Mercedes Car Group
76 Chrysler Group
80 Commercial Vehicles
84 Financial Services
86 Other Activities

28 Overview
30 Business and Strategy
37 Profitability
47 Liquidity and Capital

Resources

53 Financial Position
55 Capital Expenditure
55 Research and Develop-

ment

56 Procurement and Supply
56 Workforce
57 Events after the End of
the 2005 Financial Year

58 Risk Report
64 Outlook

88
Cross-Divisional
Activities

90 Sustainability at
DaimlerChrysler

92 Human Resources
94 Research and
Technology

96 DaimlerChrysler and
the Environment
98 Global Procurement

and Supply

100 Social Responsibility

What defines the world of Daimler-
Chrysler – and what makes us different
from other companies?

This chapter provides fundamental and
personal information, helping you to
get to know and understand the world
of DaimlerChrysler.

The Management Report is prepared
in accordance with German
Accounting Standard DRS 15 and is
audited by independent auditors.

In this chapter, the Board of Manage-
ment provides information on the busi-
ness situation, the Group’s finances,
cash flow and profitability, and the
opportunities and risks of future deve-
lopments.

DaimlerChrysler comprises four
divisions.

DaimlerChrysler is committed to the
principles of sustainability.

This chapter describes the business
developments of the divisions. In
addition, we report here on new pro-
ducts, major investments and the
measures we have initiated to enhance
quality and efficiency.

This chapter provides details of the
Group’s cross-divisional activities.
Economic, ecological and social respon-
sibility are the basis of our actions.

102
Corporate
Governance

122
Consolidated
Financial Statements

203
Additional
Information

104 Corporate Governance

Report

110 Compensation Report
114 Declaration of Compli-
ance with the German
Corporate Governance
Code

116 Report of the

Supervisory Board

120 Members of the

Supervisory Board

121 Report of the Audit

Committee

122 Overview
124 Statement by the

Board of Management
125 Report of Independent
Registered Public
Accounting Firm
126 Consolidated Financial

Statements

203 Transition to

International Financial
Reporting Standards
(IFRS)

204 Ten-Year Summary
206 Glossary
207 Index
208 International Represen-

tative Offices

Addresses/
Information/
Internet

DaimlerChrysler
Worldwide

Financial Calendar 2006

The system of corporate management
and supervision at DaimlerChrysler
is oriented towards the German Cor-
porate Governance Code and inter-
national standards.

DaimlerChrysler’s consolidated finan-
cial statements are prepared in accor-
dance with US Generally Accepted
Accounting Principles (US GAAP) and
are audited by independent auditors.

In this section, you will find more
facts and figures, supplementary
information and practical suggestions
for other sources of information.

This chapter explains the functions,
interactions and compensation of the
bodies of the company, especially
the Board of Management and the
Supervisory Board.

In this chapter, the consolidated finan-
cial statements are shown in full detail.

Top Performance

Developing outstanding and durable technologies, producing

innovative and appealing products, offering customer-oriented

services and consistently delivering top performance in all of

these areas – that’s what we are doing to ensure that Daimler-

Chrysler maintains and enhances its leading position in global

markets. We are working on this with all our strength, tremendous

commitment and a clear focus on the future.

Responsibility

As automotive pioneers, we take responsibility and meet the

challenges connected with the automobile, which has become

an indispensable part of our daily lives. We are continually

developing new and sustainable solutions for greater traffic safety,

lower fuel consumption, reduced pollutant and noise emissions,

and future-oriented transportation concepts. We act responsibly,

transparently and reliably – both inside and outside our company.

Open-mindedness

We have clear ideas about the future of our company, and we

pursue our goals for the benefit of our customers, shareholders

and employees. Our continued success depends on our ability

to respond creatively to change. We know that the world is con-

stantly on the move, and we are prepared to alter our thoughts

and actions if a situation calls for it. After all, only those who are

open to change can be successful over the long term.

Driven by Values

Ever since Gottlieb Daimler and Carl Benz invented the auto-

mobile, their strong pioneering spirit has inspired us to deliver

outstanding automotive innovations. Through our product design,

automotive engineering and safety technology, we are pioneering

innovators developing groundbreaking automotive concepts

that promote individual mobility for millions of people all over the

world. So that our customers experience the fascinating values

embodied by our exceptional automobiles — now and in the future.

Christoph Goeser has big ambitions
and the right partner.

Innovative

“Our customers expect innovative advisory services. They have high

demands, which we have been satisfying for many years. They trust

us and recommend us to others. I am aware of this responsibility

and do my best every day - in my own company, as chairman of the

REM AG and as Honorary Consul for the Republic of Slovakia. As well

as performance, I place great importance on personal appearance.

Both aspects should ideally complement each other. That’s also what

I like about my car. You could say that the S-Class suits me perfectly.”

Carl Benz and Gottlieb Daimler invented the automobile almost

simultaneously in the year 1886. This pioneering spirit is a constant

spur for our engineers to develop the safest and most innovative

automobiles in the world.

For Janice Ford-Johnson and her Jeep® Commander
there is always something new to discover.

Individual

“There are no two days alike in my life. My job and my lively family

make sure of that. My grandchildren Tamir and Taariq are the liveliest

of all: fishing for salmon, inline skating, playing the drums – it’s a good

thing that Grandma’s so active and has a car you can fit nearly every-

thing and everybody into: Just yesterday I had half a baseball team

in it. But my Jeep® Commander is comfortable as well as practical.
It does everything you ask of it and has a lot of character – like me!

Maybe that’s why I like it so much.”

A lot has happened since the first Jeep® was developed in 1941.
An uncomfortable military vehicle was then adapted to civilian use,

allowing owners like Janice Ford-Johnson to enjoy the freedom,

adventure, mastery, authenticity and capability of Jeep® vehicles.

You can rely on Jürgen Behm
and his Actros.

Reliable

“I only slow down when I have to. In my business the important thing

is to keep moving, one day after another. Waiting around doesn’t get

you anywhere: get in the cab and drive, that’s what it’s all about.

Direct-gear transmission, injection pressure, planetary hubs – that’s

all very well. But when I’m on the road only one thing counts: getting

myself and the goods to the right place at the right time in good

condition. In a word: ‘reliability’. That’s why I decided on the Actros

BlackEdition. And I would do the same thing again. Because it’s

never let me down.”

In 1896, Gottlieb Daimler built the first motorized truck in Stuttgart.

Up to the present day, Mercedes-Benz trucks have always been

among the most reliable in the world. So that people like Jürgen Behm

can do their job.

For over twenty years Bill Golling has offered his
customers the right vehicle with the right financing
solution by Chrysler Financial.

Excellent

“For over twenty years, DaimlerChrysler Financial Services, specifically

Chrysler Financial, has served as my automotive finance partner of

choice. Because of their dedication to the success of my business,

I consider them one of my most important business relationships.

Whether it’s financial solutions for my dealership operations or retail or

lease offerings, I have found that their people, products and processes

are solely dedicated to helping me sell more vehicles. Currently, Chrysler

Financial finances more than 90 percent of our retail and lease

customers. They provide an outstanding blend of customer service and

innovative automotive financing solutions. Now that’s what I consider

excellent value.”

Since the introduction of the Dodge Polara with the powerful HEMI

engine in 1964, Chrysler Financial has provided dealers like Bill Golling

with the finest automotive financing products and services to help
drive sales of Chrysler, Jeep® and Dodge vehicles.

I have held the top position at DaimlerChrysler since the beginning of this year.
For me, it is the most interesting job in the entire automotive industry and a great
professional challenge. With this letter, I address you personally for the first time
in a DaimlerChrysler Annual Report.

This Annual Report provides you with detailed information on business develop-
ments, our financial situation and DaimlerChrysler in general. I’ll begin with a brief
overview of the current situation.

DaimlerChrysler is one of the world’s most renowned automotive companies,
offering a broad spectrum of unique brands. With our comprehensive range of
passenger cars and commercial vehicles, we are represented worldwide in nearly
all markets and market segments. Last year alone, we launched 17 new models.
We safeguard our market position through innovation and pioneering technologies.
Examples include new systems designed to improve traffic safety such as
BAS PLUS brake assistance and PRE-SAFE® occupant protection, as well as
BlueTec – the cleanest diesel engines in the world.

Although we are not yet where we want to be, our strengths give us confidence
in our future. We know that we need to do more to improve our profitability.
Last year we did not cover our cost of capital, and this is something we are
striving to change. We can only create the right conditions for a sustainable
increase in the value of our company – and thus also for the positive development
of our share price – through long-term profitable growth.

In view of the difficult competitive environment, this is an ambitious goal.
We have therefore initiated a far-reaching transformation process throughout
DaimlerChrysler so that we can permanently improve our competitiveness.

All of the measures taken in this context have one thing in common:
We will get faster, more flexible, leaner and more efficient, and seek to achieve
operational excellence in everything we do.

At the same time, we are working on improving our cost structure in order to
match the level of our best competitors. However, it would be shortsighted to look
only at costs. Our focus is on products. In this area we want to achieve even more
- with the more efficient use of our resources. We aim to combine our strengths
within DaimlerChrysler to develop, produce and sell compelling top-quality
products that provide maximum customer benefit. Ultimately, our products will be
the measure of our success. And we are already making progress in this regard.

The Mercedes-Benz brand now has the youngest and most comprehensive
product range in its long history. With the S-, B-, M- and R-Class, Mercedes-Benz
launched four completely new model series in 2005 – more than ever before.

With its new vehicles, the Chrysler Group is increasingly setting itself apart from
its North American competitors in terms of quality, innovation and design.
Last year, it launched the Dodge Charger, the Ram Mega Cab, the Viper Coupe and
the Jeep® Commander, as well as the powerful and sporty SRT vehicles.

Our Commercial Vehicles division profits from its global reach and will continue
to supply vehicles tailored to local markets at competitive prices. Thanks to strong
products – such as the new vehicles of the Axor and Atego families, the new
Mercedes-Benz and Setra buses and the FUSO Canter – we set new records for unit
sales of commercial vehicles in 2005. We are pioneers in the market with our
hybrid drive and BlueTec diesel technology.

In total, we will launch approximately 50 new vehicles in the years 2005 through
2008. To do this, we will invest nearly €35 billion in the next three years. This will
be the foundation for our future success.

Our Annual Report motto is “Driven by Values”. Top performance, responsibility
and open-mindedness are the principles behind our actions. We place a top
priority on adherence to ethical principles. We intend to live these values –
internally and externally - enabling our customers to experience “driving values”
with our products.

I have great confidence in our company. DaimlerChrysler undoubtedly has the
potential to create sustainable value for you, our shareholders, and concurrently
for our customers, our employees and society in general. My colleagues and
I will make every effort to ensure that we realize this potential.

I cordially invite you to join us on this path forward.

Yours sincerely,

Dieter Zetsche

Board of Management

Jürgen E. Schrempp | 61
Chairman of the Board of Management until December 31, 2005

Dieter Zetsche | 52
Chairman of the Board of Management /
Head of Mercedes Car Group | Appointed until 2010

Thomas W. LaSorda | 51
Chrysler Group | Appointed until 2007

Andreas Renschler | 47
Truck Group | Appointed until 2007

Bodo Uebber | 46
Finance & Controlling / Financial Services | Appointed until 2011

Thomas Weber | 51
Group Research & Mercedes Car Group Development | Appointed until 2010

Günther Fleig | 57
Human Resources & Labor Relations Director | Appointed until 2009

Rüdiger Grube | 54
Corporate Development | Appointed until 2007

Eric R. Ridenour | 47
Chief Operating Officer (COO) Chrysler Group | Appointed until 2008

Thomas W. Sidlik | 56
Global Procurement & Supply | Appointed until 2008

Retired from the Board of Management:

Jürgen E. Schrempp | 61
retired on December 31, 2005

Eckhard Cordes | 55
retired on August 31, 2005

Jürgen Hubbert | 66
retired on April 6, 2005

Important Events in 2005

Two world premieres in
Detroit. At the North American
International Auto Show, the
Mercedes Car Group presents
the new M-Class and the
Chrysler Group presents the
new Dodge Charger.

New Van Technology Center
(VTC) opened. A total of
1,000 jobs from the Stuttgart
region are brought together at
the new VTC. The VTC will
enable the Vans business unit
to further enhance its quality
and efficiency, thus creating
the right conditions for global
growth.

january

february

march

april

may

july

Mercedes Car Group starts
CORE program. The Merce-
des Car Group initiates a com-
prehensive program to improve
efficiency and increase earn-
ings. As a result of the CORE
program, the Mercedes Car
Group intends to achieve a
return on sales of 7% by 2007.

World premiere of Mercedes-
Benz R-Class in New York.
The grand sports tourer is a
combination of well-known
vehicle categories such as
sporty sedan, station wagon,
van and sport utility vehicle
(SUV), creating a new, unique
profile.

Presentation of new busi-
ness model for smart brand.
The new business model aims
to reduce fixed costs while
increasing productivity.

Successful maiden flight of
Airbus A380. The successful
first flight on April 27, 2005
of the world’s biggest passen-
ger aircraft, the Airbus A380,
is a milestone in the history of
civil aviation.

Supervisory Board decides
on changes to top manage-
ment. Dr. Dieter Zetsche
becomes Chairman of the Board
of Management of Daimler-
Chrysler AG as of January 1,
2006.

Chrysler Group improves
productivity. The highly
respected Harbour Report
North America shows that the
Chrysler Group increased
productivity by 4.2% in 2004.
Over the last three years, the
Chrysler Group has improved
its manufacturing productivity
by an industry-leading 19%.

Pioneering innovations at the
Commercial Vehicles Show in
Amsterdam. Amongst others
BlueTec diesel technology
for the Atego and Axor truck
series and the new hybrid-drive
Canter light truck are presented
for the first time.

DaimlerChrysler obtains
largest order for hybrid bus-
es. DaimlerChrysler Commer-
cial Buses North America
receives an order to supply
500 Orion VII buses with hybrid
drive to the New York transport
authorities. This is the world’s
biggest order for hybrid buses
to date.

Financial Services starts
financing company in
China. DaimlerChrysler Auto-
motive Finance (China)
Ldt. starts business providing
financing for passenger cars
and commercial vehicles,
including insurance and dealer
financing.

One year of reliable opera-
tions for Toll Collect. Toll
Collect’s electronic toll system
for trucks over 12 metric tons
has been running smoothly since
starting on January 1, 2005.
Its functions are expanded with
the new On-Board-Unit 2 soft-
ware on January 1, 2006.

september

october

november

december

New factory for World
Engine. In Dundee, Michigan,
series production starts of
the World Engine, developed
together with partners Mit-
subishi Motors and Hyundai
Motor. This new 4-cylinder
gasoline engine will benefit from
substantial economies of scale.

DaimlerChrysler sells
shareholding in Mitsubishi
Motors. DaimlerChrysler sells
its shareholding in MMC for
€970 million. The alliance
projects with MMC are to be
continued.

Sale of DaimlerChrysler Off-
Highway business unit to
EQT. As part of the strategic
focus on the core business,
DaimlerChrysler sells its busi-
ness unit that produces large
diesel engines. The transaction
is to be closed during 2006.

World premiere of new
S-Class at Frankfurt Motor
Show. The new S-Class is
fitted with around a dozen pio-
neering innovations to offer
the highest levels of automotive
safety and comfort.

Board of Management de-
cides on staff reductions at
the Mercedes Car Group.
The Board of Management
approves a package of mea-
sures with the goal of reducing
the Mercedes Car Group’s
workforce in Germany by
8,500 jobs.

DaimlerChrysler Shares

Positive development of international stock markets | Significant gains for

DaimlerChrysler’s share price | Some 70,000 shareholders use our Personal

Internet Service

Development of DaimlerChrysler Shares
and Important Indices

End of
2005

End of
2004

05/04
% change

DaimlerChrysler shares (in €)

43.14

35.26

DAX 30

Dow Jones Euro Stoxx 50

Dow Jones Industrial Average

Nikkei

Dow Jones Stoxx Auto Index

S&P Automobiles Industry Index

5,408

3,579

10,718

16,111

231

4,256

2,951

10,783

11,489

193

159

+22

+27

+21

-1

+40

+20

-41

Stock Exchange Data of DaimlerChrysler Shares

International securities identification number

DE0007100000

German securities identification number

CUSIP

Stock-exchange abbreviation

Reuters ticker symbol

Bloomberg ticker symbol

710000

D1668R123

DCX

DCXGn.DE, DCX.N

DCX:GR

Upward trend for international stock exchanges. European
and Asian stock exchanges climbed significantly during the
year 2005. However, the US indices Dow Jones, Nasdaq and S&P
500 did not rise sharply until the end of the year, following a
weaker phase. In general, markets profited from distinctly stron-
ger buyer interest – a result of continuing solid economic
growth in the United States and Asia, and also in some Europe-
an countries. The moderate level of interest rates and the
significant appreciation of the US dollar against the euro and
the yen also had a positive impact in 2005. The gains made
by German stocks were partially a result of their still relatively
low levels compared internationally. On the other hand, the
development of stock prices in the automotive sector was nega-
tively affected by the high prices of raw materials, especially
oil – in New York the price of crude oil climbed from about US $40
to US $61 per barrel during the year. As a result of the hurri-
canes in the Gulf of Mexico and the Southern states of the USA,
the oil price was actually around US $70 per barrel for a while.

In this situation, automobile manufacturers’ share prices deve-
loped very differently: US producers’ stocks fell significantly
due to the increasingly intense competition in the United States,
falling profits and repeated downgrading by the rating agencies.
On the other hand, the stocks of European and Asian automa-
kers rose, in some cases quite significantly. This was also reflec-
ted by the development of the auto indices: in the year 2005,
the US index S&P Automobiles Industry fell by 41%, while the Euro-
pean Dow Jones Stoxx Auto Index rose by 20%.

Positive development of DaimlerChrysler’s share price. At
the beginning of last year, DaimlerChrysler’s share price did
not continue its strong climb of the end of 2004. This was parti-
ally due to significant increases in raw-material prices, overall
higher customer incentives in the US car market and rising inte-
rest rates in the United States. Many investors were afraid that
the Chrysler Group would no longer be able to generate sustai-

DaimlerChrysler Share Price (high/low)

Share Price Index

(in €)

45.00

42.50

40.00

37.50

35.00

32.50

30.00

DaimlerChrysler

Dow Jones STOXX Auto Index

DAX

140

130

120

110

100

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Dec 30
2004

Feb 28
2005

April 29
2005

June 30
2005

Aug 31
2005

Oct 31
2005

Dec 30
2005

Significantly higher free float. DaimlerChrysler has a broad
shareholder base of approximately 1.5 million shareholders.
At the end of 2005, the biggest shareholder was the Kuwait In-
vestment Authority with a holding of 7.2%. In total, institutional
investors held 70.4% of our equity and private investors held
22.4%. Around 74% of our capital stock was in the hands of Euro-
pean investors and around 17% was held by US investors.

Deutsche Bank reduced its shareholding in DaimlerChrysler
during 2004, at first from 10.4% to 6.9% in July, and then
from 6.9% to 4.4% in November. As this holding is no longer
regarded as a strategic investment, compared with the prior
year, the free float increased by 10.4 percentage points to 92.8%.
The weighting of DaimlerChrysler shares in various indices
therefore rose.

In the German DAX 30 index, DaimlerChrysler’s shares were
ranked in fifth position at the end of 2005 with a weighting of
7.0%. In the Dow Jones Euro Stoxx 50 index, our stock was
represented with a weighting of 2.2%. Global trading volume in
DCX amounted to around 1.7 billion shares in 2005 (2004:
1.5 billion), of which about 111 million were traded in the United
States (2004: 123 million) and 1,577 million in Germany (2004:
1,336 million).

ned positive earnings in this environment. Another factor was
the weakness of the Mercedes Car Group in terms of profitability.
Pressure to sell DCX was predominant, particularly in April,
with the result that our stock was at a low for the year of €29.78
at the end of that month. Although our profits for the first
quarter exceeded market expectations, the share price did not
benefit due to the weakening stock-market sentiment at that
time.

A significant upward trend started in May, and accelerated follo-
wing the announcement of the figures for the second quarter
and the change in the management decided upon by the Super-
visory Board. The share price benefited not only from an impro-
ved stock-market environment, but also from the growing
confidence that the CORE efficiency-improving program at the
Mercedes Car Group would be successfully implemented and
that business was developing positively in the Commercial Vehi-
cles and Financial Services divisions. The equity market also
honored the fact that the Chrysler Group achieved appropriate
earnings in a difficult environment. Although Deutsche Bank
placed 35 million DaimlerChrysler shares with institutional invest-
ors at the end of July, the upward trend continued during the
summer months: our share price gained approximately 50% from
May until the end of September. On September 28, it reached
a high for the year of €45.92 (US $55.15), followed by increased
profit taking. Another negative factor was the growing fear of
inflation and a difficult car market in the United States. After this
weaker phase, the share price at first climbed more signifi-
cantly in November, but came under pressure once again at the
end of that month due to the sale of another 25 million shares
by Deutsche Bank. Distinctly firmer stock markets, reductions in
raw-material prices and a considerably stronger US dollar had
a positive impact in December. The closing price at the end of
2005 was €43.14 in Frankfurt (Xetra) and US $51.03 in New
York. The generally positive development of DaimlerChrysler’s
share price continued at the beginning of 2006.

Statistics

End of
2005

End of
2004

05/04
% change

+23

-12

Capital stock (in millions of €)

Number of shares (in millions)

2,647

1,018.2

2,633

1,012.8

Market capitalization (in billions of €)

Number of shareholders (in millions)

Weighting in share indices

DAX 30

Dow Jones Euro Stoxx 50

Long-term credit ratings

Standard & Poor’s

Moody’s

Fitch

Dominion Bond

43.9

1.5

7.0%

2.2%

BBB

BBB+

A-

35.7

1.7

6.4%

1.9%

BBB

BBB +

A –

Statistics per Share

2005
€

2004
€

05/04
% change

Net income (basic)

Net income (diluted)

Dividend

Stockholders’ equity (Dec. 31)

Share price: year-end

high

low

1 Frankfurt Stock Exchange

2.80

1.50

35.80

43.14 1

45.92 1

29.78 1

2.43

1.50

33.10

35.26 1

39.41 1

31.63 1

+15

+22

+17

-6

Extensive Investor Relations activities. As in the prior year,
the Investor Relations department provided timely information on
the company to analysts, institutional investors, rating agencies
and private shareholders.

Our communication activities for institutional investors and
analysts included roadshows in the major financial centers of
Europe, North America and Asia, as well as a large number
of one-on-one meetings in Stuttgart and Auburn Hills. We also
carried out presentations of the company at the international
motor shows in Detroit, Frankfurt, Geneva and Tokyo. We provi-
ded information to the capital market on our quarterly results
and important changes at the company by means of conference
calls, which were simultaneously transmitted on the Internet.
The key areas of capital-market communication included the
Group’s current development, the outlook for full-year 2005,
the positioning of the divisions in their respective competitive
environments and the strategic orientation of the Group.

Expanded Investor Relations information service on the
Internet. As a part of DaimlerChrysler’s corporate website,
the Investor Relations section at www.daimlerchrysler.com/
investor was accessed more than 40,000 times a month
last year, equivalent to around 1,300 visitors each day. 42%
of visitors accessed the German version, while 58% accessed
the pages in English.

We continued expanding our Internet information service for
shareholders in 2005. For example, via DaimlerChrysler’s
IR section, users are able to access the reports, analyses and
profit estimates that are published on external finance web-
sites by investment companies and financial analysts. At the end
of the year, detailed information on bonds was included in our
Internet service.

Shareholder Structure as of Dec. 31, 2005

By type of shareholder

Kuwait Investment Authority

Institutional investors

Retail investors

7.2%

70.4%

22.4%

By region

Germany

Europe excluding Germany

USA

Rest of the world

47.5%

26.7%

16.5%

9.3%

The Personal Internet Service is also available to the sharehol-
ders with additional attractive functions outside the period of
the Annual Meeting, acting as an additional platform for electronic
communication by Investor Relations. For example, it allows
personal data in the share register to be viewed and processed
online. In addition, shareholders can gain information on the
company in electronic form even more effectively than before.

Access to the Personal Internet Service and further information
on it can be found at https://register.daimlerchrysler.com.

Strong visitor interest in the Annual Meeting. More than 8,400
shareholders attended the Annual Meeting of DaimlerChrysler
AG held at the International Congress Center (ICC) in Berlin on
April 6, 2005. Approximately 38% of the equity capital was
represented at the Annual Meeting. In the voting on the nine items
on the agenda, the Annual Meeting adopted the recommenda-
tions of the management with large majorities. More than 40
shareholder spokespersons asked a total of nearly 350 questions
at the Annual Meeting, which were answered by the Board of
Management and the Supervisory Board. In addition, Daimler-
Chrysler’s shareholder service replied by telephone or e-mail
to some 5,000 inquiries on the Annual Meeting and other issues
connected with our stock.

Shareholders go online. Our electronic information and com-
munication service, which we are continually expanding and
improving for our shareholders, is becoming increasingly popular:
• The number of shareholders registered in DaimlerChrysler’s
Personal Internet Service increased by 40% to some 70,000
in the year 2005.

• For the first time, 35,000 shareholders received their invita-
tions to the 2005 Annual Meeting by e-mail instead of by
post.

• A quarter of the entrance tickets for the Annual Meeting were

ordered online.

• 14,000 shareholders took advantage of the possibility

to exercise their voting rights at the Annual Meeting via
the Internet.

• And around 50,000 shareholders have already decided

to have their documents for the 2006 Annual Meeting sent
by e-mail.

As a part of our comprehensive approach, DaimlerChrysler’s
Personal Internet Service provides support to the shareholders
on all aspects of the Annual Meeting. In this way, we make it
easier for our shareholders to exercise their voting rights, cut
costs and protect the environment by reducing the use of paper.

Management Report

Business developments at DaimlerChrysler in the year 2005 were

generally satisfactory in view of the difficult market conditions.

Revenues and unit sales increased again. We achieved the earnings

target we had set for the Group – despite the substantial burdens

of restructuring expenses, significant increases in material and oil

prices, and less favorable euro/US dollar hedging rates than in

the prior year. In order to improve the Group’s profitability over the

long term, during the year under review we implemented measures

designed to increase efficiency in all divisions. The Mercedes Car

Group is to be returned to a path of sustainable competitiveness

and profitability as a result of the CORE program. We consistently

continued our strategy of focusing on our core competencies by

disposing of operations that are not part of our core business.

Contents

30 Business and Strategy

55 Capital Expenditure

• The company
• New management model
• Strategy
• Economy and the industry
• Business developments

37 Profitability

• Statements of income
• Dividend
• Operating profit
• Performance measures
• Return on net assets and

value added

47 Liquidity and Capital Resources

• Principles and objectives of
financial management

• Cash flow
• Refinancing
• Ratings

53 Financial Position

55 Research and Development

56 Procurement and Supply

56 Workforce

57 Events after the End of the

2005 Financial Year

58 Risk Report

• Risk management system
• Economic risks
• Industry and business risks
• Finance market risks
• Legal risks
• Overall risks

64 Outlook

• The world economy
• Automotive markets
• Unit sales
• Revenues and earnings
• Capital expenditure
• Research and development
• Workforce

Business and Strategy

The company

DaimlerChrysler AG was formed in November 1998 as a result
of the merger between Daimler-Benz AG and Chrysler Cor-
poration. The Group can look back on a tradition of more than
one hundred years, featuring pioneering achievements in
automotive engineering by both of its predecessor companies.
Today, DaimlerChrysler is a leading supplier of superior pas-
senger cars, sport-utility vehicles, sports tourers, minivans and
pick-ups, and the world’s largest manufacturer of commercial
vehicles. In addition, DaimlerChrysler holds a 33% interest in the
European Aeronautic Defence and Space Company (EADS),
one of the world’s leading companies in the field of aerospace
and defense technology.

With its strong brands and a comprehensive portfolio of automo-
biles ranging from small cars to heavy trucks, supplemented
by tailored services along the automotive value chain, Daimler-
Chrysler is active in nearly all of the world’s markets. The
Group has production facilities in a total of 20 countries. The
worldwide networking of research and development activities
and of production and sales locations gives DaimlerChrysler
considerable potential to enhance efficiency and gain advan-
tages in an internationally competitive environment.

Of DaimlerChrysler’s total revenues of €149.8 billion in the year
2005, 31% was generated by the Mercedes Car Group, 33% by
the Chrysler Group, 26% by Commercial Vehicles, 9% by Finan-
cial Services and 1% by Other Activities.

At the end of 2005, DaimlerChrysler employed more than
382,700 people worldwide.

The products supplied by the Mercedes Car Group range from
the high-quality small cars of the smart brand to the premium
vehicles of the brands Mercedes-Benz, Mercedes-Benz AMG and
Mercedes-Benz McLaren, and the Maybach luxury sedans.
Most of these vehicles are produced in Germany, but the division
also has production facilities in the United States, France, South
Africa, Brazil, India, Malaysia, Thailand, Vietnam and Indonesia.

Future production facilities will also include China. The Group’s
most important markets in 2005 were Germany with 29% of
unit sales, the other markets of Western Europe (35%), the United
States (19%) and Japan (4%).

The Chrysler Group develops, produces and distributes pas-
senger cars, sports tourers, minivans, sport-utility vehicles and
light trucks under the Chrysler, Jeep® and Dodge brands. In
addition, the Chrysler Group manufactures and markets spare
parts and accessories for the MOPAR brand. Most of its pro-
duction facilities are in the United States, Canada and Mexico.
In 2005, 82% of its vehicles were sold in the United States,
8% in Canada and 4% in Mexico. 6% of its vehicles were expor-
ted to markets outside the NAFTA region.

Within a worldwide network, DaimlerChrysler’s Commercial
Vehicles division develops and produces trucks, vans and
buses under the brands Mercedes-Benz, Freightliner, Sterling,
Western Star, FUSO, Setra, Thomas Built Buses and Orion.
The product range covers small vans, medium and heavy-duty
trucks for local and long-distance deliveries and for con-
struction sites, as well as tourist, urban and overland buses.
It also supplies vehicles for special applications and the
Unimog multi-function vehicle. The division’s most important
sales markets are the United States, with 22% of unit sales
in 2005, Germany (13%), the other markets of Western Europe
(20%), Asia (22%) and South America (7%).

The Financial Services division supports the unit sales of the
DaimlerChrysler Group’s automotive brands in 39 countries.
Its product portfolio mainly comprises tailored financing and lea-
sing packages for dealers and customers, but it also provides
services such as insurance and fleet management. The focus of
Financial Services’ activities is in North America and Western
Europe. In Germany, in addition to automotive financial services,
the division’s product portfolio also includes investment pro-
ducts and credit-card services. DaimlerChrysler Financial Services
also holds a 45% interest in the Toll Collect consortium, which
on January 1, 2005 launched an electronic toll system for trucks
over 12 metric tons on autobahns in Germany.

Consolidated Revenues by Division

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities

31%

33%

26%

DaimlerChrysler – Business Portfolio

(as of March 1, 2006)

Mercedes
Car Group

Chrysler
Group

Truck
Group

Financial
Services

Van, Bus,
Others

Mercedes-Benz
Passenger Cars

Chrysler

Trucks Europe/
Latin America

Americas

EADS (33%)

Jeep

Dodge

smart

Maybach

Trucks NAFTA

Europe, Africa
Asia/Pacific

Vans

FUSO

Buses &
Coaches

The Other Activities segment primarily comprises our 33%
shareholding in the European Aeronautic Defence and Space
Company (EADS). In line with our strategy of focusing on our
core business, in December 2005, we reached an agreement
with the Swedish financial investor EQT covering the sale of
the Off-Highway business unit.

New management model

On January 24, 2006, DaimlerChrysler presented a new manage-
ment model designed to improve the Group’s competitiveness
and promote further profitable growth. The new model will fur-
ther integrate the Group’s functions, focus operations areas
more closely on their core processes, and encourage internal
collaboration. In addition, it will reduce the duplication of
activities.

The structural changes include the consolidation and integration
of all administrative functions, such as Finance and Controlling,
Human Resources and Strategy. These functions will be centra-
lized to report to the responsible Board of Management mem-
ber for each function throughout the Group. The duplication of
activities between the corporate level and the operating level
will be eliminated, thereby reducing complexity within the Group.
The integration of administrative functions will result in shorter,
faster and leaner reporting channels and decision-making.

Within the framework of the new management model, we have
also decided to merge the product development of the Mercedes
Car Group and the Board of Management area of Research &
Technology in the new Board of Management area of Group Re-
search & Mercedes Car Group Development as of March 1,
2006. The new area will take on more responsibility for the pre-
development activities of all the automotive divisions.

Also starting in March 2006, Commercial Vehicles will focus
on its core business of trucks, with the new name of “Truck
Group”; buses and vans will be directly managed as separate
units and will be included in the new Van, Bus, Others seg-
ment in the future. The new structure will create additional
synergies between the truck brands as well as a sharper focus
on customers and the competition. The direct management
of the bus and van operations will facilitate a stronger orien-
tation towards the specific requirements of customers and
markets in these segments. Due to the commonality of power-
trains and components, the Bus unit will report to the head
of the Truck Group and the Van unit will report to the head of
the Mercedes Car Group.

Furthermore, the location of the Group’s headquarters in
Germany will be transferred from Stuttgart-Möhringen to Stutt-
gart-Untertürkheim. The central administrative functions will
therefore be located in Stuttgart-Untertürkheim (Germany) and
Auburn Hills (United States).

With the implementation of the new management model, we
intend to reduce our administrative expenses, which are currently
significantly higher than the industry average, by an annual
€1.5 billion per year. €0.5 billion of this total will be realized by
other efficiency programs already running, like CORE in the
Mercedes Car Group.

In order to achieve the goals of the new management model,
personnel capacities will also have to be adjusted. This will lead
to a total reduction of up to 20% in the number of persons
employed in administrative departments during the years of 2006
through 2008, and 30% in management positions. This is equi-
valent to 6,000 jobs worldwide.

Preparations for implementing the new management model
began immediately after its announcement in January 2006. The
total expenditure incurred for the implementation of the pro-
gram in the years 2006 through 2008 is likely to be in the region
of €2 billion.

Strategy

DaimlerChrysler’s strategy has the goal of increasing corporate
value through profitable growth. We intend to assume a leading
role in the worldwide automotive industry. With regard to the
quality of our products and services, the positioning of our brands
and our profitability, we are striving to achieve a top position in
international competition.

Our strategy is therefore based on the following four pillars:

– Superior Products & Customer Experience: We aim to sup-
ply top-quality products supported by excellent services that
our customers perceive as being superior to the competition.
Some examples are fascinating vehicles such as the new
S-Class, the R-Class and the B-Class from Mercedes-Benz, the
Chrysler 300C, the Dodge Charger, the Actros heavy-duty
truck and the Citaro city bus. Our customers’ excellent respon-
se to these vehicles and the numerous national and interna-
tional awards they have won demonstrate their exceptional
position.

– Leading Brands: We strive to establish clearly positioned

brands with excellent reputations, which complement each
other to form a tremendous product portfolio. Consistent
brand management ensures that the identity of the individual
brands is protected while economies of scale are utilized.

– Innovation & Technology Leadership: We aim to secure the
mobility of tomorrow and set ourselves apart from the com-
petition through innovation and technology leadership. Our
highly qualified research and development engineers create
the technological basis for innovations that set new trends and
offer customers genuine added value. Our innovation leader-

ship is demonstrated by pioneering safety innovations such as
PRESAFE® preventive occupant protection and DISTRONIC
PLUS proximity and cruise control from Mercedes-Benz, Blue-
Tec diesel technology and Active Brake Assist for commercial
vehicles, and the innovative Stow’n Go™ seating and storage
system offered by the Chrysler Group’s minivans. Most of the-
se innovations benefit not just one of the Group’s brands,
but create competitive advantages in worldwide competition
for all of our vehicles.

– Global Presence & Network: We are a strong, globally active
automobile manufacturer with networked operations. This
enables us also to participate in the dynamic growth of the
emerging markets outside North America, Western Europe
and Japan. We intend to achieve a sustained improvement in
our cost position as a result of rising unit sales and our world-
wide network of production plants and research and develop-
ment facilities.

Prerequisites for the achievement of these strategic goals are:

– Operational Excellence: We intend to attain a leading posi-
tion in international competition with regard to operational
excellence. We are therefore creating clear structures, lean
processes and short paths in all areas of the company and
at all stages of the value chain, and are making full use of the
possibilities offered by standardization and modularization.

– High-Performing, Inspired People: The creativity, moti-

vation and commitment of our workforce is the foundation of
our success.

DaimlerChrysler ScoreCard. These six strategy elements are
the essential features of the DaimlerChrysler ScoreCard. In
addition to conventional financial performance measures, we
also use non-financial parameters such as quality statistics,
customer and employee satisfaction, brand image, market share
and productivity developments. These parameters are assessed
at the divisional level with the use of measurable performance
indicators.

The Group’s medium-term and long-term goals are broken down
in the ScoreCard to the respective reporting periods. The goals
are linked with concrete measures for the individual functions
down to the departmental level. These goals are then integrated
into the employees’ personal target agreements.

By means of the DaimlerChrysler ScoreCard, the Board of
Management is informed in a timely and comprehensive manner
about the current position of the Group and its divisions along
the entire value chain. Deviations are recognized at an early sta-
ge and any required corrections are immediately initiated.

The DaimlerChrysler ScoreCard helps us to achieve our goals,
so that we can continue increasing DaimlerChrysler’s corporate
value through profitable growth.

In order to further improve the transparency, measurability and
control of our human resources work worldwide, we are currently
introducing a “Global Human Resources ScoreCard”. The defi-
ned success factors include employee satisfaction and our ima-
ge as an employer, which are also part of the DaimlerChrysler
ScoreCard. In addition, indicators are recorded for the business
units within the “Global Human Resources Score-Card” such
as the staff turnover rate, which was 7.3% worldwide in 2005
(2004: 5.3%). The increase was primarily a result of the measures
taken at the Mercedes Car Group in 2005 for socially accep-
table staff reductions and the efficiency-improving programs at
the other divisions.

Activities in Northeast Asia. Our activities in Northeast Asia
will be at the focus of our regional expansion in the coming
years. In 2005, DaimlerChrysler set up a regional management
organization for Northeast Asia, covering China, Taiwan and
South Korea, in order to expand business operations in this
region more effectively.

We made further progress with the development of Daimler-
Chrysler’s business operations in China last year.

Beijing Benz-DaimlerChrysler Automotive Co. Ltd., a joint ven-
ture between DaimlerChrysler and Beijing Automotive Industry
Holding Company (BAIC), obtained a license to produce the
Mercedes-Benz C-Class and E-Class cars in August 2005. It is
planned to produce 20,000 vehicles annually in China in the
medium term. These models are to be produced at a new plant
in the southeast of Beijing. The existing production in China
of Jeep® sport-utility vehicles is also to be transferred to this
new plant. Furthermore, in 2005, the Chrysler Group made
firm plans to produce the Chrysler 300C in China as well as
minivans in China and Taiwan.

In September 2005, the Chinese banking authorities approved
the establishment of a financing company for passenger cars
and commercial vehicles. As a result, DaimlerChrysler Automo-
tive Finance (China) Ltd. commenced operations already two
months later in November.

By taking these steps, we have created important conditions for
the expansion of our sales in the markets of Northeast Asia.

Economic Growth

Global Automotive Markets

Gross domestic product, growth rate (in %)

2004

2005

Unit sales growth rate
2005/2004 (in %)

Passenger cars

Commercial vehicles

NAFTA

Western Europe

Japan

Asia
excluding Japan

Other markets

Western Europe

Japan

USA 1

South America 1

China

Source: Global Insight

Source: German Association of the
Automotive Industry (VDA)

1 Segment passenger vehicles

including light trucks

Economy and the industry

The world economy. Following strong growth in the year 2004,
the growth of the world economy slowed down last year. This
development was primarily due to the sharp increase in energy
and raw-material prices, rising interest rates and less expan-
sive public-sector spending. Economic developments in North
America, Japan and most of the emerging economies were
comparatively favorable. However, growth rates in Western Euro-
pe failed to meet expectations. Once again, developments in
the euro zone were disappointing, particularly in Germany.
Overall, the global economic imbalance actually increased. The
United States’ trade deficit rose to more than 6% of its gross
domestic product. At the same time, the trade surpluses of
China and the oil-exporting countries increased significantly.
In total, the economies of DaimlerChrysler’s sales markets,
weighted for each country’s share of the Group’s revenues, grew
by 3.0%. Although this was in line with the long-term trend, it
was significantly lower than the strong growth of 3.7% recorded
in the prior year.

During the course of the year, the euro depreciated against
the US dollar by approximately 13%, but much less significantly
against the British pound and the Japanese yen.

Automotive markets. The overall expansion of global automo-
bile markets slowed down slightly in 2005. This was partially
due to the significant increase in the price of oil and the conse-
quential loss of customers’ purchasing power. In this situation,
demand was influenced more than ever by manufacturers’ pro-
duct and price strategies. However, as a result of lively invest-
ment activity, worldwide markets for commercial vehicles expan-
ded again in 2005.

Portfolio changes. In March 2005, DaimlerChrysler and Mitsu-
bishi Motors Corporation (MMC) reached a settlement concer-
ning expenses incurred as a result of quality actions and recall
campaigns at Mitsubishi Fuso Truck and Bus Corporation
(MFTBC). As a part of this settlement, an additional 20% of the
shares in MFTBC were transferred to DaimlerChrysler free of
charge, thus increasing our shareholding in MFTBC to 85%. Fur-
thermore, DaimlerChrysler and MMC agreed on future opera-
tional cooperation between the two companies in various areas.

Effective November 17, 2005, DaimlerChrysler sold its stake in
MMC for €970 million. Our shareholding had fallen during 2005
from 19.7% to 12.4% due to the issue of new shares by MMC.
Existing cooperative projects between DaimlerChrysler and MMC
will not be affected by the sale and will continue unchanged.
The possibility of cooperating on other new projects is also being
investigated.

As a part of the Group’s focus on its core business, debis Air-
Finance, one of Financial Services’ business units, was sold to
Cerberus Capital Management on June 30, 2005.

In September 2005, DaimlerChrysler acquired the minority of
shares in MTU Friedrichshafen GmbH that were still held by
the family shareholders, thus creating the right conditions to
dispose of the Off-Highway business unit. In December 2005,
we reached an agreement with EQT, a Swedish financial investor,
on the sale of the business unit. The transaction includes both
MTU Friedrichshafen GmbH and the off-highway activities of
Detroit Diesel Corporation (DDC). The transfer of ownership is
likely to take place in the first quarter of 2006.

The business portfolio of Commercial Vehicles was also further
rationalized in the context of the “Global Excellence” strategic
initiative. In December 2005, we sold our fire-truck and rescue-
vehicle operations under the brand of American LaFrance to
Patriarch Partners, LLC, a financial investor.

Sales Structure

Mercedes Car Group

S-Class/SL/Maybach

E-Class/CLS

C-Class/CLK/SLK/Sport Coupe

A-Class/B-Class

M-Class/R-Class/G-Class

smart

22%

33%

21%

10%

Chrysler Group

Passenger cars

Light trucks

Sports tourers

Minivans

SUVs

23%

21%

11%

19%

26%

Commercial Vehicles

Trucks

Vans

Buses

62%

33%

Sales of passenger cars and light trucks decreased in the United
States towards the end of 2005 as a result of the repeated
increase in fuel prices and lower sales incentives. However, the
total market reached the previous year’s volume of 16.9 million
vehicles. The market of Western Europe stagnated with total
sales of 14.5 million passenger cars. Growth in Germany and
France was offset by lower demand in Italy and the United
Kingdom. Following a decrease in demand in Japan towards the
end of the year, full-year sales were about the same as in the
prior year. The emerging markets of South America continued
to show strong growth rates. There were differing develop-
ments of unit sales in the markets of Central and Eastern
Europe: Demand in the new EU member states decreased overall
due to the high inflow of used vehicles, whereas the Russian
market continued to expand. Driven by double-digit growth rates
in the Chinese automobile market, the emerging markets of
Asia were once again the main source of growth for the global
automotive industry.

The world’s major markets for commercial vehicles continued
to expand in 2005. In North America, there was another sharp
rise in demand for heavy-duty and medium-duty trucks, and
unit sales also increased in Western Europe due to continuing
strong demand from transport companies. However, rates of
expansion were lower than in the prior year. In Japan, sales of
commercial vehicles revived in the second half of 2005 due
to purchases brought forward as a reaction to new national and
regional emission regulations, leading to a slight increase in
total market volume.

Business developments

Unit sales. DaimlerChrysler sold a total of 4.8 million vehicles
in 2005, surpassing the prior-year figure by 3%. We achieved
new record unit sales for both passenger cars and commercial
vehicles.

Unit sales by the Mercedes Car Group of 1.2 million vehicles
were similar to the level of 2004. The Mercedes-Benz brand
launched the S-Class and M-Class successor models in 2005,
as well as opening up a new market segment with its new
B-Class and R-Class sports tourers. In addition, the range of
gasoline and diesel engines was enhanced with a new gene-
ration of V6 and V8 engines. Building on the success of these
new products, the Mercedes-Benz brand’s business revived
significantly in the second half of the year. Unit sales by Mer-
cedes-Benz Passenger Cars therefore increased by 2% to
1,092,500 vehicles despite somewhat difficult market conditions.
In the year under review, 124,300 smart branded cars were
shipped to dealers (2004: 152,100); retail sales totaled 143,100
units (2004: 139,600). The brand thus slightly improved its
position in a significantly declining market for small cars (see
pages 72 ff).

The Chrysler Group continued its product offensive in 2005
with all-new models such as the Dodge Charger, the Jeep® Com-
mander and the new Dodge Ram Mega Cab pickup. Unit sales
increased by 1% to 2.8 million vehicles of the Chrysler, Jeep® and
Dodge brands. In an extremely competitive US market, retail
sales increased by 4% to 2.3 million vehicles. The Chrysler 300/
300C, the Dodge Magnum, the Jeep® Grand Cherokee and
the Chrysler and Dodge minivans with their innovative Stow’n
Go™ seating and storage system all continued their positive
sales trends. The Chrysler Group improved its position in the US
market in the segments of passenger cars and sports tourers
as well as minivans and sport-utility vehicles. Market share in the
Unites States increased from 12.8% to 13.2% (see pages 76 ff).

Consolidated Revenues

(in billions of €)

Western Europe

USA

Other markets

175

150

125

100

2001

2002

2003

2004

2005

The Commercial Vehicles division continued its very positive
development of the prior year, increasing unit sales by 16% to a
new record of 824,900 trucks, vans and buses. This was prima-
rily a result of the division’s attractive product range, in addition
to ongoing favorable market conditions. Growth in the Trucks
business segment was particularly strong (+ 25% to 509,300 vehi-
cles). Sales of vans (+ 2% to 267,200 units) and buses (+ 10%
to 36,200 units) also increased. The FUSO business unit contri-
buted 178,900 vehicles to the Truck business segment’s unit
sales in 2005. Due to the date of its first-time consolidation,
FUSO’s unit sales were only included for eight months of the
prior year (118,100 vehicles) (see pages 80 ff).

The Financial Services division developed very positively in all
of its regions in 2005. Contract volume increased by 15% to
€117.7 billion; adjusted for the effects of currency translation,
the increase amounted to 3%. At the end of 2005, the worldwide
portfolio comprised 6.4 million leased and financed vehicles.
New business decreased from €50.9 billion to €48.2 billion, lar-
gely due to the above-average volume of special-financing pro-
grams in 2004 (see pages 84 f).

Revenues. DaimlerChrysler’s total revenues increased by 5% to
€149.8 billion in 2005. After a weaker first half, the Mercedes
Car Group’s revenues for the full year slightly exceeded the level
of the prior year as a result of the market success of the new
models launched during 2005. The Chrysler Group’s revenues
increased due to higher unit sales by 1% to €50.1 billion. The
Commercial Vehicles division increased its revenues by 17% to
€40.6 billion. This was due to the positive sales development,
as well as the consolidation for the full year of the FUSO busi-
ness unit, which had only been consolidated for eight months in
2004. Without the FUSO business unit, there would have been
an increase of 13%. The Financial Services division contributed
€15.4 billion to the Group’s total revenues (2004: €13.9 billion).
The revenues of €2.1 billion generated by the DaimlerChrysler
Off-Highway business unit, which is included in the Other Activi-
ties segment, were 18% higher than in the prior year.

In regional terms, DaimlerChrysler’s revenues in the NAFTA
region increased by 6% to €77.6 billion, while revenues of €47.3
billion in Western Europe were slightly lower than in 2004
(-3%). In the rest of the world, we expanded our business volu-
me by 24% to €24.8 billion.

Revenues

In millions of €

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities

2005

2004

05/04

% change

149,776

142,059

50,015

50,118

40,634

15,439

2,396

49,630

49,498

34,764

13,939

2,200

+17

+11

Profitability

Research and development expenses amounted to €5.6
billion in 2005 compared to €5.7 billion in 2004. Research and
development expenses as a percentage of revenues were 3.8%
in 2005 compared to 4.0% in 2004.

Other income was €1.0 billion in 2005 and €0.9 billion in 2004.
In 2005, other income included a gain of €0.2 billion from the
sale of Chrysler Group’s Arizona Proving Grounds vehicle testing
facility. The prior-year figure included a gain of €0.1 billion from
the settlement of the dispute with Bombardier relating to the sale
of DaimlerChrysler Rail Systems GmbH (Adtranz).

Financial income for 2005 was €0.2 billion, compared with a
financial loss of €1.1 billion in 2004. The distinct improvement
was primarily a result of the €1.5 billion improvement in the
income from investments.

Income from investments for the year under review includes a gain
of €0.7 billion realized on the sale of the shares in Mitsubishi
Motors Corporation (MMC). There was an additional positive effect
on income from investments from the substantially improved per-
formances of Toll Collect and EADS, whereas the result for the
prior year was significantly worsened by the Group’s investment in
MMC: the total loss contributed by MMC amounted to €0.6 bil-
lion. The disposal of the Group’s 10.5% equity interest in Hyundai
Motor Company (HMC) resulted in a gain of €0.3 billion in 2004.

Statements of income

The Group’s revenues increased by 5% from €142.1 billion in
2004 to €149.8 billion in 2005.

In 2005, cost of sales was €122.9 billion compared to €114.6
billion in 2004, a 7% increase. The increase in cost of sales was
largely proportionate to the increase in revenues. In addition,
gross margin decreased from 19.4% in 2004 to 17.9% in 2005,
mainly as a result of expenses incurred in connection with the
realignment of the smart business model (€0.8 billion) and
the headcount reduction program at the Mercedes Car Group
(€0.5 billion).

Selling expenses were €12.0 billion in 2005 compared to €11.4
billion in 2004, a 5% increase. The increase in selling expenses
primarily reflects the fact that Mitsubishi Fuso Truck and Bus Cor-
poration (MFTBC) was included in the Group’s consolidated
results for twelve months in 2005 and for only eight months during
2004. It is also due to additional expenses relating to both the
realignment of the smart business model (€0.1 billion) and the
headcount reduction program at Mercedes Car Group (€0.1 billion).
Selling expenses as a percentage of revenues were 8% in each
of 2005 and 2004.

General administrative expenses reached €6.1 billion in 2005
compared to €6.0 billion in 2004, a 1% increase. Changes in
the scope of consolidation (primarily MFTBC) and increased legal
and other consulting costs were the primary drivers for the
increase. General administrative expenses as a percentage of
revenues were 4.1% in 2005, a slight decrease compared to
4.2% in 2004.

Other expenses were €0.9 billion in 2005 and €0.6 billion in
2004. This increase was primarily due to €0.2 billion in expenses
related to the realignment of the smart business model.

Development of Earnings

(in billions of €)

Dividend per Share

(in €)

Operating profit

Net income

7.5

6.0

4.5

3.0

1.5

1.50

1.00

0.50

2001

2002

2003

2004

2005

2001

2002

2003

2004

2005

The net interest expense of €0.6 billion was €0.3 billion higher
than in the prior year, primarily due to unrealized losses from
the mark-to-market valuation of derivative financial instruments
that did not qualify for hedge accounting treatment.

The DaimlerChrysler Group recorded net income of €2.8
billion in 2005, compared with €2.5 billion in the prior
year. Based on the reported net income, earnings per share
amounted to €2.80, compared with €2.43 in 2004.

The other financial loss amounted to €0.1 billion (2004: €0.2
billion). In 2005, charges were recognized relating to the valua-
tion of derivative hedging transactions, partially offset by increa-
sed income from the sale of securities. In addition, the other
financial loss was negatively impacted in the prior year particu-
larly by the write-down of loan receivables due from debis Air-
Finance.

Unlike operating profit, which decreased primarily due to substan-
tial expenses from the realignment of smart and the headcount
reduction initiative at Mercedes-Benz Passenger Cars, net income
for the year increased by 15%. This increase was partially influ-
enced by the result of our shareholding in MMC. In 2005, the sale
of MMC shares resulted in a net gain of €0.5 billion, whereas the
year 2004 was impacted by non-operating expenses of €0.6 billion.

Dividend

The Board of Management and the Supervisory Board will re-
commend the distribution of €1,527 million of unappropriated
profits of DaimlerChrysler AG or €1.50 per share to the share-
holders for their approval at the Annual Meeting to be held on
April 12, 2006. The proposed dividend takes account not only
of the development of operating profit and cash flow in 2005,
but also of our expectations for the coming years.

A dividend of €1,519 million or €1.50 per share was distributed
in 2004.

The income tax expense amounted to €0.5 billion in 2005
(2004: €1.2 billion). Related to income before income taxes of
€3.4 billion (2004: €3.5 billion), the effective tax rate was 14.9%,
compared with 33.3% in the prior year. The effective tax rate was
reduced in both years by profit contributions from EADS, which
are mainly exempt from income tax, and by tax-free gains inclu-
ded in net periodic pension costs and net postretirement benefit
costs.

The comparatively low effective tax rate in 2005 primarily reflec-
ted the composition of the Group’s pre-tax earnings, which
included largely tax-free income from the settlement agreement
associated with our investment in MFTBC, the sale of Daimler-
Chrysler’s shares in MMC, and the sale of other securities.
Opposing effects resulted primarily from tax expenses arising
due to the distribution of earnings, which had previously been
retained, by non-US companies to their parent company in the
United States.

In 2004, the effective tax rate was additionally reduced by the
tax-free gain realized on the sale of the Group’s 10.5% share-
holding in HMC. Opposing effects resulted primarily from non-
tax-deductible losses arising from our investments in MMC
and debis AirFinance.

Additional information on income taxes can be found in Note 9
of the Notes to the Consolidated Financial Statements.

Operating profit

Operating Profit (Loss) by Segment

2005

2004

05/04

Amounts in millions of €

% change

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities

Eliminations

DaimlerChrysler Group

(505)

1,534

2,093

1,468

591

5,185

1,666

1,427

1,332

1,250

456

(377)

5,754

+57

+17

+30

-10

DaimlerChrysler posted an operating profit of €5,185 million in
2005, compared with €5,754 million in the prior year. Exclu-
ding charges relating to the realignment of the smart business
model (€1,111 million), there was an increase in the Group’s
operating profit.

Higher prices for materials and crude oil affected operating
results in all of the industrial divisions. In addition, less favorable
euro-dollar hedging conditions than in 2004 burdened ear-
nings at the Mercedes Car Group and the Commercial Vehicles
Division.

At the Mercedes Car Group, the measures taken to improve
efficiency as a part of the CORE program had a positive impact
on operating results during the course of the year; nonetheless,
earnings for the full year were negative. The worsened profi-
tability was primarily due to charges relating to the realignment
of the smart business model and the costs of the headcount re-
duction program at the Mercedes Car Group. In a difficult market
environment, the Chrysler Group achieved an increase in unit
sales and a higher operating profit than in 2004. The Commer-
cial Vehicles Division also developed positively in 2005; ope-
rating profit increased primarily as a result of the continued very

positive development of unit sales in all business units. Finan-
cial Services improved its operating profit, mainly due to signifi-
cantly lower charges from the involvement in Toll Collect. Other
Activities’ operating profit exceeded the prior year’s result.

The Mercedes Car Group posted an operating loss of €505
million for 2005, compared with an operating profit of €1,666
million in the prior year. Charges on earnings totaling €1,111
million arose in connection with the realignment of the smart
business model. These were primarily due to compensation
payments to dealers and suppliers, impairments recognized on
production facilities, risk provisions for contractual commit-
ments and the write-down of vehicle inventories. In addition, ex-
penses of €570 million were incurred relating to the headcount
reduction program at Mercedes-Benz Passenger Cars, for both
voluntary severance agreements and early retirements, which
had been accepted by approximately 5,000 employees by the
end of 2005. The operating result was negatively impacted
by the continuation of measures initiated within the framework
of the quality improving program.

Further charges in the operational business resulted from less
favorable currency-hedging rates than in the prior year (particu-
larly for the US dollar), a less favorable model mix and higher
raw-material prices. The model mix was negatively impacted by
the S-Class model changeover in the fall and by volume growth
in the low-margin segments of the A-Class and the B-Class. There
were positive effects on earnings from the 2% increase in unit
sales by the Mercedes-Benz brand overall; in total, the division’s
unit sales were at the same level as in the prior year, despite
lower sales by smart.

The Commercial Vehicles division continued its positive
development of the prior year and increased its operating profit
from €1,332 million to €2,093 million.

The increase in earnings was due primarily to the positive deve-
lopment of unit sales in all business units, especially the inter-
national market success of the products of the Trucks business
segment, as well as the efficiency improvements achieved
by implementing the “Global Excellence” program. In total, unit
sales increased by 16% to 824,900 trucks, vans and buses
in 2005. The operating profit achieved in the year 2005 includes
exceptional income of €276 million from the settlement
reached with MMC relating to charges for quality actions and recall
campaigns at MFTBC. In addition, impairments of €87 million
were recognized relating to the sale of all the major parts of the
US subsidiary American LaFrance.

Substantial charges from price increases for raw materials,
especially the sustained high price of steel, and negative currency
effects were more than offset.

Prior-year earnings were impacted by charges of €475 million
arising at MFTBC. On the other hand, there was income of €60
million from the termination of the engine joint venture with HMC.

The efficiency-enhancing measures taken as a part of the CORE
program led to a constant improvement in operating results
during the year. As a result of the positive verdict by the Euro-
pean Court in the case concerning the alleged infringement
of EU competition rules, a provision of €60 million that had been
accrued for this purpose was released with a corresponding
effect on earnings.

Although market conditions remained difficult in North America,
the Chrysler Group posted an operating profit of €1,534
million in 2005, compared with an operating profit of €1,427
million in the prior year.

Positive effects on 2005 operating profit include an increase
in worldwide factory unit sales, a €240 million gain on the sale of
the Arizona Proving Grounds vehicle testing facility and a decre-
ase in turnaround plan charges and charges for workforce re-
duction actions, as well as lower tooling amortization expense
of €105 million. These effects were partially offset by negative
net pricing, shifts in market mix, charges of €99 million related
to financial support provided to supplier Collins & Aikman and
contractual penalty and asset impairment charges of €107 million
primarily as a result of a decision to reduce contractual purcha-
se volumes of the Chrysler Crossfire.

The Chrysler Group’s 2004 operating profit was negatively im-
pacted by restructuring charges totaling €283 million, incurred
in connection with the turnaround plan and other workforce
reduction charges and was favorably impacted by an adjustment
of €95 million to correct the calculation of an advertising accrual.
In 2005, income of €36 million was recorded as a result of
adjustments to prior estimates associated with the turnaround
plan.

The segment’s prior-year earnings were affected by a series of
special items. The agreement reached with Bombardier to settle
all disputes relating to the sale of DaimlerChrysler Rail Systems
GmbH (Adtranz) resulted in income of €120 million. An impair-
ment of €70 million was recognized on the value of the invest-
ment of DASA AG in debis AirFinance, and MMC contributed an
operating loss of €27 million.

Eliminations with an effect on the income statement resulted
primarily from the leasing business in Germany and the in-
crease in inventory financing of European dealers. Any gains
or losses arising from vehicle deliveries between the divi-
sions have no effect at the Group level and have therefore been
eliminated.

In the past financial year, the operating profit posted by
Financial Services improved by 17% to €1,468 million.

The earnings development in 2005 was a result of increased
revenues generated by attractive financial services products, the
positive development of risk costs and improved efficiency.
There was a negative impact from higher interest rates, parti-
cularly in the United States.

The increase also reflects lower charges from the division’s
involvement in Toll Collect (€54 million versus €472 million in
2004). This reduction is related to startup losses in 2004 and
the successful start of the system on January 1, 2005.

In addition, prior-year earnings were negatively affected by
an impairment recognized on the investment in debis AirFinance
(€102 million). This investment was sold in 2005 within the
context of the strategic focus on automotive financial services.

The Other Activities segment increased its operating profit by
€135 million to €591 million in 2005.

The improved performance was primarily due to the significantly
increased profit contribution from EADS resulting from higher
Airbus deliveries and stronger earnings by the Space division.
The DaimlerChrysler Off-Highway business unit also made a
higher contribution to the operating profit of Other Activities.

Consolidated Statements
of Income

Amounts in millions of €

2005

2004

05/04

Reconciliation of Group Operating Profit
to Income before Financial Income

2005

2004

05/04

% change

Amounts in millions of €

% change

Revenues

Cost of sales

Gross profit

149,776

142,059

(122,894)

(114,567)

26,882

27,492

Selling, administrative and other
expenses

Research and development

(18,984)

(5,649)

Other income

Goodwill impairment

Turnaround plan
Chrysler Group

Income before financial income

Financial income (expense), net

Income before income taxes

Income tax expense

Minority interests

Income from continuing operations

Cumulative effects of changes in
accounting principles: transition
adjustment resulting from adoption
of FIN 47

Net income

(17,972)

(5,658)

895

(145)

4,612

(1,077)

3,535

(1,177)

108

2,466

966

(30)

3,221

217

3,438

(513)

(74)

2,851

(5)

2,846

–

2,466

Operating profit

5,185

5,754

-10

Pension and postretirement benefit
expenses, other than current and
prior service costs and settlement/
curtailment losses

Operating (profit) loss from
affiliated and associated companies
and financial (income) loss from
related operating companies

Miscellaneous items

Income before financial income

(1,175)

(845)

-39

(640)

(149)

3,221

(384)

4,612

+61

-30

-7

-2

-6

-30

-3

+56

+16

+15

“Pension and postretirement benefit expenses, other than current
and prior service costs and settlement/curtailment losses” is
the sum of the interest cost, the expected return on plan assets,
and the amortization of unrecognized net actuarial gains or
losses. Operating profit excludes these components of the net
periodic pension and postretirement benefit expense, since
they are driven by financial factors and are not within the respon-
sibility of the divisions.

The reconciliation item “Operating (profit) loss from affiliated
and associated companies and financial (income) loss from re-
lated operating companies” includes the contributions to ear-
nings from our operating investments which are reported as a
component of financial income (expense), net, in the consoli-
dated statements of income. These contributions are allocated
to the operating profit (loss) of the respective divisions. In
2005, this resulted in a positive overall contribution to opera-
ting profit of €640 million (2004: a negative contribution of
€87 million). The increase was primarily a result of the improved
proportionate share of the earnings of Toll Collect and EADS.
An additional factor is that the prior-year result included impair-
ment charges relating to the Group’s investment in debis
AirFinance.

Reconciliation by Reportable Segment of Operating
Profit to Income (Loss) before Financial Income

Mercedes
Car Group

Chrysler
Group

Commercial
Vehicles

Financial
Services

Other
Activities

Total
Segments

Eliminations

Amounts in millions of €

2005

Operating profit (loss)

Pension and postretirement benefit expenses, other
than current and prior service costs and settlement/
curtailment losses

Operating (profit) loss from affiliated and associated
companies and financial (income) loss from related
operating companies

Miscellaneous items

Income (loss) before financial income

2004

Operating profit (loss)

Pension and postretirement benefit expenses, other
than current and prior service costs and settlement/
curtailment losses

Operating (profit) loss from affiliated and associated
companies and financial (income) loss from related
operating companies

Miscellaneous items

Income (loss) before financial income

(505)

1,534

2,093

1,468

591

5,181

(33)

(1,030)

(55)

(14)

(552)

(1)

503

(47)

(42)

1,949

(6)

(5)

1,495

(51)

(1,175)

(706)

(102)

(268)

(730)

(149)

3,127

1,666

1,427

1,332

1,250

456

6,131

(377)

5,754

(34)

(697)

(55)

(5)

(54)

(845)

–

1,634

(5)

734

(9)

(364)

904

549

(4)

1,790

(539)

(11)

(148)

(384)

4,914

–

(302)

(845)

(384)

4,612

Daimler-
Chrysler
Group

5,185

(1,175)

(640)

(149)

3,221

In 2004, the reconciliation item “Miscellaneous items” consisted
almost solely of the share of minority interests in the expenses
for the quality actions and recall campaigns at MFTBC. These
expenses were allocated to minority interests and not to ope-
rating profit as they were caused by quality problems at MFTBC
which arose before the acquisition of shares in that company
by DaimlerChrysler.

Performance measures

The performance measures used at the DaimlerChrysler Group
are oriented towards our investors’ interests and expectations,
and provide a basis for value-based management.

Value added. For purposes of performance measurement,
DaimlerChrysler differentiates between Group and division/
business unit level. Value added is one element of the perfor-
mance measurement system at both levels and is calculated
as the difference between the operating result and the cost of
capital of the average net assets in that period.

Value Added

Profit
Measure

−

Net
Assets

Cost of
Capital (%)

⎧

⎪⎪⎪⎪⎪⎪⎨⎪⎪⎪⎪⎪⎪⎪⎪⎪⎪⎪⎩
Cost of Capital

Alternatively, value added can be calculated from the return on
net assets (RONA) by multiplying the difference between RONA
and the cost of capital rate by the average net assets in that
period.

Value Added =

⎛
⎜
⎝

Return on Net
Assets (RONA)

−

Cost of
Capital (%)

⎞
⎟
⎠

Net
Assets

Value added shows to which extent the Group and its divisions/
business units have achieved or exceeded the minimum return
requirements of the shareholders and creditors, thus creating
additional value. The methodology of value added is based on
the figures provided by external reporting in accordance with
US GAAP. This secures transparency both within the Daimler-
Chrysler Group and towards shareholders and creditors.

Profit measure. The profit measure used at Group level is net
operating income, which can be derived from net income as
shown in the income statement. At the level of divisions/busi-
ness units, operating profit is used. Operating profit can be
derived from income before financial income, and reflects the
specific earnings responsibility of the divisions/business units.

Net assets. Net assets are calculated at Group level from the
balance sheet components of stockholders’ equity (including
minority interests) and the financial liabilities and accrued pen-
sion obligations of the industrial business. At the division/
business unit level of the industrial business, net assets are cal-
culated on the basis of the allocable operating components
of assets and liabilities. In the financial services business, per-
formance measurement is on an equity basis, in line with the
usual practice in the banking business. The average net assets
are calculated as an average of the net assets at the beginning
and the end of the financial year.

Cost of capital. The required rate of return on net assets and
thus the cost of capital are derived from the minimum returns
that investors expect on their invested capital. Due to their
long-term financing character, unfunded pension obligations
are included in addition to equity and debt when calculating
the Group’s cost of capital. The cost of equity is calculated
according to the capital asset pricing model (CAPM), using
the interest rate for long-term, risk-free securities (such as
government bonds and other fixed-interest securities) plus
a risk premium reflecting the specific risks of an investment in
DaimlerChrysler shares. The cost of debt is derived from the
required rate of return for obligations entered into by the Group
with external lenders. The cost of capital of the unfunded pen-
sion obligations is calculated on the basis of discount rates used
according to US GAAP. The Group’s cost of capital is then a
result of the weighted average of the individually required rates
of return; in the year under review, the cost of capital amounted
to 7% after taxes. At industrial division/business unit level, the
cost of capital amounted to 11% before taxes; for the financial
services business a cost of equity of 14% before taxes was used.

Return on Net Assets (RONA) DaimlerChrysler Group (after taxes)

(in %)

7.5

4.5

1.5

2001

2002

2003

2004

2005

Cost of Capital

In %

Group, after taxes

Industrial divisions, before taxes

Financial Services, before taxes

2005

2004

Return on net assets and value added

Net operating income amounted to €3.6 billion in 2005, com-
pared with €3.2 billion in the prior year. In combination with
nearly unchanged average net assets of €55.3 billion, this led
to a return on net assets for the Group of 6.6% (2004: 5.7%).
Value added thus increased by €1.1 billion to minus €0.2 billion.

Return on net assets. The profitability ratio return on net assets
(RONA) has a special significance as a fundamental component
of value added in DaimlerChrysler’s performance measurement
system. As a quotient of the profit measure and average net
assets, RONA allows a statement to be made on the profitability
of the Group or the industrial divisions/business units. To
assess the profitability of the financial services business, return
on equity (ROE) is used.

The Mercedes Car Group division’s return on net assets of minus
3.8% in 2005 was lower than the minimum required rate of
return. The significant decrease compared with the prior year
was primarily a result of changes in earnings due to the re-
alignment of the business model at smart and expenses relating
to the headcount reduction program at the Mercedes Car
Group. Additional charges arose from changed currency hedg-
ing rates, a less favorable model mix and higher raw-material
prices. The slight reduction in net assets could not offset the
lower earnings. The development of net assets was due to
liabilities relating to the workforce reduction initiative, higher
provisions for product guarantees as well as impairments
recognized in connection with the realignment of the business
model at smart.

The Chrysler Group division’s return on net assets of 18.2%
(2004: 16.4%) significantly surpassed the minimum required
rate of return. The increase compared with the prior year was
partially due to the lower net assets, but was mainly a result
of the improved operating profit as a consequence of higher
unit sales. Additional factors were income from the sale of
fixed assets and lower expenses from the turnaround plan.

With a return on net assets of 19.0%, Commercial Vehicles also
significantly exceeded the minimum required rate of return,
despite a higher level of net assets. As well as efficiency impro-
vements, this positive result was primarily due to the market
success of the Trucks business segment.

As a result of Other Activities’ increased earnings, its return on
net assets rose from 13.4% to 18.8%.

The Financial Services division recorded an increase in return
on equity to 16.2% (2004:14.8%). The factors behind this impro-
vement included lower risk costs and an increased volume of
leasing and sales-financing business, as well as lower charges
from the division’s involvement in Toll Collect. These positive
effects were partially offset by higher interest rates. The minimum
required rate of return was surpassed, as in the prior year.

Value Added

Amounts in millions of €

2005

2004

05/04

% change

Reconciliation to Net Operating Income

2005

2004

05/04

Amounts in millions of €

% change

Net income (loss)

Minority interests

Interest expense related to industrial
activities, after taxes

Interest cost of pensions related to
industrial activities, after taxes

Net operating income

2,846

2,466

(108)

192

295

523

3,635

512

3,165

+15

-35

+15

DaimlerChrysler Group

(236)

(1,306)

+82

Net assets are derived from the consolidated balance sheet –
as shown in the following table.

Net Assets and Return
on Net Assets

2005

2004

2005

2004

(Annual average, in billions of €)
Net assets

%
Return on net assets

Net Assets 1
of the DaimlerChrysler Group

Amounts in millions of €

2005

2004

05/04

35,824

653

31,460

909

4,146

8,330

15,413

56,036

13,867

54,566

% change

+14

-28

-50

+11

Stockholders’ equity 2

Minority interests

Financial liabilities of the
industrial segment

Pension provisions of the
industrial segment

Net assets

1 Represents the value at year-end; the average for the year was €55.3 billion (2004: €55.9 billion).
2 Adjusted for the effects from the application of SFAS 133.

DaimlerChrysler Group,
(after taxes)

Industrial divisions,
(before interest and taxes)

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Other Activities 1

55.3

55.9

6.6

5.7

13.2

8.4

11.0

4.8

13.5

8.7

9.7

4.7

(3.8)

18.2

19.0

18.8

12.3

16.4

13.8

13.4

Stockholders’ equity

Return on equity 2

Financial Services

9.1

8.4

16.2

14.8

1 Other Activities contain the Off-Highway business unit and the equity investment in EADS.
2 Before taxes.

Liquidity and Capital
Resources

Principles and objectives of financial
management

Financial management at DaimlerChrysler consists of capital
structure management, cash and liquidity management, pension
asset management, market price risk management (foreign
exchange rates, interest rates, and commodities) and credit and
financial country risk management.

Financial management is performed worldwide in a standardized
way for all Group entities by Treasury. Financial management
is guided by a framework of guidelines, limits and benchmarks.
Financial management is separated from other financial func-
tions such as financial controlling, reporting, settlement and
accounting. These functions are not covered by Treasury but
by the controlling and accounting departments in the companies
of the Group.

Capital structure management designs the capital structure
for the Group and all of its subsidiaries. Decisions regarding the
capitalization of Financial Services companies, production, dis-
tribution, financing or regional holding companies are based on
standardized Group guidelines. The capital resources of Group
companies also depend on refinancing conditions in local banking
markets. In addition, it is necessary to adhere to the provisions
of the law as well as to so-called thin-capitalization rules in the
taxation legislation of various countries, as well as various capital
transaction restrictions on the transfer of capital and currencies
imposed by various countries.

Cash management determines cash requirements and sur-
pluses on a worldwide basis. The number of external bank
transactions is minimized by the Group’s internal netting of
cash requirements and surpluses. Netting is done by cash-
concentration or cash-pooling procedures. DaimlerChrysler
has established standardized processes and systems in order
to control its bank accounts and the execution of automated
payment transactions.

Liquidity management secures DaimlerChrysler’s ability to
meet its payment obligations at any time. For this purpose,
liquidity planning provides information about all cash flows
from operating and financial activities for a rolling planning
period of twelve months. Resulting financing requirements are
covered by the use of appropriate instruments for liquidity
management. Liquidity surpluses are invested in the money
market to optimize return. Besides operational liquidity,
DaimlerChrysler keeps liquidity reserves, which are available
on a short-term basis. These liquidity reserves include a
pool of receivables from the financial services business which
are readily available for securitization in the capital market,
as well as confirmed syndicated credit lines with varying
maturities.

Management of market price risk aims at minimizing the
impact of fluctuations in foreign exchange rates, interest rates
and commodity prices on the results of the divisions and the
Group. The Group’s overall exposure to these market price risks
is determined to provide the basis for hedging decisions. These
cover the selection of the hedging instrument and the definition
of the hedging volume and corresponding period. Decisions on
foreign exchange rates, interest rates, commodities and asset-
liability management are regularly made by the respective
committees.

Management of pension funds comprises the optimal invest-
ment in terms of the risk-return profile of pension assets to
cover the corresponding pension liabilities. The major part of
pension assets is held in separate pension funds and is not
available for general business purposes. The funds are allocated
to different asset classes such as equities and bonds based on
an optimization process which takes into account the expected
growth of pension liabilities. The performance of the asset
management is measured by comparing with defined benchmark
indices. Decisions on ordinary and extraordinary capital con-
tributions to the pension funds are centralized worldwide in the
newly established “Global Pension Committee”. Further infor-
mation on pension liabilities is available in Note 25a of the Notes
to the Consolidated Financial Statements.

The risk volume which is subject to credit risk management
includes all worldwide creditor positions of DaimlerChrysler
with financial institutions, issuers of securities and end custo-
mers. Credit risk with financial institutions and issuers arises
primarily from the trading of derivative financial instruments
and the investments executed by liquidity management. The
management of this credit risk is based on an internal limit
system, which reflects the creditworthiness of the respective
financial institution or issuer. The credit risk with end cus-
tomers results from granting a payment period for goods and
services. Similarly, an internal assessment of the customers’
creditworthiness provides the basis for quantifying the associa-
ted risk. In order to hedge these risks, bank guarantees are
often demanded before delivery is initiated.

Financial country risk management includes various risk
aspects: the risk from investments in subsidiaries and joint
ventures, the risk from cross-border financing of Group compa-
nies in risk countries and the risk from direct sales to end
customers in these countries. DaimlerChrysler has developed
an internal limit system which divides all countries with
DaimlerChrysler operations into risk categories. Credit volu-
mes are restricted according to the country classification
or higher guarantees are considered. Available instruments for
hedging country risk such as Hermes insurance are frequently
employed. On top of that, a committee sets and restricts the level
of hard-currency risk for Financial Services companies in risk
countries.

Cash flow

Cash provided by operating activities of €12.4 billion was
higher than in the prior year (€11.1 billion). The increase was
primarily due to the inventory-related receivables from financial
services, which had risen significantly in 2004 as a result of
higher stocks of vehicles held by dealers, reducing cash provi-
ded by operating activities in that period. In 2005, the nega-
tive effect from changes of these receivables on cash provided
by operating activities was significantly lower. Cash provided
by operating activities also increased due to the generally lower
cash outflows for tax payments, caused in particular by de-
creasing taxable income in Germany. Tax payments in the United
States were higher than in the prior year, however, as the tax-
loss carryforwards had been used up. An additional factor was
the shift in the financial services business from finance lease
to operate lease contracts which led to increased cash provided
by operating activities. The reason for this is that with finance-
leasing contracts, only the interest portion of the leasing install-
ments is reflected in cash provided by operating activities,
while the amortization portion is reflected within investment
activities. With operate lease contracts, however, the entire
leasing installments are recognized in cash provided by opera-
ting activities. Opposing effects reducing cash provided by
operating activities resulted from changes in the volumes of
trade receivables and trade liabilities and increased inven-
tories. Contributions to pension funds of €1.7 billion were also
slightly higher than in the prior year (€1.6 billion).

Net Increase (Decrease) in Cash and Cash Equivalents
(maturing within 3 months or less)

(in millions of €)

12,353

7,381

-11,222

-1,513

620

7,619

Cash and
cash
equivalents
12/31/2004

Cash
provided by
operating
activities

Cash
used for
investing
activities

Cash
used for
financing
activities

Effect of
foreign
exchange
rate changes

Cash
and cash
equivalents
12/31/2005

The reduction of €5.5 billion in cash used for investing acti-
vities to €11.2 billion was primarily attributable to the develop-
ment of receivables from financial services provided to end
customers. This was due not only to a lower volume of new finan-
cing contracts, but also to increased payments received on
existing receivables. Proceeds from the sale of such receivables
decreased, however. Additionally, the acquisition and sale of
securities reduced the cash outflow for investing activities, pri-
marily due to the sale of the Group’s remaining shares in MMC.
There were opposing effects increasing the cash outflow for
investing activities caused by the increase in equipment on ope-
rating leases and higher payments for the acquisition of shares
in subsidiaries and associated companies, mainly due to the ac-
quisition of the remaining shares in MTU Friedrichshafen and
capital injections for joint ventures. Furthermore, proceeds from
the sale of shares in subsidiaries and associated companies
decreased; in the prior year this item had been boosted by the
disposal of the Group’s shares in HMC. Capital expenditure for
property, plant and equipment increased slightly.

The cash flow from financing activities resulted in a net cash
outflow of €1.5 billion in 2005. This was mainly a result of the
dividend distribution at DaimlerChrysler AG for 2004 (€1.5 bil-
lion). Borrowing and the repayment of financial liabilities were
nearly in balance, with a slight shift towards short-term refinan-
cing. In the prior year, the net increase in financial liabilities
offset the dividend distribution. In 2005 the exercise of stock
options resulted in a cash inflow from the issue of shares of
€0.2 billion.

Cash and cash equivalents with an original maturity of three
months or less increased by €0.2 billion compared with Decem-
ber 31, 2004 as a result of currency translation effects. Total
liquidity, which also includes long-term investments and securi-
ties, increased from €11.7 billion to €12.6 billion.

Free cash flow of the industrial business, the parameter
used by DaimlerChrysler to measure the financing capability
increased by €0.3 billion to €2.1 billion.

Free Cash Flow Industrial Business

2005

2004

Amounts in billions of €

Cash provided by operating
activities

Cash used for investing
activities

Changes in cash and cash equivalents
(maturing after 3 months) and
short term securities

Free cash flow industrial
business

6.2

(4.8)

0.7

2.1

3.8

(2.9)

0.9

1.8

05/04

Change

2.4

(1.9)

(0.2)

0.3

The increase was mainly due to lower cash outflows for tax pay-
ments as a result of decreasing taxable income in Germany.
An additional factor was that increased payments were received
by the industrial business from companies in the financial ser-
vices business in connection with tax groups in the United States.
The free cash flow was also increased by the sale of the Group’s
remaining shares in MMC and its interest in debis AirFinance
during 2005. In the prior year, the corresponding increase from
the sale of the Group’s shares in HMC was lower. There were
negative effects from the stronger increase in working capital
and the realignment of the business model at smart. In addi-
tion, the free cash flow was reduced in 2005 by the increased
utilization of provisions, also in connection with quality actions.
Taking into consideration the dividends paid by Financial Services
to the industrial business, the free cash flow of the industrial
business significantly surpassed the total dividend distribution
planned by DaimlerChrysler to its shareholders for the 2005
financial year.

The net liquidity of the industrial business, which is equi-
valent to liquidity less nominal debt on the balance sheet date,
increased by €5.1 billion to €7.3 billion.

Net Liquidity Industrial Business

2005

2004

Amounts in billions of €

Cash and cash equivalents
(maturing within 3 months)

Cash and cash equivalents
(maturing after 3 months)

Short-term securities

Liquidity

Nominal debt 1

Net liquidity

6.8

0.1

4.5

11.4

(4.1)

7.3

6.4

0.4

3.5

10.3

(8.1)

2.2

1 Bookvalue of financial liabilities adjusted for market valuation

05/04

Change

0.4

(0.3)

1.0

1.1

4.0

5.1

The significant increase in net liquidity is mainly due to the
positive free cash flow as well as the effects of currency trans-
lation. An additional factor was the dividends paid by the finan-
cial services business to the industrial business. Opposing
effects resulted primarily from the dividend distribution by
DaimlerChrysler AG for the 2004 financial year.

Refinancing

DaimlerChrysler’s refinancing measures are primarily determi-
ned by the Group’s financial services activities. To cover a
relatively low requirement for additional funding compared with
the prior year and to refinance debts becoming due, Daimler-
Chrysler once again used a broad spectrum of financial and
capital-market instruments. The book value of the main refinan-
cing instruments and the weighted average interest rates for
the year 2005 are shown in the table below:

Average
interest
rates 2005

Book value
Dec. 31,
2005

Book value
Dec. 31,
2004

in %

amounts in millions of €

5.70

4.08

47,432

9,104

44,679

6,824

4.54

17,472

17,664

Bonds/notes

Commercial paper

Liabilities to
banks

The financial instruments shown in the above table as of Decem-
ber 31, 2005 are mainly denominated in the following currencies:
57% in US dollars, 21% in euros, 8% in Canadian dollars, 3% in
British pounds and 3% in Japanese yen.

The financial liabilities shown in the consolidated balance sheet,
which in particular also include deposits from direct banking
business as well as liabilities from capital lease and residual value
guarantees, amounted to €80,932 million on December 31, 2005
(2004: €76,270 million). Of the financial liabilities, €76,786 mil-
lion or 95% was accounted for by the financial services business
(2004: €67,940 million or 89%). Detailed information on the
amounts and terms of the financial liabilities is available in Note
26 of the Notes to the Consolidated Financial Statements.

A part of this US $18 billion credit facility serves as collateral
for borrowings within the commercial-paper program.

In order to hedge the liquidity of an asset-backed commercial-
paper program in North America, DaimlerChrysler has an ad-
ditional credit facility with a consortium of international banks,
which was increased to a volume of US $6.2 billion in 2005
(2004: US $5.2 billion). This liquidity hedging can only be utilized
by the trusts to which DaimlerChrysler sold receivables in the
context of this program.

The liquid reserves, short-term and long-term credit lines and
the possibility to generate cash inflows by securitizing receiv-
ables give the Group sufficient financial flexibility of above €50
billion to cover its refinancing needs at any time.

In 2005, DaimlerChrysler successfully issued benchmark notes
denominated in US dollars and euros. There were also smaller
issues of medium-term note programs in the form of private place-
ments. In addition, the securitization of receivables, mainly in the
field of financial services, was utilized particularly in the United
States, but also in Canada and Germany. In 2005, DaimlerChrysler
sold retail receivables in an amount of €11,575 million (2004:
€10,294 million). Within the context of a revolving credit facility for
securitizing wholesale receivables, DaimlerChrysler also sold
wholesale receivables in an amount of €33,922 million (2004:
€35,414 million) to trusts and received proceeds of €33,892 mil-
lion (2004: €35,393 million). With these transactions, the Group
received income of €182 million in 2005 and €250 million in
2004. See Note 34 of the Notes to the Consolidated Financial
Statements for further information on the sale of receivables.

At the end of 2005, DaimlerChrysler had short-term and long-
term credit lines totaling €35.4 billion, of which €17.9 billion
was not utilized. These credit lines include a US $18 billion syn-
dicated global credit facility with international banks in a total
of three tranches: the first tranche comprises a 5-year credit
line maturing in May 2008, allowing DaimlerChrysler AG and va-
rious subsidiaries to draw a total of US $7 billion under this
facility. DaimlerChrysler North America Holding can draw a total
of US $6 billion under a 364-day facility maturing in May 2006.
The originally 7-year tranche with a volume of US $5 billion and
maturing in July 2006 was transformed earlier than necessary
in 2004 into a new facility of DaimlerChrysler AG with the same
volume and a term of five years, i.e. until December 2009. In
December 2005, we made use of our contractual option to ex-
tend this credit facility by another year (until 2010). In December
2006, the term can again be extended until December 2011.

Ratings

Short-term credit ratings

Standard & Poor’s

Moody’s

Fitch

Dominion Bond

Long-term credit ratings

Standard & Poor’s

Moody’s

Fitch

Dominion Bond

2005

2004

A-2

P-2

R-1-

BBB

BBB+

A-

A-2

P-2

R-1-

BBB

BBB+

A-

On July 19, 2005, Fitch Ratings (Fitch) revised the outlook on
DaimlerChrysler’s BBB+ rating to stable from positive. The
short-term rating was affirmed at F2. The outlook revision re-
flected Fitch’s view that given the recent performance of the
Mercedes Car Group and competitive pressures at the Chrysler
Group, an upgrade of the ratings for DaimlerChrysler is unlikely
in the short term. Fitch noted that the financial profile of the
Group remains strong.

On August 2, 2005, Dominion Bond Rating Service (Dominion)
changed the outlook of the long-term rating of DaimlerChrysler
to negative from stable. Dominion stated that the change re-
flects the fact that profitability, although acceptable, is weak for
the rating and that they believe that the near term prospects
at DaimlerChrysler’s main businesses are mixed. Business diver-
sity has enabled DaimlerChrysler to stay profitable and is a
key strength supporting the ratings.

During the year 2005, the rating agency Standard & Poor’s
Rating Services (S&P) kept its long-term rating of BBB and its
short-term rating of A-2 unchanged. The outlook of the long-
term rating remained stable.

On August 1, 2005, Moody’s Investor Service (Moody’s) confir-
med the A3 long-term and the P-2 short-term rating of Daimler-
Chrysler but changed the outlook of the long-term rating to nega-
tive from stable. Moody’s stated that the change reflects the
challenges DaimlerChrysler is facing to strengthen margins going
forward in particular of the Mercedes Car Group division and
to reach a break-even position at smart. In addition, Moody’s
mentioned the pressure the Chrysler Group is facing in the
United States to maintain a trend of improving profitability as a
result of rising incentives and competitive pressures and the re-
liance on the current robustness of the performance of the Com-
mercial Vehicles division. Moody’s highlighted that Daimler-
Chrysler’s A3/P-2 ratings continue to reflect the overall strength
of the Group’s franchise, particularly Mercedes-Benz’s market
position as a global luxury passenger car brand, the Group’s scope
and geographically well-spread operations.

Financial Position

The Group’s total assets increased by 10% compared with the
prior year to €201.6 billion, primarily due to the appreciation
of the US dollar. The assets and liabilities of our US companies
were translated into euros using the exchange rate of €1 = US $
1.1797 as of December 31, 2005 (prior year: €1 = US $1.3621
as of December 31, 2004). This lower exchange rate resulted
in correspondingly higher balance sheet amounts in euros. €15.2
billion of the increase in total assets resulted from the effects
of currency translation. Adjusted for currency translation effects,
total assets increased by €3.6 billion.

The financial-services business accounted for €99.6 billion of
the balance sheet total (2004: €88.0 billion). This was equi-
valent to 49% of the DaimlerChrysler Group’s total assets and
liabilities (2004: 48%).

On the assets side of the balance sheet, property, plant and
equipment increased by 8% to €36.7 billion. This development
was primarily caused by currency translation, with opposing
effects from the impairment of assets in an amount of €0.5 billion
relating to the realignment of the smart business model.

Financial assets decreased by 10% to €6.4 billion. One reason
for this decrease was the sale of the Group’s remaining shares
in MMC. The lower net carrying amount of our investment in
EADS primarily resulted from the evaluation of derivative finan-
cial instruments at EADS. This effect was only partially offset
by the Group's proportionate share of the net income of EADS,
which is accounted for using the equity method.

Leased equipment increased by €7.5 billion to €34.2 billion,
due to altered exchange rate parities as well as the growth of
the operate lease business. The latter was partially caused by a
shift from sales-financing contracts, which are entered under
receivables from financial services, to increased operate lease
contracts.

Balance Sheet Structure

(in billions of €)

Fixed assets

202
41%

183

40%

18%

202
18%

Stockholders’ equity
and minority interests

23%

Accrued liabilities

23%

Non-fixed assets

54%

57%

54%

53%

Liabilities

42%

40%

of which:
Financial liabilities

of which: Liquidity

Other assets

6%
5%

6%
3%

2005

2004

2004 2005

Other liabilities

Inventories – less advance payments received – increased
to €19.1 (2004: €16.8) billion. The increase was due not only to
currency translation effects, but also to the launch of new
models and intense competition in the market.

Receivables from financial services amounted to €61.1 billion
on December 31, 2005 (2004: €56.8 billion). Adjusted for
currency translation effects, the decrease amounted to €1.5
billion. The outstanding balance of sold and securitized re-
ceivables from financial services, which are accounted off-balan-
ce, was including effects from currency translation, higher
than in the prior year. For additional information, see Note 34
of the Notes to the Consolidated Financial Statements.

The decrease in other assets from €12.9 billion to €8.7 billion
was primarily due to the valuation and redemption of deriva-
tives.

Total liquidity increased, as intended, by 8% to €12.6 billion,
and comprised cash and cash equivalents (€7.7 billion) and
marketable securities (€4.9 billion).

As of December 31, 2005, assets and liabilities held for sale
related to the Off-Highway business unit, the sale of which will
probably be completed in the first quarter of 2006.

At the balance sheet date 37% of all assets had a maturity of
less than one year (2004: 38%).

On the liabilities side stockholders’ equity amounted to €36.4
billion (2004: €33.5 billion). The increase was mainly due to the
Group’s net income as well as currency translation effects.
There were opposing effects from distribution of the dividend
for the 2004 financial year and the valuation of derivative
financial instruments (which had no effect on the income state-
ment). The equity ratio, adjusted for the proposed dividend
distribution for the 2005 financial year (€1.5 billion), remained
almost unchanged and was 17.3% (2004: 17.5%). The equity ratio
for the industrial business amounted to 24.8% (2004: 25.2%).

Balance Sheet Structure of the Industrial Business

(in billions of €)

Property, plant and
equipment

102
36%

95
36%

95
26%

102
25%

Stockholders’ equity
and minority interests

43%

45%

Accrued liabilities

Other fixed assets

14%

15%

Inventories

Receivables
Liquidity

Other assets

17%

16%

12%

17%

11%

10%

11%

30%

26%

Liabilities

Other liabilities

2005

2004

2004 2005

The decrease in minority interests resulted primarily from the
change in the Group’s equity interest in Mitsubishi Fuso Truck
and Bus Corporation (MFTBC). As of December 31, 2005,
DaimlerChrysler held 85% of MFTBC’s shares (2004: 65%).

Accrued liabilities increased from €41.9 billion to €46.7 billion,
mainly due to currency translation effects. The increase in other
accrued liabilities was caused by the changed market valuation
of derivatives due to the appreciation of the dollar against the
euro as well as higher accruals for product guarantees. The in-
crease in accruals for product guarantees was partially related
to the quality offensive at the Mercedes Car Group.

The Group’s financial liabilities amounted to €80.9 billion on
the balance sheet date (2004: €76.3 billion). Adjusted for the
effects of currency translation, this item decreased by €0.5
billion. The financial liabilities shown in the consolidated balance
sheet primarily serve to refinance the leasing and sales finan-
cing business.

The change in trade liabilities from €12.9 billion to €14.6 billion
was mainly caused by currency translation effects.

Deferred income increased to €8.3 billion (2004: €6.3 billion),
due not only to currency translation, but also to higher advance
rental payments resulting from the expanded operate lease
portfolio and higher sales of vehicles with guaranteed residual
values.

At the balance sheet date 43% of all liabilities had a maturity of
less than one year (2004: 42%).

The funded status of the Group’s pension obligations chan-
ged from being underfunded by €6.6 billion to being under-
funded by €7.2 billion in 2005. On the balance sheet date, the
Group’s pension obligations amounted to €41.5 billion, com-
pared with €34.4 billion at the end of the prior year. The increa-
se was primarily a result of the currency translation effects of
€3.4 billion and the reductions in discount rates for pension plans
by 0.8 of a percentage point to 4.0% for German plans, and by
0.4 of a percentage point to 5.4% for non-German plans. The plan
assets available to finance the pension obligations increased
due to currency translation effects (€3 billion) and the good per-
formance of the stock markets from €27.8 billion to €34.3
billion. The yield realized on the German plan assets in 2005
was 16.9%; the foreign plan assets returned a yield of 12.1%. In
addition, the plan assets increased due to contributions of
€1.7 billion (2004: €1.6 billion).

The funded status of the other postretirement benefit obli-
gations changed from an undercover of €12.8 billion to an
undercover of €15.8 billion in 2005. The obligations totaled
€17.7 billion on the balance sheet date (2004: €14.4 billion).
€2.3 billion of the increase was due to the effects of currency
translation. The obligations also increased as a result of the
reduction in the discount rate of 0.3 of a percentage point to
5.7%. The other changes resulted from the normal annual in-
crease less payments to beneficiaries. Other postretirement
benefit obligations were covered by plan assets of €1.9 billion
(2004: €1.5 billion).

Additional information on pension plans and similar obliga-
tions is available in Note 25a of the Notes to the Consolidated
Financial Statements.

Capital Expenditure

Research and Development

The DaimlerChrysler Group invested a total of €6.6 billion in
property, plant and equipment in 2005 (2004: €6.4 billion). For
the Mercedes Car Group, the focus was on preparing for the
production of the new M-Class and R-Class at the plant in Tusca-
loosa, USA, the new V6 and V8 engines and the successors
to the C-Class and the smart fortwo. The main areas for the
Chrysler Group were the preparation of production facilities
for new model introductions and further improvements in plant
efficiency and flexibility. The volume of investment in the Com-
mercial Vehicles division was significantly higher than in the prior
year. This was primarily due to preparations for the production
startup of the new Sprinter and investments related to new truck
generations and new low-emission engines fulfilling worldwide
emission regulations.

Investments in Property, Plant and Equipment

Amounts in millions of €

% change

2005

2004

05/04

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities

6,580

1,629

3,083

1,743

109

6,386

2,343

2,647

1,184

134

-30

+16

+47

-51

-19

Research and development expenditure totaled €5.6 billion in
2005 (2004: €5.7 billion). The Mercedes Car Group’s most
important projects were the successor models for the C-Class
and the smart fortwo. Research and development work at the
Chrysler Group was once again influenced by the product offen-
sive, in particular the renewal and extension of the Jeep® and
Dodge model ranges. The Commercial Vehicles division’s key
projects included the new generation of trucks for Europe, the
United States and Japan, and various new low-emission engines.
Some additional areas of R&D activities were new drive-system
technologies, especially hybrid drive and fuel-cell drive, and elec-
tronic systems designed to enhance traffic safety.

At the end of 2005, more than 28,200 people worked in Daimler-
Chrysler’s research and development departments, of whom
2,600 were employed in the corporate Research and Technology
department and 25,600 were employed in the divisions (see
page 94).

We spent a total of €1.5 billion on environmental protection in
2005. Most of these funds were applied to reduce the fuel
consumption and emissions of our vehicles. For example, we
reduced the consumption of our fleet of vehicles in Germany
by 30% in the period of 1990 to 2005. DaimlerChrysler there-
fore made an above-average contribution to achieving the
voluntary commitment declared by the German Automotive
Industry Association (VDA) of a 25% reduction. For the con-
tinuing reduction of CO2 emissions, we are also utilizing the
potential of biofuels. We are modifying our vehicles so that
the blend of biofuel to conventional fuel can be doubled from
5% to 10%.

Research and Development Expenditure

2005

2004

05/04

Amounts in millions of €

% change

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Other Activities

5,649

2,418

1,710

1,281

240

5,658

2,634

1,570

1,226

228

-0

-8

Procurement and Supply

Workforce

Employees by Division

DaimlerChrysler Group

382,724

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Sales Organization

Financial Services

Other Activities

104,345

83,130

117,183

48,773

11,129

18,164

Employment situation. As of December 31, 2005, Daimler-
Chrysler employed 382,724 people worldwide (end of 2004:
384,723). Of this total, 182,060 were employed in Germany
(2004: 185,154) and 97,480 in the United States (2004:
98,119). The number of trainees at year-end was 9,880 (2004:
10,047). Compared with the prior year, employment increased
by 2% at Commercial Vehicles, where employees were recruited
due to the high demand for trucks, particularly in the Trucks
Europe/Latin America and Trucks NAFTA business units. At the
Mercedes Car Group (-1%), the Chrysler Group (-1%) and Finan-
cial Services (-1%), employment levels were slightly lower than
at the end of the prior year (see page 92).

Staff reductions at the Mercedes Car Group. At the end of
September 2005, the Board of Management approved a pack-
age of measures to be taken at the Mercedes Car Group aiming
to reduce the workforce in Germany by 8,500 jobs. The staff
reductions are to be achieved as a result of voluntary severance
agreements over a period of twelve months, and will contri-
bute to increasing the productivity of the Mercedes Car Group
and thus helping to secure the competitiveness of its facilities
in Germany. DaimlerChrysler stands by the “Safeguarding
the Future 2012” agreement reached in the year 2004, which
provides for voluntary retirement as a first step in the case
of any need for personnel reductions. By the end of 2005, ap-
proximately 5,000 Mercedes Car Group employees had either
already left the company or had signed agreements on their
departure (see pages 74 and 92).

Our Procurement and Supply organization has the goal of build-
ing up the world’s most effective supply chain, thus contributing
to an increase in corporate value. In the year 2005, we identi-
fied and utilized additional synergy potential. In order to contin-
uously improve the efficiency and effectiveness of our work,
we defined three strategic areas for action: leveraging our global
scale, the efficient management of our global supply base,
and the use of globally uniform IT structures and processes.

By bundling our purchasing worldwide, we maximize our volumes
and the resulting price advantages. For this purpose, we estab-
lished the Material Strategy and Innovation Council (MSIC). The
MSIC coordinates the worldwide activities of our vehicle divi-
sions in the fields of engineering, procurement, cost analysis,
and research and technology. For example, with the aid of the
MSIC, many opportunities have already been identified for cost
reduction and innovation.

The rising prices of raw materials and the growing danger of
insolvencies in the supply industry were particularly important
for our work in 2005. In order to limit the impact of rising raw
material prices on our material costs at an early stage, we care-
fully monitor the market prices of raw materials. In addition,
we cooperate with our suppliers to achieve continuous improve-
ments in products and processes so that lasting price advan-
tages can be realized. Whenever necessary, we enter into long-
term agreements to guarantee reliable supplies and limit the
effects of future price increases; this also enhances planning
security for our suppliers.

A modern system of risk management helps us to identify and
analyze the financial situation of our suppliers. This allows us to
react to suppliers’ financial difficulties in good time, thus mini-
mizing the financial risks and any impact on DaimlerChrysler’s
production (see page 98 f).

Events after the End of the 2005
Financial Year

New management model for DaimlerChrysler. On January
24, 2006, DaimlerChrysler presented a new management model
designed to improve the Group’s competitiveness and promote
further profitable growth.

More detailed information on this subject can be found on page
31 of this Annual Report.

Further events after the end of the 2005 financial year.
Since the end of the 2005 financial year, there have been no
further occurrences that are of major significance to Daimler-
Chrysler and which would lead to a modified assessment of the
Group’s position. The course of business in the first two months
of 2006 confirms the statements made in the chapter, “Outlook”.

Risk Report

Risk management system

Within the framework of their global activities and as a result
of increasingly intense competition in all markets, Daimler-
Chrysler’s divisions and business units are exposed to a large
number of risks, which are inextricably linked with their busi-
ness activities. Effective management and control instruments
are combined into a uniform risk management system, meeting
the requirements of applicable law and subject to continuous
improvement, which is employed for the early detection, evalua-
tion and management of risks. The risk management system
is integrated into the value-based management and planning
system. It is an integral part of the overall planning, control
and reporting process in all relevant legal entities and central
functions, and aims to systematically identify, assess, control
and document risks. Taking defined risk categories into account,
risks are identified by the management of the divisions and
business units, the key associated companies and the central
departments, and assessed regarding their probability of oc-
currence and possible extent of damage. The assessment of the
possible extent of damage usually takes place in terms of the
risks’ effect on operating profit. The communication and repor-
ting of relevant risks is controlled by value limits set by manage-
ment. The responsible persons also have the task of developing,
and initiating as required, measures to avoid, reduce and hedge
risks. Major risks and the countermeasures taken are moni-
tored within the framework of a regular controlling process. As
well as the regular reporting, there is also an internal reporting
obligation within the Group for risks arising unexpectedly. The
Group’s central Risk Management department regularly reports
on the identified risks to the Board of Management and the
Supervisory Board.

The risk management system enables the Board of Management
to identify key risks at an early stage and to initiate suitable
countermeasures. By carrying out targeted audits, the Corporate
Audit department monitors compliance with the statutory frame-
work and the Group’s internal guidelines as defined in the
Risk Management Manual, and, if required, initiates appropriate
action. In addition, the external auditors test the system for
the early detection of risks that is integrated into the risk man-
agement system in terms of its fundamental suitability for
the early recognition of developments that could jeopardize the
continued existence of the company.

Economic risks

Following the dynamic development of the world economy in
2004, economic expansion slowed down in all regions in 2005.
Although general conditions were relatively unfavorable and
potential risks increased, global growth was only slightly below
the long-term trend. Two factors with a particularly negative
impact were the continuation of high raw-material prices and
the rapid growth of the United States’ current-account deficit.
The stable growth of the world economy in 2006 that is antici-
pated by most economists and also by DaimlerChrysler depends
significantly upon how these factors develop in the future. Daimler-
Chrysler’s financial position, results of operations and cash flows
are therefore still exposed to substantial economic risks. Due to
the great importance for the global economy of developments in
the United States, an isolated severe slowdown of economic expan-
sion there would have negative consequences for the rest of
the world.

The US economy is increasingly dependent on the inflow of for-
eign capital to finance its rapidly growing current-account deficit,
and this situation has become a source of considerable risk po-
tential. If the capital inflows cease to be available in the required
volumes, the country’s current-account deficit will have to be
corrected. This could be done by means of higher interest rates
and a drastic depreciation of the US dollar, leading to signifi-
cantly lower growth in the United States and thus also in other
regions of the world. Additional risks that would weaken eco-
nomic growth in the United States are a further increase in capi-
tal-market interest rates and a fall in real-estate values, which
to a certain extent are inflated by speculation. Both of these fac-
tors would substantially reduce private consumption.

A marked reduction in growth rates in China would also be
strategically relevant for the Group, as this is currently the most
dynamic automobile market in the world and has enormous
potential for the future. In view of China’s economic power and
the sharp increase in the flows of international investment and
trade with China, such a slump would not only have serious con-
sequences for the whole of Asia, but could also cause signifi-
cant growth losses for the world economy, with negative effects
on DaimlerChrysler’s projects. Potential economic crises in the
other emerging markets in which the Group has production faci-
lities could also be of particular relevance. But crises in emer-
ging markets where the Group is solely active in a sales function
would result in a more limited risk exposure.

Disappointing economic developments in large parts of the Euro-
pean Union, especially Germany, have considerable risk poten-
tial due to the region’s importance as a major sales market for
DaimlerChrysler. In particular, if the ongoing weakness of do-
mestic demand leads to stagnation, this could have a substantial
impact on demand for automobiles. The situation of the Japa-
nese economy is similar, although its prospects have improved
somewhat. A renewed weakening of the Japanese economy
would not only reduce the Group’s exports to Japan, but would
also place a substantial burden on the earnings trend of our
subsidiary, Mitsubishi Fuso Truck and Bus Corporation.

An additional important potential risk is to be seen in the high
level of raw-material prices, particularly crude oil. If prices
remain high or actually continue rising, the assumed economic
development will be jeopardized. Private households’ purcha-
sing power would fall and companies’ costs would increase, and
these two factors combined would have a negative impact on
growth in the oil-importing countries. With a long-term rise in
the price of oil, some economies could even slip into recession.

Risks for market access and the global networking of the Group’s
facilities could arise as a result of the failure or significant
delay of multilateral trade liberalization, in particular due to the
weakening of international free trade in favor of regional trade
blocks or a return to protectionist tendencies. A sharp rise in
bilateral free-trade agreements outside the European Union
could affect DaimlerChrysler’s position in key foreign markets,
particularly in Southeast Asia, where Japan is increasingly
gaining preferred market access.

Finally, the world economy could be negatively influenced by a
sustained deterioration in consumer and investor confidence.
This could be triggered by geopolitical and military instability,
concern about a possible sharp drop in share prices, the
battle against terrorism and the fear of an influenza pandemic.

Industry and business risks

Weak economic developments, overcapacity in the automotive
industry and sluggish consumer demand could have an impact
on vehicle manufacturers. This would primarily affect Daimler-
Chrysler’s major markets in Western Europe and the NAFTA
region. In the United States, which is still the engine of the glo-
bal economy, high competitive pressure in the automobile
market in recent years has led to the proliferation of special
financing offers and price incentives. Continued weak econo-
mic developments could make such discount financing and
price incentives necessary in the future, at similar or even higher
levels. This would not only reduce our earnings from the sale
of new vehicles, but would also lead to lower prices in the used-
car market and thus to falling residual values. As a result of
intensifying competition in Western Europe, the practice of offe-
ring discount financing and price incentives is spreading also
in this region. In order to achieve the targeted level of prices,
factors such as brand image and product quality as well as
additional technical features resulting from innovative research
and development are becoming increasingly important.

In view of increasing price pressure, it is essential for the Group’s
future profitability to realize efficiency improvements while ful-
filling DaimlerChrysler’s own high quality standards. This also
applies to the successful implementation of the CORE program
and the restructuring initiated in this context for the realign-
ment of the smart business model. Product quality has a major
influence on a customer’s decision to buy a particular brand
of passenger car or commercial vehicle. Technical problems
could lead to further recall and repair campaigns, or could even
necessitate new developments requiring type approval from
the relevant authorities. Furthermore, deteriorating product qua-
lity can also lead to higher warranty and goodwill costs.

Legal and political frameworks also have a considerable impact
on DaimlerChrysler’s future business success. Regulations
concerning exhaust emissions and fuel consumption and the
development of energy prices play a particularly important
role. The Group monitors these factors and attempts to antici-
pate foreseeable requirements during the phase of product
development.

DaimlerChrysler counteracts procurement risks through targe-
ted commodity and supplier risk management. But in view
of developments in international supply markets, the effects of
these measures are limited. If prices remain at their current
level for a long time, or actually continue to rise, this would re-
sult in a negative impact on the Group’s profitability. Increa-
sing pressure in procurement and sales markets could also
seriously jeopardize the financial situation and continued
operations of suppliers and dealers. To an increasing extent,
individual or joint support actions will be required by auto-
mobile manufacturers such as DaimlerChrysler in order to safe-
guard production and sales. If important suppliers should get
into difficulties due to their financial situation, this could have
a negative effect on the production and sales of vehicles and
thus also on DaimlerChrysler’s profitability.

Production and business processes could also be disturbed by
unforeseeable events such as natural disasters or terrorist
attacks. Consumer confidence would be significantly affected,
and production could be interrupted by supplier problems and
intensified security measures at territorial borders. In addition,
our manufacturing processes could be disturbed by failures at
the data centers. Security measures and emergency plans have
been prepared for such eventualities. Although other IT risks
in the fields of network, application and system management or
outsourcing and supplier management have a very low probabi-
lity of occurrence, the effect of such a case arising would also
have a negative impact on earnings.

DaimlerChrysler’s Financial Services division is primarily invol-
ved in the provision of financing and leasing for Group products,
as well as insurance and services in the field of fleet manage-
ment. The international orientation of this business and the
raising of capital are linked with credit, exchange rate and inte-
rest rate risks. DaimlerChrysler counteracts these risks by
means of appropriate market analyses and the use of derivative
financial instruments. In addition, the U.S. Internal Revenue
Service (IRS) has challenged the tax treatment of certain leveraged
leases by various companies, including DaimlerChrysler, and we
are currently in discussions with the IRS. Although we believe that
our tax treatment is appropriate and in compliance with appli-
cable tax law and regulations, the resolution of this matter could
have a significant negative impact on our cash flows.

Due to DaimlerChrysler’s involvement in the development of a
system to record and charge tolls for the use of highways in
Germany by trucks with more than 12 metric tons gross vehicle
weight, we are exposed to a number of risks which could have
negative effects on the Group’s financial situation, cash flows
and profitability. The development and operation of the elec-
tronic toll collection system is the responsibility of the operator
company, Toll Collect GmbH, in which DaimlerChrysler holds a
45% ownership interest and which is included in the consolida-
ted financial statements using the equity method of accounting.
In addition to DaimlerChrysler’s membership of the consortium
and its equity interest in Toll Collect GmbH, guarantees were
issued supporting obligations of Toll Collect GmbH towards the
Federal Republic of Germany concerning the completion and
operation of the toll system. The toll system went into operation
on January 1, 2005 with slightly reduced functionality. On
January 1, 2006, the toll system was installed with full functio-
nality as specified in the operator contract. Risks can arise
primarily due to lower tolls derived from the system, offsetting
alleged claims by the Federal Republic of Germany, or a refusal
to grant the final operating license. Additional information on
the electronic toll collection system and the related risks can be
found in the Notes to the Consolidated Financial Statements:
see Note 3 (Significant Equity Method Investments), Note 31 (Legal
Proceedings) and Note 32 (Contingent Obligations and Other
Commercial Commitments).

DaimlerChrysler bears a proportionate share of the risks of
its subsidiaries and its associated and affiliated companies in
line with its share of their equity capital.

Finance market risks

The DaimlerChrysler Group is exposed to market risks from
changes in foreign currency exchange rates, interest rates and
equity prices. Furthermore, commodity price risks arise from
procurement. These market risks may adversely affect Daimler-
Chrysler’s operating results, financial condition and cash flow.
The Group seeks to manage and control these risks primarily
through its regular operating and financing activities, and if ap-
propriate, through the use of derivative financial instruments.
Additional information on financial instruments and derivatives
is available in Note 33 of the Notes to the Consolidated Finan-
cial Statements. DaimlerChrysler evaluates these market risks
by monitoring changes in key economic indicators and market
information on an ongoing basis.

To quantify the exchange rate risk, interest rate risk and equity
price risk of the Group on a continuous basis, DaimlerChrysler’s
risk management systems employ value-at-risk analyses as re-
commended by the Bank for International Settlements. The value-
at-risk calculations employed by DaimlerChrysler express potential
losses in fair values assuming a 99% confidence level and a
holding period of five days. This method is based on the variance-
covariance approach of the RiskMetrics™ model. Estimates of
volatilities and correlations are drawn from the RiskMetrics™
datasets and supplemented by additional exchange rate, inte-
rest rate and equity price information. The Group does not use
derivative financial instruments for speculative purposes.

Any market sensitive instruments, including equity and fixed in-
terest bearing securities, that DaimlerChrysler holds for pension
plans or similar obligations are not included in this quantitative
and qualitative analysis. Please refer to Note 25a of the Notes to
the Consolidated Financial Statements for additional information
regarding the Group’s pension plans.

In accordance with the organizational standards in the international
banking industry, DaimlerChrysler maintains risk management
control systems independent of Corporate Treasury and with a sep-
arate reporting line.

Exchange rate risks. The global nature of DaimlerChrysler’s
business activities results in cash receipts and payments deno-
minated in various currencies. For the assessment of currency
exposures, the cash inflows and outflows of the business seg-
ments are offset and netted out if they are denominated in
the same currency. Currency exposures are regularly assessed
and gradually hedged with suitable financial instruments, pre-
dominantly foreign exchange forwards and currency options,
according to exchange rate expectations, which are constantly
reviewed. The net assets of the Group which are invested in
subsidiaries and affiliated companies outside the euro zone are
generally not hedged against currency risks. However, in spe-
cific circumstances, DaimlerChrysler hedges the currency risk
inherent in certain of its long-term investments. Besides this,
DaimlerChrysler does not generally hedge the currency transla-
tion risk which arises from our subsidiaries which report their
revenues and results in a functional currency other than the euro.

The following table shows value-at-risk figures for DaimlerChrysler’s
2005 and 2004 portfolio of derivative financial instruments used
to hedge the underlying currency exposure. We have computed the
average exposure based on an end-of-quarter basis.

Value-at-Risk

Amounts in millions of €

Dec. 31,
2005

Average
for
2005

Dec. 31,
2004

Average
for
2004

Exchange rate sensitive
derivative financial
instruments 1

281

253

148

256

1 Forward foreign exchange contracts, foreign exchange swap contracts, currency options.

The average value-at-risk of our derivative financial instruments
used to hedge exchange rate risks in 2005 is almost unchanged
to that of 2004. The increase in the period-end value-at-risk is
primarily a result of a higher foreign exchange derivatives’ volume
in US dollars.

Due to exchange rate fluctuations, especially of the US dollar
and other major currencies against the euro, DaimlerChrysler is
exposed to exchange rate risks and resultant transaction risks.
These transaction risks primarily affect the Mercedes Car Group
division, as a significant portion of its revenues are generated
in foreign currencies while most of its costs are incurred in euros.
The Commercial Vehicles division is also exposed to such trans-
action risks, but only to a minor degree because of its worldwide
production network. Chrysler Group’s transaction risks are low,
as most of its revenues and costs are generated in US dollars.

Interest rate risks. DaimlerChrysler holds a variety of interest
rate sensitive financial instruments to manage its liquidity and
the cash needs of the day-to-day operations. A substantial vol-
ume of interest rate sensitive assets and liabilities is related to
the leasing and sales financing business operated by Daimler-
Chrysler Financial Services. The leasing and sales financing busi-
ness enters into transactions with customers which primarily
result in fixed-rate receivables. DaimlerChrysler’s general policy
is to match funding in terms of maturities and interest rates.
However, for a limited portion of the receivables portfolio, the
funding does not match in terms of maturities and interest rates.
As a result, DaimlerChrysler is exposed to risks due to changes
in interest rates.

DaimlerChrysler coordinates the funding activities of the Indus-
trial Business and Financial Services at the Group level. It uses
interest rate derivative instruments, such as interest rate swaps,
forward rate agreements, swaptions, caps and floors, to achieve
the desired interest rate maturities and asset/liability struc-
tures (asset and liability management).

The following table shows value-at-risk figures for DaimlerChrysler’s
2005 and 2004 portfolio of interest rate sensitive financial
instruments. We have computed the average exposure based on
an end-of-quarter basis.

Legal risks

Various legal proceedings are pending against DaimlerChrysler.
In our view, most of these proceedings constitute ordinary,
routine litigation that is incidental to our business. However, the
possibility cannot be excluded that the final resolution of some
of these lawsuits could cause DaimlerChrysler to incur substan-
tial costs and cash outflows. Although the final resolution of
any such lawsuit could have a material effect on the Group’s
earnings in any particular period, DaimlerChrysler believes
that any resulting obligations are unlikely to have a sustained
effect on the Group’s financial position, results of operations
and cash flow. Information on various legal proceedings can be
found in Note 31 of the Notes to the Consolidated Financial
Statements.

Overall risks

There are no discernible risks that, either alone or in combina-
tion with other risks, could jeopardize the continued existence
of the company.

Value-at-Risk

Amounts in millions of €

Dec. 31,
2005

Average
for
2005

Dec. 31,
2004

Average
for
2004

Interest-rate-sensitive
financial instruments

In 2005, the average and the period-end values-at-risk of our
portfolio of interest rate sensitive financial instruments in-
creased, primarily due to more volatile interest rates and a
weaker euro mainly in relation to the US dollar.

Equity price risks. DaimlerChrysler holds investments in equity
securities and equity derivatives. In accordance with internatio-
nal banking standards, DaimlerChrysler does not include invest-
ments in equity securities that the Group classifies as long-
term investments in the equity price risk assessment. Equity
derivatives used to hedge the market price risk of investments
accounted for using the equity method are also not included
in this assessment. Changes in the fair market value of these
derivatives essentially offset changes in the fair market value
of the underlying investment. The remaining equity price risk in
2005 and 2004 was not, and is currently not, material to the
Group. Thus, DaimlerChrysler does not present the value-at-risk
figures for the remaining equity price risk.

Commodity price risks. Associated with DaimlerChrysler’s busi-
ness operations, the Group is exposed to changes in prices of
commodities. DaimlerChrysler addresses those procurement
risks by a concerted commodity and supplier risk management.

To a minor extent, DaimlerChrysler uses derivative commodity
instruments to reduce some of the Group’s commodity price
risk, mainly the risk associated with the purchase of precious
metals. The risk resulting from these derivative commodity in-
struments in 2005 and 2004 was not, and is currently not, sig-
nificant to the Group. Therefore, DaimlerChrysler does not
separately present the value-at-risk figures for its derivative
commodity instruments.

Outlook

The statements made in the Outlook section are based on the
operative planning of the DaimlerChrysler Group for the years
2006 through 2008. This planning is based on premises regard-
ing the economic situation resulting from assessments made
by renowned economic institutes, as well as the ambitious targets
of our divisions. The forecasts for future business developments
are oriented towards the opportunities and risks offered by
the anticipated market conditions and the competitive situation
during the planning period.

The world economy

Present economic conditions and global indicators for consumer,
business and investor sentiment suggest that the world eco-
nomy will expand in 2006 at about the same rate as last year.
This should be assisted by ongoing stable growth in the United
States, although US interest rates are likely to continue rising
with a resulting negative impact on domestic demand. Growth
in Western Europe, and in particular in Germany, might acce-
lerate slightly, but from a relatively low level. It is still uncertain
whether or not Japan has really overcome its growth weakness,
but economic opportunities now seem to outweigh the risks.
Growth in the emerging markets will probably slow down a little
in 2006, mainly due to slightly less dynamism in the rapidly
expanding Chinese economy and rather lower growth rates in
the Middle East. Northeast Asia will continue to be the region
with the strongest growth, followed closely by India and Eastern
Europe. Growth is likely to accelerate in particular in the new
EU member states of Central and Eastern Europe in 2006. Over-
all, the world economy should expand at a rate of slightly more
than 3%, like in 2005 and in line with the long-term trend. Risks
for the global economy are to be seen in rising raw-material
prices, especially of oil, and the possible correction of the US
foreign-trade deficit, which would result in weaker domestic
demand in the United States and the significant depreciation of
the US dollar.

Our planning is based on the assumption that compared with
average exchange rates during 2005, in the coming years,
the euro will appreciate against the US dollar and the British
pound, and will remain fairly stable against the Japanese yen.

Automotive markets

In line with the development of the world economy, growth in
global demand for automobiles in 2006 will be at about the
same rate as in 2005. Whereas demand for passenger cars in
nearly all of the emerging markets is likely to increase signifi-
cantly, the best that can be expected for the North American
market for passenger cars and light trucks and the Western
European markets for passenger cars is that volumes will remain
at the same level as in 2005. Slight growth is anticipated for
Japan, the world’s second-largest market for passenger cars, as a
result of further improvements in economic conditions in Japan.

Global demand for commercial vehicles should remain at a high
level for the year 2006. As a result of purchases brought for-
ward in connection with new emission regulations due to come
into force in the year 2007, the North American market for heavy
trucks could expand again slightly in full-year 2006. A similar
pattern of demand is emerging in Japan. Demand in Western
Europe should remain stable in 2006. For the year 2007, we anti-
cipate a significantly lower market volume due to the cyclical
weakening of the major markets for commercial vehicles, exac-
erbated by stricter emission regulations in the United States
and Japan.

Most of the growth in worldwide demand for vehicles in the
coming years will continue to be in the emerging markets of Asia,
in South America, and increasingly in Central and Eastern
Europe, due to the dynamic growth in purchasing power, improved
infrastructures and the generally increasing need for mobility in
those regions.

DaimlerChrysler assumes that competitive pressure will inten-
sify due to the industry’s worldwide over-capacity. Additional
factors are stricter safety and environmental regulations, the
fulfillment of which will cause substantial costs for all produc-
ers. Therefore, one of the factors for success in the future will
be the ability to achieve competitive advantages through inno-
vative products and strong brands. In this context, it will also
become increasingly important to have a worldwide market
presence with the possibility to participate in the growth of the
emerging markets.

Unit sales

Only weak growth the major passenger car markets is anticipa-
ted in the coming years. The Mercedes Car Group plans for
unit sales in 2006 at a similar level to the prior year, combined
with an improved model mix. Unit sales should then increase
again in 2007 and 2008. This expansion will be based on the new
products already launched in the year 2005 and those sched-
uled for the next few years. With the new B-Class and R-Class
models we are opening up the sports-tourer market segment for
the Mercedes-Benz brand and thus attracting new customers.
The new S-Class, which will be fully available in 2006, under-
scores the innovation and technology leadership of the Mercedes-
Benz brand. We intend to further extend our leading market
position in the premium segment with this superb automobile.
Improved penetration of the Asian markets should also con-
tribute to growing sales. We see opportunities above all in China,
where the Mercedes Car Group plans to assemble its C-Class
and E-Class models and to further develop its sales organization.
Unit sales of the smart brand should be boosted by the suc-
cessor model to the smart fortwo in 2007. The possibility of
launching the new model in the US market is being investi-
gated. As a result of the CORE efficiency-improving program and
the new business model for the smart brand, the profitability
of the Mercedes Car Group should increase continuously during
the planning period of 2006 through 2008. We aim to achieve
a return on sales of 7% in the year 2007. Parallel to the measures
being taken to improve profitability, the Mercedes Car Group
continues to implement its quality offensive.

The Chrysler Group plans to further improve its competitive
position in the coming years. With an array of attractive new
models, we intend to achieve world-class levels of performance
in customer experience and operational excellence, i.e. pro-
duct quality and productivity. To achieve this, the Chrysler Group
will launch ten all-new models in 2006 followed by several
more new vehicles in the following years. This should strength-
en our market position in the highly competitive North Ame-
rican market. But the Chrysler Group also intends to sell more
vehicles outside the NAFTA region, assisted by the Dodge brand,
which we are now launching in Europe. The product range for
export markets will be significantly expanded in the coming years.
One focus of the Chrysler Group’s regional expansion is in
China, where minivans and the Chrysler 300 and 300C are to be
produced in the future in addition to the existing production of
Jeep® vehicles. In the coming years, we will further improve the
efficiency and flexibility of our manufacturing processes. Fur-
thermore, the Chrysler Group will reduce costs by making more
use of the existing know-how within the DaimlerChrysler Group
and thus standardizing components and using shared vehicle
architecture for several models. As a result of its generally im-
proved competitiveness and the new products launched in
2006, the Chrysler Group anticipates stable unit sales in 2006
but significantly higher volumes in the following years.

In 2006, the Commercial Vehicles division aims to achieve unit
sales at the same high level as in the prior year. Due to a weak-
ening of demand in Western Europe, North America and Japan,
unit sales are expected to fall in 2007, with the possibility of
an increase in 2008. We intend to make the commercial vehicles
business less dependent on cyclical market fluctuations in the
future as a result of the Global Excellence optimization program,
so that sustained positive earnings can be achieved also under
difficult market conditions. In this way, we intend to utilize our
cost advantages as the world’s biggest manufacturer of com-
mercial vehicles better than in the past. In addition, we will
strengthen Commercial Vehicles’ competitive position in the years
2006 through 2008 with numerous new products. These in-
clude the successor model to the Sprinter, the new Premium
Class from Freightliner, and the new touring buses from Mer-
cedes-Benz. Within the context of our worldwide growth strategy,
we will push forward with the integration of FUSO and utilize
the opportunities presented in Asia, especially in China. Within
the framework of the new management model (see page 31),
as of March 2006, the Commercial Vehicles division will focus
on the development, production and distribution of trucks,
and the division will therefore be renamed “Truck Group”. Buses
and vans will be directly managed as separate units and will
be included in the Van, Bus, Others segment. The new structure
should create additional synergies and facilitate a stronger
orientation towards the specific requirements of customers and
markets in the individual segments.

The Financial Services division will continue to make an impor-
tant contribution to vehicle sales and to the financial success
of the DaimlerChrysler Group. The key challenges in the coming
years are growing competition from internationally active
banks and from alternative sales channels on the Internet, inten-
sified competition in the automobile markets, and, from today’s
perspective, increasing levels of interest rates all over the world.
In order to meet these challenges, the Financial Services division
will further enhance its process quality and efficiency, aided by
the improvement of its risk-management system. The growth in
Asian markets targeted by DaimlerChrysler’s vehicle brands is
to be supported with tailored financial services. For example, in
November 2005 the division started business operations in
China, where we are the first provider to offer customers and
dealers financing and insurance packages for passenger cars
and commercial vehicles from one source. In total, we antici-
pate a slight increase in contract volume during the planning
period.

EADS anticipates a generally stable development of the world-
wide civil-aircraft market with strong demand in the years 2006
through 2008. Due primarily to rising Airbus deliveries, EADS’
volume of business should continue to grow in the coming years.
This development will be assisted by the new A380 wide-body
aircraft, which should be delivered to customers starting at the
end of the year 2006. EADS also expects generally positive
developments for its defense and space operations, despite the
continuation of very tight government budgets.

On the basis of the divisions’ planning, in 2006 we expect
DaimlerChrysler’s unit sales to be in the magnitude of the
prior-year. We anticipate positive sales impetus in the following
years, primarily as a result of the new products launched
by the Chrysler Group and upcoming new products from the
Mercedes Car Group.

Investments in Property, Plant and Equipment 2006 - 2008

(in billions of €)

DaimlerChrysler Group

19.1

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities

7.2

7.7

3.8

0.1

0.3

Revenues and earnings

Capital expenditure

During the planning period of 2006 through 2008, Daimler-
Chrysler expects to invest a total of approximately €19 billion
on property, plant and equipment. At the Mercedes Car Group,
the focus of investment will be on advance expenditure for the
successor models to the present C-Class and E-Class. Principle
investments by the Chrysler Group will be in the modernization
of its plants and the continuation of the product offensive. At
the Commercial Vehicles division, major investments are planned
in connection with the new modular platforms for heavy-duty
and medium-duty trucks and for a new family of engines for
heavy-duty trucks. DaimlerChrysler also plans to invest substan-
tial funds in the further expansion of its business activities in
China.

Investments in property, plant and equipment

In billions of €

2005

2006-2008

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Financial Services

Other Activities 1

6.6

1.6

3.1

1.7

0.1

19.1

7.2

7.7

3.8

0.1

0.3

1 Excluding the Off-Highway business unit in the period of 2006 through 2008

Adjusted for exchange-rate effects, revenues in 2006 will proba-
bly increase slightly. In the following years, we expect revenues
to increase significantly in line with rising unit sales. In regional
terms, the main source of growth will be the dynamic markets
of Asia.

DaimlerChrysler anticipates an improvement in profitability in
2006, with continuous increases in operating profit during the
following years.

The driving force of this positive earnings trend is on the one hand
our product offensive with more than 50 new vehicles in the
period of 2005 through 2008. On the other hand, an important
contribution will come from the efficiency-improving programs
that we have initiated in all of the divisions and which are being
pushed steadily forward. The Mercedes Car Group in particular
should be able to substantially boost its profitability as a result
of its CORE efficiency-improving program. An additional factor
that should have a positive impact on earnings in the coming
years is the closer networking of our worldwide activities
and in particular the knowledge transfer and closer cooperation
within the Group.

A fundamental condition for the targeted increase in earnings
is a generally stable economic and political situation and the
moderate increase in the worldwide demand for automobiles
expected for the years of 2006 through 2008. Opportunities
and risks may arise from the development of currency exchange
rates, interest rates and raw-material prices.

An important step to achieve our goals is the new management
model for DaimlerChrysler, which we announced in January
2006. By implementing this program, we intend to generally im-
prove the Group’s competitiveness and create the right condi-
tions for further profitable growth (see page 31).

Research and Development Expenditure 2006 - 2008

(in billions of €)

DaimlerChrysler Group

15.5

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Other Activities

6.4

4.7

3.8

0.6

Research and development

Within the framework of DaimlerChrysler’s new management
model, we are merging our Group-wide area of Research and
Technology with the product development of the Mercedes Car
Group to form the new Board of Management area of Group
Research & Mercedes Car Group Development. This new area
will continue to work as a research competence center for the
entire Group, and will take on more responsibility for the prede-
velopment activities of all the automotive divisions. This will
shorten the launch periods for future technologies, enhance our
customer focus and avoid the duplication of work.

With this new organization, we will be able to apply our research
and development expenditure more efficiently in the coming
years. We are optimizing work processes and concentrating on
those projects that create the maximum added value for our
customers. In addition, we are intensifying the cooperation bet-
ween the various internal research and development departments
and with the supplier industry. We will establish more so-called
“project houses” in which engineers from different countries
and divisions will work together. We will increasingly utilize the
possibilities of modularization and standardization, wherever
this is compatible with the identity of our brands. For example,
we will reduce the number of vehicle architectures in the com-
ing years while significantly increasing the number of versions
based on shared vehicle architectures. This strategy will en-
able us to continue to offer a wide range of attractive new mod-
els while achieving substantial savings with regard to material
and development costs and further enhancing the quality of our
products.

Research and development expenditure

In billions of €

2005

2006-2008

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Other Activities 1

5.6

2.4

1.7

1.3

0.2

15.5

6.4

4.7

3.8

0.6

1 Excluding the Off-Highway business unit in the period of 2006 through 2008

During the period of 2006 through 2008, DaimlerChrysler will
invest a total of €15.5 billion in its research and development
activities. As a result of the targeted efficiency improvements,
the annual expenditure will be slightly below the level of recent
years in all of the automotive divisions. One focus of Daimler-
Chrysler’s research and development expenditure will be on
the new models planned by the Mercedes Car Group and the
Chrysler Group. Some of the key projects in the Commercial
Vehicles division are the new truck platforms and new engines
fulfilling future emission regulations in the United States, West-
ern Europe and Japan.

Significant expenditure is also planned for new technologies
with which we intend to improve the safety, environmental com-
patibility and fuel economy of road vehicles.

Workforce

As a result of the anticipated production volumes and productivi-
ty advances, DaimlerChrysler assumes that compared with the
end of 2005, the size of its workforce will decrease continuously
during the planning period of 2006 through 2008. Due to the
sale of the Off-Highway business unit, the number of employees
is likely to fall by around 7,000 in the first quarter of 2006. The
staff-adjustment measures being taken at the Mercedes Car
Group for its locations in Germany will result in a reduction of
approximately 8,500 jobs by the end of September 2006. And
the implementation of the new management model will lead to
a reduction of around 6,000 jobs in administrative functions
worldwide by the end of 2008.

Forward-looking statements in this Annual Report:
This Annual Report contains forward-looking statements that reflect management’s
current views with respect to future events. The words “anticipate”, “assume”,
“believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “project” and “should” and
similar expressions identify forward-looking statements. Such statements are sub-
ject to risks and uncertainties, including, but not limited to: an economic downturn in
Europe or North America; changes in currency exchange rates, interest rates and in
raw material prices; introduction of competing products; increased sales incentives; the
effective implementation of our New Management Model, and the CORE program,
including the new business model for smart, at the Mercedes Car Group; renewed pres-
sure to reduce costs in light of restructuring plans announced by our major competitors
in NAFTA; supply interruptions of production materials, resulting from shortages, labor
strikes or supplier insolvencies; the resolution of pending governmental investigations;
and decline in resale prices of used vehicles. If any of these or other risks and uncer-
tainties occur (some of which are described under the heading “Risk Report” on pages
58 ff in this Annual Report and under the heading “Risk Factors” in the Annual Report
on Form 20-F filed with the Securities and Exchange Commission), or if the assumptions
underlying any of these statements prove incorrect, then actual results may be materi-
ally different from those expressed or implied by such statements. We do not intend or
assume any obligation to update any forward-looking statement, which speaks only as
of the date on which it is made.

Divisions

DaimlerChrysler sold a total of 4.8 million vehicles in 2005 (+ 3%).

The increase was primarily due to the success of the numerous

new models that we launched during that year. Although its major

new models were not available until the second half of the year,

the Mercedes Car Group posted unit sales similar to the level of the

prior year. The Chrysler Group slightly increased its unit sales

compared with 2004, and the Commercial Vehicles division posted

a significant rise. The Financial Services division continued its

strategy of focusing on the core automotive business and supported

the automotive divisions with tailored financial services. Our

associated company, EADS, continued developing very positively

during the year under review.

Contents

72 Mercedes Car Group

84 Financial Services

• Attractive new models generate

• Positive business developments

sales momentum

in 2005

• Greater efficiency due to CORE

• Contract volume increases to

€117.7 billion

• Market presence established to

China

• Toll Collect system running

smoothly in Germany; conversion
to new OBU 2 software completed

• Increase in operating profit

86 Other Activities

• Significantly higher contribution

to earnings from EADS

• Agreement reached on sale of
DaimlerChrysler Off-Highway
business unit

• Disposal of shares in Mitsubishi

Motors Corporation

program

• Quality offensive takes effect
• Operating profit negatively impacted
by necessary workforce reductions
and restructuring measures

76 Chrysler Group

• Positive business developments

in a difficult market

• Improved manufacturing productivity

and flexibility

• New products successful in the

market

• Next product offensive in 2006
• Slight increase in operating profit

80 Commercial Vehicles

• Favorable developments in global
commercial-vehicle markets
• Positive trend continues for all

business units

• Implementation of “Global Excellence”

initiative

• Numerous new products presented
• Very high operating profit

Mercedes Car Group

Attractive new models generate sales momentum | Greater efficiency through

CORE program | Quality offensive takes effect | Operating profit negatively impacted

by necessary workforce reductions and restructuring measures

Amounts in millions of €

% change

2005

2004

05/04

Operating profit (loss)

Revenues

Investments in property,
plant and equipment

Research and development
expenditure

Production

Unit sales

Employees (Dec. 31)

(505)

50,015

1,666

49,630

1,629

2,343

2,418

2,634

1,214,855

1,246,726

1,216,838

1,226,773

104,345

105,857

-30

-8

-3

-1

Business developments affected by new models and re-
structuring measures. The Mercedes Car Group, comprising
the brands Mercedes-Benz, Maybach, smart, Mercedes-Benz
AMG and Mercedes-Benz McLaren, sold 1,216,800 vehicles in
2005 (2004 : 1,226,800). The success of the new models
launched in the market led to significantly higher revenues for
the Mercedes-Benz brand in the second half of the year. As
a result, unit sales in 2005 were slightly higher than the figure
recorded in 2004. Revenues of €50.0 billion slightly exceeded
the prior year’s level.

Within the framework of the CORE program, the Mercedes Car
Group initiated various measures to boost efficiency during
2005, leading to a substantial improvement in profitability as
the year progressed. Nevertheless, the division posted an
operating loss of €505 million for the full year (2004: operating
profit of €1.7 billion). This decline in profitability was primarily
caused by two factors: on the one hand the special charges of
€1.1 billion associated with the realignment of the business
model at smart, and on the other hand expenses of €570 million
related to the announced workforce reductions at the Mercedes
Car Group’s locations in Germany (see page 39).

Mercedes-Benz successfully launches new models. The
Mercedes-Benz brand introduced four important new models
in 2005: the successor models for the M-Class and S-Class,
and the new B-Class and R-Class Sports Tourers. Engine line-
ups were significantly upgraded with the launch of the new
generation of V6 and V8 gasoline and diesel engines. Thanks to
the success of the new models and engines, unit sales of the
Mercedes-Benz brand rose 2% to 1,092,500 vehicles in 2005,
despite difficult market conditions. Unit sales in the United
States increased by 4%, and sales in Western Europe excluding
Germany were up 2% from the figure recorded in 2004. In
Germany, however, an intensely competitive environment and
consumers’ reluctance to buy in the run-up to model change-
overs led to a 5% decline in sales. The Mercedes-Benz brand
was particularly successful in Asia in the year under review.
Unit sales in Japan increased by 18% in 2005, and we sold 11,500
vehicles in the rapidly growing Chinese market, an increase of
18% from the figure recorded in 2004.

Unit sales of the S-Class in 2005 did not reach the prior year’s
level due to consumers’ reluctance to buy prior to the model
changeover in October. Although model lifecycle factors led to
a decline in C-Class sales, the new V6 gasoline and diesel en-
gines – as well as the new Sport Edition – generated positive
sales momentum in the second half of the year. Although unit
sales did not equal the prior-year figure, the E-Class remained
the clear leader in its segment with a global market share of
27% in 2005. The CLS coupe was a particularly successful mem-
ber of the E-Class model family, recording sales of 51,600
units (2004: 8,100). Unit sales of the new A-Class, of which the
successor model was launched in 2004, were much higher in
2005 than in the prior year, and sales of M-Class vehicles rose
significantly following the model changeover.

With the innovative R-Class,
Mercedes-Benz affirms its role
as a technology leader and
trendsetter in the automotive
industry.

New S-Class features numerous innovations. The Mercedes
Car Group unveiled the new S-Class at the International Motor
Show (IAA) in Frankfurt in September 2005. The model was sub-
sequently launched in Western Europe and has met with an ex-
tremely positive response from customers and the press. With
its numerous innovations, the new S-Class continues the tradi-
tion established by the world’s most successful sedan in the lux-
ury segment. Exemplary safety and the highest levels of comfort
remain the outstanding attributes of the S-Class. Following in
the footsteps of its predecessors, the new S-Class introduces
numerous technical innovations as standard features: the “anti-
cipatory” Brake Assist BAS PLUS system, DISTRONIC PLUS prox-
imity cruise control, the PRE-SAFE® precautionary occupant
protection system, and the new night vision system offer the
latest advanced technology for accident prevention. At the
same time, the highest levels of driving comfort are guaranteed
by a new dynamic multi-contour seat, the Active Body Control
system (ABC), the further refined AIRMATIC suspension system,
and an all-new automatic climate control system. As a preview
of the drive systems of the future, we also presented two visions
of the new S-Class with hybrid drive at the IAA: the Direct Hybrid
(in combination with a gasoline engine) and the BlueTec Hybrid
(with a diesel engine). Sales of the new S-Class sedan totaled
20,500 units by the end of the year under review.

B-Class and R-Class launch the Sports tourer segment.
The Mercedes-Benz brand expanded its range of products in 2005
to include two completely new vehicles: the B-Class and the
R-Class. These two sports tourer models combine the advantages
of sporty sedans, station wagons, vans and sport-utility vehicles
(SUV) into an independent individual profile, thereby enabling us
to win over new customer groups for the Mercedes-Benz brand.

The B-Class, which has been available in Europe since June 2005,
met with a very positive response from our customers and the
media, a fact that was reflected in the excellent unit sales figure
of 62,200 vehicles for the model’s first year on the market.

The space-saving arrangement of the engine and transmission
in the B-Class is based on the sandwich concept used in the
A-Class. It enables the new Sports tourer to offer the interior
spaciousness of larger sedans and station wagons despite
its compact outer dimensions. The model’s EASY-VARIO system
makes it possible to alter the design of the interior in a great
variety of ways with just a few manual adjustments.

The R-Class, which we launched in the United States in Septem-
ber 2005, is outstanding for its innovative interior concept, extra-
ordinary design, and the dynamic handling of an upper-range
automobile. The highest levels of safety are provided by perma-
nent all-wheel drive, pneumatic suspension at the rear axle or
all-round AIRMATIC suspension, the 4ETS electronically controlled
traction system, and ESP®. A total of 8,300 R-Class sports tour-
ers were sold in the United States in the year under review.
A shorter version of the model will go on sale in Western Europe
in the spring of 2006.

Refined power in the new M-Class. The new M-Class has met
with a very positive response among customers and the press.
A total of 66,900 new M-Class vehicles have been sold since the
model was launched in the United States in April 2005 and in
Western Europe the following August. The new M-Class under-
scores its exceptional position in the off-road segment with its
state-of-the-art technology and three powerful new engines. The
model was one of the first SUVs to be awarded five stars (the
best possible result) in both the front and side-impact tests con-
ducted by the National Highway Traffic Safety Administration in
the United States.

The Maybach 57 combines luxury and
driving dynamics at the highest level:
state-of-the-art technology and high per-
formance with the perfection appropriate
for this brand.

Product offensive continues with launch of numerous at-
tractive new products. The E 320 BLUETEC was unveiled at the
North American Auto Show in Detroit in January 2006. Featur-
ing the world’s cleanest diesel engine, this car will be launched
in the United States in the fall of 2006. With this first series-
version BLUETEC passenger car, Mercedes-Benz will establish
“BLUETEC” as the name of a generation of particularly econo-
mical and clean diesel engines. To great acclaim, Mercedes-Benz
also presented the new GL-Class, a new model in the growth
segment of large SUVs. The R-Class with a wheelbase appropri-
ate to European requirements debuted in February 2006. As
the year progresses, we will launch the technically all-new gen-
eration of the E-Class, the new high-end coupe – the CL-Class,
and the upgraded SL-Class.

A successful year for Mercedes-Benz in motor sport. 2005
was a successful year in motor sport for Mercedes-Benz. The
brand finished second in both the Formula One Drivers’ and Con-
structors’ championships, first in the Driver, Team, and Manu-
facturer classifications in the German Touring Car Masters (DTM),
and first in the Drivers’ and Constructors’ championships in the
Formula 3 Euro Series. Mercedes-Benz won 36 of the 49 races
the brand participated in: McLaren-Mercedes drivers finished
first in ten of 18 Formula One Grand Prix races, the C-Class
was the winning vehicle in eight of eleven DTM races, and
Mercedes engines were victorious in 18 of 20 Formula 3 races.

Quality offensive takes effect. The extensive measures being
implemented within the framework of our quality offensive en-
abled us to significantly improve the quality of our vehicles in the
year under review. Internal analyses as well as numerous ex-
ternal studies have shown this to be the case. In the 2005 J.D.
Power Initial Quality Study, for example, the Mercedes-Benz
brand moved up five notches and is now once again among the
top five vehicle brands. Mercedes-Benz passenger cars were
also rated among the best automobiles in three vehicle classes
in the German ADAC breakdown statistics. These successes
represent only an initial step, however, as we continue to pursue
our objective of making our products number one in the world
when it comes to quality.

Consistent implementation of the CORE program. In Feb-
ruary 2005, we launched the efficiency-improving CORE program
as a means of returning the Mercedes Car Group to lasting
competitiveness. Our objective here is to achieve a return on
sales of 7% by 2007. We systematically examined the entire
value chain of the Mercedes Car Group in seven different task
areas in terms of efficiency, costs and quality. Then, in the ini-
tial phase of CORE, we began implementing measures designed
to achieve a short-term improvement in earnings. Examples
of such measures included reducing expenditures for materials,
personnel, energy and information technology, and simplifying
warehouse logistics systems. In addition, we examined all our
current projects and canceled those vehicle and engine pro-
jects that promised to be unprofitable. Some of these measures
began taking effect in 2005, as reflected in the development of
earnings throughout the year. The second phase of CORE, which
began in September 2005, involves the implementation of
structural measures, whereby our ultimate goal is to be able to
develop, produce and sell first-class products of the highest
quality under competitive conditions. To do this, we have to make
our processes faster, leaner and better, reduce our costs, and
focus on the essentials.

Workforce reductions at German locations. In view of the on-
going difficult market situation and intensely competitive con-
ditions, an adjustment of capacities at the Mercedes Car Group
in conjunction with efforts to increase productivity had become
unavoidable. For this reason, at the end of September 2005, the
Board of Management approved a package of measures calling
for workforce reductions of 8,500 persons at the Mercedes Car
Group locations in Germany. This headcount reduction, to be
achieved through voluntary agreements within a period of twelve
months, is designed to help secure the competitiveness of Ger-
man locations — and thus the success of the Mercedes Car
Group – over the long term. By the end of 2005, approximately
5,000 employees had signed agreements on their departure
from the Mercedes Car Group or had already left. This means
that just three months after the start of the voluntary program,
about 60% of the twelve-month goal had been already been
achieved. €570 million of the approximately €950 million in
total charges associated with the workforce reductions were
already recognized in the fourth quarter of 2005.

The smart fortwo convertible is less than
three meters long, stylish in all situations, and
has built-in safety: the smart fortwo has got
what it takes. And with fuel consumption of
3.4 liters per 100 kilometers, the cdi version
is the world’s best-selling “three-liter” car.

Maybach expands its product range. The Maybach high-end
luxury brand expanded its range of models in 2005, thereby
further boosting the brand’s appeal. The exclusive Maybach 62
and 57 models were joined by the even more powerful and
versatile Maybach 57 S at the end of the year. Since the brand
was revived, Maybach has delivered some 1,500 vehicles around
the world in an economic environment that has been challeng-
ing also for the luxury car sector. 300 of these automobiles were
delivered in 2005.

smart improves its position in a contracting market. Unit
sales of the smart brand totaled 124,300 vehicles in the year
under review (2004 : 152,100). This figure can be broken down
into 43,700 smart forfour vehicles (2004 : 59,100), 75,300
smart fortwo cars (2004 : 79,500), and 5,300 smart roadsters
(2004 : 13,600). As retail sales increased to a total of 143,100
vehicles (2004 : 139,600), dealers’ inventories were significantly
reduced during the year. The most important sales markets for
the smart brand remained Germany (35,000 units; - 28%) and Italy
(30,800 units; - 22%). A big success for the smart brand was the
launch of the smart fortwo cdi in Canada, where we sold 4,100
units of that model in 2005 – significantly more than originally
anticipated.

The smart fortwo cdi remains the world’s best-selling “three-liter”
car (with fuel consumption of 3.4 liters per 100 kilometers).
Beginning in the spring of 2006, it will be possible to retrofit
diesel-particulate filters in all smart diesel cars. At the same
time, our smart forfour diesel models will be fitted with diesel
filters; smart fortwo diesel models have been fitted with this
equipment since January 2006.

smart implements its restructuring program. Within the
framework of the restructuring program initiated for smart in
April 2005, we discontinued production of the smart roadster
and development of the planned smart SUV. The workforce was
reduced from 1,350 to 750 employees at smart headquarters,
and there was a reduction of 125 employees at the Hambach
plant. We also restructured our marketing activities and ex-
panded our dealership network from 930 to 1,120 sales outlets.
In addition, we incorporated smart’s procurement, design,
aftersales and IT into the Mercedes-Benz organization. As a re-
sult of these measures, we succeeded in reducing fixed costs
at smart by 26% in the year under review.

Unit sales 2005 1

Mercedes-Benz

of which: S-Class/SL/Maybach/SLR

E-Class/CLS

C-Class

of which: CLK

SLK

Sports coupe

A/B-Class

M/R-Class

G-Class

smart

Mercedes Car Group

of which: Germany

Western Europe (excluding Germany)

NAFTA

United States (retail sales)

South America

Asia/Oceania (excluding Japan)

Japan

1 Group sales, unless otherwise indicated (including leased vehicles)

1,000

units

1,093

265

398

263

124

1,217

355

422

254

224

05/04

% change

-17

-10

-16

-27

+10

-29

+84

+27

-16

-18

-1

-8

-3

-2

+11

+17

Chrysler Group

Positive business developments in a difficult market | Improved manufacturing

productivity and flexibility | New products successful in the market | Next product

offensive in 2006 | Slight increase in operating profit

Amounts in millions of €

% change

2005

2004

05/04

Operating profit

Revenues

Investments in property, plant
and equipment

Research and development
expenditure

Production

Unit sales

Employees (Dec. 31)

1,534

50,118

1,427

49,498

3,083

2,647

1,710

1,570

2,760,467

2,652,186

2,812,993

2,779,895

83,130

84,375

+16

-1

Continuation of positive business developments. Although
market conditions remained difficult in North America, business
developments at the Chrysler Group were generally positive in
2005, primarily due to successful new products and measures
taken to reduce costs and improve quality. This was also re-
flected by the division’s operating profit, which increased slight-
ly to €1.5 billion (2004: €1.4 billion) (see page 40).

Worldwide, the Chrysler Group posted factory unit sales (ship-
ments to dealers) of 2.8 million Chrysler, Jeep® and Dodge
brand passenger cars, sports tourers, minivans, sport-utility
vehicles and light trucks in 2005, an increase of 1% compared
to the prior year. The United States was the largest market
with 2.3 million vehicles (+ 1%), followed by Canada with 209,900
vehicles (-1%) and Mexico with 122,500 vehicles (+ 11%). The
Chrysler Group also shipped 175,200 vehicles to markets out-
side the NAFTA region, an increase of 3% over the prior year.

Worldwide retail and fleet sales increased by 5% to 2.8 million
vehicles, with fleet sales accounting for 26% of total US sales
(2004: 22%).

Due to higher unit sales, the Chrysler Group’s revenues of €50.1
billion were 1% above the prior-year level.

The 2007 Dodge Caliber is a five-door
vehicle that provides a new slant
on one of the world’s most competitive
segments.

Improved position in the US market. The Chrysler Group in-
creased its retail and fleet sales in the US market by 4% to 2.3
million vehicles. Its market share rose to 13.2% (2004: 12.8%).
It improved its market position not only in the passenger-car
and sports-tourer segments, but also with minivans and SUVs.
Successful models once again were the Chrysler 300/300C
with sales of 144,000 vehicles (+ 35%), the Dodge Magnum with
52,500 vehicles sold (+ 34%), and the Jeep® Grand Cherokee
with 213,600 units (+ 18%). Unit sales of Chrysler and Dodge mini-
vans increased due to the ongoing success of the innovative
Stow’n GoTM seating and storage system by 5% to 407,500 vehi-
cles. The Chrysler Group also achieved sales increases with
the models Dodge Sprinter (+92%) and Chrysler PT Cruiser (+15%).
However, sales of the Dodge Durango and the Dodge Ram
decreased by16% and 6%, respectively. Although they were not
available until May and September, 44,800 and 17,000 units
were sold of the all-new Dodge Charger and Jeep® Commander
respectively.

At the end of the year, dealers in the United States had inven-
tories totaling 598,200 vehicles, equivalent to 85 days’ supply
(end of 2004: 600,600 vehicles and 81 days).

Product offensive in 2005. In addition to improving efficiency
and product quality, another strategic goal of the Chrysler Group
is to achieve a sustained improvement in its competitive posi-
tion as a result of launching new models. Therefore, the Chrysler
Group continued its product offensive in 2005 with award-win-
ning products such as the Dodge Charger, the Jeep® Commander
and the new Dodge Ram Mega Cab pickup truck.

The Dodge Charger sports sedan was selected as “Best Vehicle”
in the large-car category by Consumer Guide magazine. The
police-car versions of the Dodge Charger and Dodge Magnum
models, equipped with either a 3.5-liter V6 or a 5.7-liter HEMI-
V8 engine, achieved best-in-class rankings in the Michigan State
Police vehicle evaluation program.

The Jeep® Commander, the first Jeep® with three rows of seats,
has drawn strong reviews from the general public and the
media. And the Dodge Ram Mega Cab pickup truck with its
best-in-class interior room, maximum power and payload
capability secured Truckin’ magazine’s “Truck of the Year” title.

Finally, to satisfy the growing demand for vehicles with all-
round high performance, the Chrysler Group expanded its SRT
(Street and Racing Technology) line-up with five new vehicles:
the Chrysler 300C SRT8, the Dodge Charger SRT8, the Dodge
Magnum SRT8 and the Dodge Viper SRT10 sports coupe; the
Jeep® Grand Cherokee SRT8, the most powerful Jeep® vehicle
ever, will arrive in dealerships in early 2006.

Expanded product range also outside North America.
Midterm, the Chrysler Group plans to further develop its pres-
ence in international markets. In 2005, the Chrysler Group also
expanded its range of products available in international mar-
kets with diesel and right-hand-drive versions of the Chrysler
300C and the improved PT Cruiser with a significantly upgraded
2.2-liter diesel engine. In the second quarter of 2005, the Jeep®
Grand Cherokee was introduced for customers outside North
America with an all-new V6 diesel engine.

Since July 2005, the new Jeep® Grand Cherokee has been as-
sembled for international markets by Magna Steyr in Graz, Aus-
tria. This plant also produces sedan and touring versions of
the Chrysler 300C, as well as the Chrysler Voyager and Grand
Voyager minivans with the Stow’n GoTM seating and storage
system. In total, 79,500 vehicles were produced under license
in Graz in 2005 (2004: 64,000). Starting in early 2006, the Jeep®
Commander will also be built in Graz. Additionally, Chrysler
Group will launch the Dodge brand in markets outside North
America and plans to substantially add to the portfolio of
products offered.

The 2007 Jeep® Compass with its modern,
urban styling, is designed to appeal
to a new class of entry-level Jeep buyers.

In September 2005, the Chrysler Group announced that Beijing-
Benz-DaimlerChrysler Automotive, Ltd. (BBDCA), a joint venture
between DaimlerChrysler AG, DaimlerChrysler (China), Ltd. and
Beijing Automotive Industry Holding Co., Ltd. (BAIC), will begin
production of the Chrysler 300 sedan for the Chinese market at
the end of 2006. In addition, license agreements have been
finalized for the production of minivans in China and Taiwan.

Increased manufacturing productivity. By the year 2007, the
Chrysler Group aims to close the gap with the best competitors
in the North American market in terms of vehicle quality and pro-
ductivity. In 2005, additional measures were taken to achieve
further productivity improvements and to optimize manufactur-
ing processes, including more intensive support and training
for assembly employees. In cooperation with the United Automo-
bile, Aerospace, and Agricultural Implement Workers of America
(UAW), new workplace practices are being introduced that are
designed to foster greater creativity and innovation among pro-
duction staff while improving their working environment.

The results of the measures that have been implemented in
recent years can be seen in the Harbour Report North America
2005 – a highly respected report measuring the productivity
of automobile manufacturers in North America. Harbour’s latest
study shows that the Chrysler Group once again reduced its
overall hours per vehicle, by 4.2% to 35.85 hours in 2004, and
Chrysler Group plants are at the top of their respective seg-
ments: subcompact cars, minivans, front- and rear-wheel drive
transmissions, and engine production. Over the last three years,
the Chrysler Group has improved its manufacturing productivity
by an industry-leading 19%.

More flexibility in the plants. In order to make the plants even
more flexible and competitive, new manufacturing technologies
and processes have been added, so that multiple vehicles can be
assembled on the same line. The latest example of this is the
Toledo North Assembly Plant (TNAP) in Ohio, where the new
Dodge Nitro will be produced alongside the Jeep® Liberty. And
in 2006, the Belvidere Plant will lead the Chrysler Group in
manufacturing flexibility, starting with the Dodge Caliber and
the Jeep® Compass and a third model in late 2006.

Pioneering agreement signed with trade union. Another
important factor to increase flexibility and reduce costs in the
Company’s Canadian plants is the new three-year collective-
bargaining agreement signed with the National Automobile, Aero-
space, Transportation and General Workers Union of Canada
(CAW) in September 2005. This agreement reduces the annual
rate of increase in wages and retirement-pension and health-
care costs by more than half compared with historic trends, while
giving the Chrysler Group enhanced flexibility with regard to
personnel deployment and workplace practices.

Production start of World Engine. The Chrysler Group is forging
new paths in the development and manufacture of engines. In
October 2005, the Global Engine Manufacturing Alliance (GEMA),
a joint venture between the Chrysler Group, Hyundai Motor
Company and Mitsubishi Motors, started the series production
of the World Engine at a new manufacturing facility in Dundee,
Michigan. This engine was jointly developed by the three partners
and forms a platform for small, economical and low-emission
four-cylinder gasoline engines.

The 2007 Chrysler Aspen – the first
Chrysler SUV – offers elegant Chrysler
styling, capability, performance
and abundant premium amenities.

The new World Engine family, with 1.8, 2.0 and 2.4-liter versions,
will be offered by the Chrysler Group starting in 2006 with the
Dodge Caliber, followed by other models. At the end of 2006, a
second plant will commence production in Dundee, Michigan.
Together with two other World Engine plants in South Korea and
a plant in Japan, the maximum production capacity for the
World Engine will be approximately 1.8 million units. GEMA is
a completely new business model, bundling the strengths of
the individual partners and achieving substantial cost advanta-
ges from the high volume of output. Due to the flexible use of
highly-qualified personnel and state-of-the-art manufacturing
technology, GEMA is expected to set new productivity stan-
dards for engine production.

Attractive new products in 2006. The Chrysler Group will
launch 10 all-new products in 2006 – more than in any other
year in its history – including the Chrysler Aspen, the Jeep®
Wrangler, the Jeep® Compass, the Dodge Caliber and the Dodge
Nitro.

The 2007 Chrysler Aspen – the first Chrysler SUV – offers
elegant Chrysler styling, capability, performance and abundant
premium amenities. It is the latest addition to the Chrysler
brand showroom - a premium SUV that’s a value alternative to
luxury-priced competitors.

The all-new Dodge Caliber combines a sporty, coupe-like profile
with the strength and functionality of an SUV. It will be the first
compact vehicle from the Chrysler Group to be offered with
all-wheel drive, and the first Chrysler Group vehicle to be fitted
with all versions of the new World Engine.

In Europe and other markets outside North America, the Dodge
Caliber will be offered with a 2.0-liter turbo-diesel engine. The
five-passenger Dodge Nitro will be a mid-size SUV designed to
attract a customer seeking distinctive style, sporty performance
and cargo flexibility.

At the Frankfurt International Motor Show (IAA) in September
2005, the Jeep® brand hinted at its planned portfolio expansion
with the world premiere of the Jeep® Patriot and the Jeep®
Compass concept vehicles. In 2006, the Chrysler Group will
begin production of two new SUVs for global markets inspired
by these vehicles. The powerful yet fuel-efficient 2.4-liter World
Engine and the state-of-the-art 2.0-liter turbo-diesel (for inter-
national markets) will be available for these compact SUVs.

Unit sales 2005 1

Total

thereof: Passenger cars

Light trucks

Sports tourers

Minivans

SUVs

United States

Canada

Mexico

Other markets

1 Factory shipments (including leased vehicles)

1,000

units

2,813

644

589

298

551

731

2,305

210

123

175

05/04

% change

-12

-1

+11

Commercial Vehicles

Favorable developments in global commercial-vehicle markets | Positive trend

continues for all business units | Implementation of “Global Excellence” initiative |

Numerous new products presented | Very high operating profit

2005

2004

05/04

Amounts in millions of €

% change

Operating profit

Revenues

Investments in property, plant
and equipment

Research and development
expenditure

Production

Unit sales

Employees (Dec. 31)

2,093

40,634

1,332

34,764

1,743

1,184

1,281

834,657

824,867

117,183

1,226

718,787

712,166

114,602

+57

+17

+47

+16

Unit sales, revenues and operating profit up sharply. In 2005,
the Commercial Vehicles division built on the very positive
developments of the prior year, increasing unit sales by 16% to
a new record of 824,900 trucks, vans and buses. Revenues
at the division rose by 17% to €40.6 billion. At €2.1 billion,
operating profit was significantly higher than the €1.3 billion
recorded in 2004 (see page 40).

Very positive development of truck sales in all major mar-
kets. The Trucks business segment again posted a significant
increase in sales in the year under review: Unit sales of 509,300
trucks exceeded the prior year’s figure by 25%. This positive
development was due not only to ongoing very favorable devel-
opments in all key markets, but also to the great success en-
joyed by our attractive products as well as the consolidation for
the full year of the FUSO business unit, which was only consoli-
dated for eight months of the prior year.

Sales record at Trucks Europe/Latin America. Unit sales at
the Trucks Europe/Latin America business unit totaled 148,000
vehicles, an increase of 8% from the prior year – and also a new
record. High rates of growth were recorded in all important
Western European markets, as well as in Turkey and the Near
and Middle East.

In Western Europe, the Mercedes-Benz brand maintained its
leading position in the segment for medium and heavy-duty
trucks by posting unit sales of 74,100 vehicles (2004: 66,100)
and gaining a market share of 22% (2004: 22%). With unit
sales of 36,000 vehicles (2004: 32,900), Germany was the most
important market for Mercedes-Benz trucks in Western Europe.
Market share in Germany reached 42% in 2005 (2004: 42%).
Sales of the high-quality Actros truck developed particularly well
throughout the year.

From the premium product portfolio
of DaimlerChrysler, the world's largest
manufacturer of commercial vehicles
with strong, attractive brands: the
Mercedes-Benz Actros, the Freight-
liner Coronado and the FUSO Canter.
(from left to right)

Truck sales also increased slightly in Latin America (excluding
Mexico) to 31,300 units. We confirmed our leading position
in Brazil in the year under review, attaining a market share of
31%. This was due in particular to our successful products
featuring high levels of customer utility in the category of heavy-
duty trucks.

Sharp increase in North American sales. The Trucks NAFTA
business unit posted a 20% increase in sales to 182,400 units
in 2005. Market volume rose particularly sharply in the Class 8
segment (heavy-duty trucks over 15 metric tons gross vehicle
weight). Sales of the Freightliner, Sterling and Western Star brands
in this segment were up 28% to 111,900 units, and market
share for those brands rose from 35% to 36%. The Trucks NAFTA
unit sold 51,200 vehicles in Classes 5-7 (medium-duty trucks),
gaining a market share of 23% (2004: 50,500 vehicles and 25%
market share). As part of the “Global Excellence” initiative
and the associated portfolio review, Commercial Vehicles sold its
American LaFrance firefighting and rescue-vehicle business to
the investment firm Patriarch Partners, LLC in December 2005.

Development activities at the division in the year under review
focused on chassis, cabs and engines. Among other things,
this was due to the preparations associated with the more strin-
gent emission regulations planned in the US (EPA07), which
will come into force in January 2007. The share of Group-pro-
duced major components used in Freightliner and Sterling
trucks was further increased.

FUSO strengthens market position in Asia. The FUSO busi-
ness unit sold 178,900 trucks and buses worldwide in 2005.
A total of 59,000 of these vehicles were sold in the brand’s home
market of Japan, while 119,900 were sold in other countries.
Due to the date of FUSO’s first-time consolidation, the prior-year
figure of 118,100 vehicles sold applies only to eight months of
2004.

Market volume for commercial vehicles declined in Japan in the
first half of 2005, only to recover sharply as a result of higher
demand in the second half of the year. This recovery also resulted
from purchases brought forward due to the upcoming JPN 05
emission regulations, which will have to be fulfilled by all com-
petitors as of September 2007. FUSO’s market share in Japan
fell from 27% to 23% as a result of the 2004 recall measures and
the temporary exclusion of the brand from public-sector invita-
tions to tender. Sales outside Japan rose, however, primarily dri-
ven by the solid development of export markets, purchases
brought forward in advance of more stringent emission regula-
tions, and the introduction of the new generation of the Canter
light truck.

Presentation of pioneering new products and technologies.
In early 2005, we began offering the Viano van with a diesel-
particulate filter as standard equipment. And the Vito van is the
only vehicle in its class to offer such a filter as an option. We
presented the new Viano 4MATIC with all-wheel drive at the In-
ternational Motor Show (IAA) in Frankfurt in September 2005.

At the Amsterdam Commercial Vehicle Show in October 2005,
the Trucks Europe/Latin America business unit presented a
range of impressive new truck products, such as the Actros
“Cruiser” 1860 LS concept truck and equipment for new appli-
cations for Axor construction vehicles. We also unveiled our
BlueTec diesel technology for the Atego and Axor truck series
and presented the new hybrid-drive Canter light truck. 8,600
trucks with BlueTec were already sold in 2005. The Vito 4x4 van
with all-wheel drive also debuted in Amsterdam.

At the technology conference in Papenburg in the fall of 2005,
we presented safety innovations such as an emergency braking
system for the Actros truck, which will be available as of June
2006 as the “Active Brake Assist”, as well as alternative drive con-
cepts such as natural gas and hybrid drive for trucks and vans.

The new Mercedes-Benz Sprinter
is a pioneer for automotive safety.
The safest van in its class, the
Mercedes-Benz Viano was awarded
five stars in the EURO NCAP test.

Record sales by the Vans business unit. The Vans business
unit also set a new sales record, selling 267,200 vehicles world-
wide, an increase of 2%. This sales growth was mainly due to
significantly higher demand for the Sprinter van, which set a new
sales record of 164,000 units in its last year of production
(2004: 151,300). More than 1.3 million Sprinter vans were sold
throughout the model’s entire product lifecycle, underscoring
the Mercedes-Benz Sprinter’s position as the benchmark for its
class over the last ten years. We have unveiled the successor
to the Sprinter at the end of the year 2005 to the press. Whereas
unit sales of vans in Europe were slightly lower than in the prior
year, sales increased in the NAFTA region. With a market share
of 16% (2004: 17%), the business unit maintained its leading
position in the segment for medium and large vans in Western
Europe in the year under review.

As a result of their excellent handling, comfort, functionality
and design, the Vito and Sprinter models were named “Courier,
Express and Parcel Van of the Year 2005” in their respective
segments. The trade magazine “Firmenauto” also presented both
models with awards for their active-safety systems. In addition,
the Viano van received five stars (the top rating) for its high safety
standards in a comparative test conducted by Dekra, a German
certification organization.

Bus and coach sales increase. Worldwide sales by the Buses
business unit with the brands Mercedes-Benz, Setra and Orion
rose by 10% to 36,200 buses, coaches and chassis. The success
of our products enabled us to expand our leading position in
the class of buses over 8 metric tons gross vehicle weight by
increasing our global market share to 17% from 16% in 2004.
The Buses business unit sold 8,400 vehicles (2004: 8,800) in Eu-
rope. Unit sales in South America were up 2% to 14,600 vehicles.
With a market share of 49%, we were able to maintain our leading
position in this region as well. In Mexico, we succeeded in ex-
panding our leading market position with sales of 5,800 buses,
coaches and chassis (up 28%) and a market share of 55% (2004:
53%). The Buses business unit was also very successful in
the Middle East region, selling 2,300 units (2004: 400), most
of which were chassis built in Brazil.

A new era for large city
buses: the Mercedes-
Benz “CapaCity” - 19.54
meters long.

The Buses segment continued its product offensive in Europe.
The unit’s full-line range of products was expanded in the fall of
2005 to include the new generation of the Mercedes-Benz Tra-
vego travel coach, the new Mercedes-Benz Citaro Low Entry urban
and overland bus, and the new Setra MultiClass 400 overland
bus. Our broad range of environmentally friendly drive systems,
such as the fuel-cell drive used in Mercedes-Benz Citaro urban
buses and the hybrid drive used in Orion-brand buses in North
America, once again confirmed our leadership in innovation and
technology for buses in the year under review.

Success with “Global Excellence”. The Commercial Vehicles
division presented its “Global Excellence” program in June 2005.
This program is based on four initiatives and should improve
the competitiveness of all of the division’s business units.

The “Optimizing the Business Model” initiative includes measu-
res to reduce the division’s susceptibility to cyclical fluctuations
and to ensure that it remains profitable even in years when com-
mercial vehicle markets are sluggish. The “Operational Excel-
lence” initiative focuses on reducing material costs and fixed
costs, optimizing processes worldwide and creating greater
flexibility at the division’s production plants. The primary focus
of the “Growth in Global Commercial Vehicle Markets” initia-
tive is on intensifying activities in Asian markets with high growth
potential. The FUSO business unit plays a key role in the latter
initiative, which will integrate it more firmly into the Trucks seg-
ment. The goal of the fourth initiative – “Future Product Gene-
rations” – is to consolidate and expand the division’s innovation
leadership through the introduction of new technologies and
products.

Unit sales in 2005 1

in 1,000

05/04

units

% change

Total

thereof: Vans

Trucks 2

Buses & Coaches

Other products 3

Europe

thereof: Germany

Western Europe (excluding Germany)

thereof: United Kingdom

France

Italy

NAFTA

thereof: United States

South America

thereof: Brazil

Asia/Australia

825

267

502

322

111

166

218

183

181

1 Group sales (including leased vehicles)
2 Including school buses from Thomas Built Buses and chassis from Freightliner
3 Mitsubishi L200 pickup and Mitsubishi Pajero manufactured in South Africa

+16

+24

+18

+12

-0

-2

+23

+21

+11

-2

+39

Financial Services

Positive business developments in 2005 | Contract volume increases to €117.7

billion | Market presence established in China | Toll Collect system running

smoothly in Germany; conversion to new OBU 2 software completed | Increase in

operating profit

Amounts in millions of €

Change in %

2005

2004

05/04

Operating profit

Revenues

Contract volume

Investments in property, plant
and equipment

Employees (Dec. 31)

1,468

15,439

117,724

1,250

13,939

102,399

11,129

11,224

+17

+11

+15

-51

-1

Stable business development at DaimlerChrysler Financial
Services. The Financial Services division once again developed
very positively in all regions in 2005. Contract volume rose by 15%
to €117.7 billion; when adjusted for exchange-rate effects, con-
tract volume increased by 3%. At the end of the year, Financial
Services’ global portfolio comprised 6.4 million leased and fi-
nanced vehicles. New business totaled €48.2 billion in an ex-
tremely competitive market environment in 2005 (2004: €50.9
billion).

Operating profit rose by 17% from the prior year to €1.5 billion.
DaimlerChrysler Financial Services employed 11,129 people
worldwide at the end of 2005, similar to the number a year earlier
(see page 41).

In line with our strategy of clearly focusing on financial services
along the automotive value chain, we renamed the division
DaimlerChrysler Financial Services at the beginning of 2005.
The new name reinforces the identity of Financial Services.
It also sends a clear message that the division is a global provider
of excellent financial services and a source of effective sales
support for the automotive brands within the DaimlerChrysler
Group.

Improved cooperation with dealers and vehicle brands in
North and South America. As part of an organizational re-
structuring program, we combined all of our financial services
activities in North and South America into the “Americas” re-
gion. Contract volume in this region increased by 18% to €85.9
billion, accounting for 73% of the total portfolio; when adjusted
for exchange-rate effects, the increase was 1%. New business in
the region decreased from €35.1 billion to €31.8 billion. This
was a result of adjustments made to incentive programs in the
form of the Bonus Cash program at Chrysler Financial. Such
changes had caused a substantial increase in new business in
the prior year.

We further expanded our close cooperation with the Group’s
vehicle brands in 2005. Detailed discussions with dealers led to
the creation of new financial products for contract extensions
(bridge leases) and for the signing of new leasing and financing
contracts ahead of time (lease pull-ahead). Demand for Freight-
liner trucks was very high in the year under review. In order to
accelerate delivery of Freightliner trucks to customers, we op-
timized our credit-approval processes in the Truck Financial unit
by carrying out creditworthiness checks at an earlier stage. In
addition, we expanded the passenger-car financing process to
include a new module for electronic contracts (eContracts),
which was tested in pilot operation. Processes for credit appli-
cations and checking contract data underwent further auto-
mation in the year under review, resulting in even better quality
of service for our dealers. Surveys of Chrysler and Mercedes-
Benz dealerships conducted by J.D. Power and Associates con-
firmed that our dealers are very satisfied with the financial
services we provide.

DaimlerChrysler Financial Services
is the first choice provider of financial
services for all of the Group's brands,
and now has more than six million leasing
and financing contracts.

Positive business development in the Europe, Africa, Asia/
Pacific region. The Europe, Africa, Asia/Pacific region also
developed positively in 2005. At €31.8 billion, contract volume
was up 8% from the prior year. Business developments were
particularly dynamic in South Africa, Turkey and Thailand. The
portfolio in the core European markets of the United Kingdom,
Italy and France remained stable at €7.3 billion. Contract vol-
ume in the eastern European countries of Poland, Hungary, the
Czech Republic, Slovakia and Slovenia rose by 7% to €0.9 bil-
lion. In Germany, DaimlerChrysler Bank, our largest company in
this region, provided attractive products that once again led to
an increase in leased and financed vehicles’ share of the total
number of Group-brand vehicles sold. The bank managed a con-
tract volume of €15.2 billion at the end of the year under re-
view (2004 : €14.5 billion), serving some 987,000 customers, or
7% more than in 2004. Contract volume in the Africa and Asia/
Pacific region increased by 23% to €5.4 billion.

New financial products and our penetration of new markets en-
abled us to further consolidate our position as a captive financial
services provider in 2005. By standardizing processes for cre-
dit and contracts, we were able to improve our cost situation and
thus also our competitive position.

We are now the first automotive financial services company to
have launched a European platform for asset-backed securities
(ABS). This platform enables our European subsidiaries to
securitize automotive credit receivables and place them on the
capital market.

In November 2005, the division became the first financial servi-
ces company to offer passenger car and truck financing, as
well as insurance, in China. The offerings target both dealers
and retail customers. Through its activities, Financial Services
is supporting the DaimlerChrysler Group as it enters this stra-
tegically important market. Our activities in China will initially
focus on the fast-growing business centers of Beijing, Shang-
hai and Guangzhou.

Fleet Management expands its international presence. The
Fleet Management unit benefited from the growing demand
for comprehensive multi-brand fleet management solutions in
the year under review. The unit offers everything from con-
sulting and vehicle procurement services (including financing
and leasing solutions) to fleet-related activities such as fleet-
vehicle resale and disposal services and the provision of infor-
mation for supporting fleet management. The services pro-
vided by Fleet Management are geared toward local fleet opera-
tors as well as companies that operate large international
fleets. Our objective with regard to both customer groups is to
provide optimal service to new and existing customers and to
make them better acquainted with the products of the Daimler-
Chrysler Group. We further expanded our presence in Europe
with the inclusion of fleet management in the product portfolio
of our Swiss subsidiary, and we now offer fleet management
solutions and services in 12 countries around the world.

Toll Collect system for trucks is running smoothly. The toll
collection system successfully launched in Germany at the be-
ginning of 2005 for trucks over 12 metric tons gross vehicle
weight has proved to be reliable and has remained extremely sta-
ble even when pushed to maximum capacity. A total of 482,000
of the first-version on-board units (OBU 1) were in use in the
year under review, with the Toll Collect system registering 24
billion kilometers traveled. The new OBU 2 on-board unit soft-
ware, which makes it possible to update operating information
via mobile telephony, was gradually installed in trucks through-
out 2005, and the switch from OBU 1 to OBU 2 took place on
schedule on January 1, 2006. DaimlerChrysler Financial
Services holds a 45% share in the Toll Collect consortium.

Other Activities

Significantly higher contribution to earnings from EADS | Agreement reached

on sale of DaimlerChrysler’s Off-Highway business unit | Disposal of shares

in Mitsubishi Motors Corporation

Amounts in millions of €

% change

2005

2004

05/04

EADS

Operating profit

Revenues

Investments in property, plant
and equipment

Research and development
expenditure

591

2,396

109

240

456

2,200

134

228

Employees (Dec. 31)

18,164

20,636

+30

-19

-12

Continued focus on core business operations. The Other
Activities segment mainly comprises our 33% holding in the
European Aeronautic Defence and Space Company (EADS) and
the DaimlerChrysler Off-Highway business unit. It also includes
Corporate Research, our real estate activities, and our holding
and finance companies.

Since June 30, 2004, our holding in Mitsubishi Motors (MMC) has
been included in the consolidated financial statements as a
financial investment shown at fair value. The further exercise
of options on MMC mandatory convertible bonds led to a re-
duction of our holding in MMC from 19.7% to 12.4% as the year
progressed. Then, on November 17, 2005, we sold our entire
stake in MMC (see page 34). As part of our strategy of focusing
even more closely on our core business operations, we reached
an agreement in December 2005 with EQT, a Swedish financial
investor, on the sale of the DaimlerChrysler Off-Highway busi-
ness unit. The transaction includes both MTU Friedrichshafen
GmbH and the off-highway activities of Detroit Diesel Corpo-
ration (DDC). The transfer of ownership is likely to take place in
the first quarter of 2006.

Impressive growth continues at EADS. EADS, one of the
world’s leading aerospace and defense companies, continued
to grow in 2005, and expects both revenues and earnings to
surpass its prior-year figures once again. The company will pub-
lish its results for the 2005 financial year on March 8, 2006.

During the first nine months of 2005, revenues at EADS as de-
fined by the International Financial Reporting Standards (IFRS)
rose from €21.5 billion to €23.4 billion. A major reason for this
positive development was the increase in Airbus aircraft deli-
veries. In addition, both the Space division and the Defence &
Security Systems division increased their business volumes
during this period.

Between January and September 2005, EADS achieved an EBIT
(earnings before interest, taxes, goodwill amortization and
exceptional items) of €2.1 billion (Jan.-Sept. 2004: €1.5 billion).

Incoming orders at EADS increased by 88% in the first nine
months of the year, to €38.8 billion (Jan.-Sept. 2004: €20.6 bil-
lion). At €210.4 billion, the order backlog at the end of Sep-
tember was substantially higher than the €184.3 billion recorded
at the end of the 2004 financial year. EADS thus had the largest
order backlog in the aerospace and defense industry.

For full-year 2005, EADS expects revenues to increase to
more than €33 billion and EBIT to rise to €2.75 billion (2004:
€31.8 billion and €2.4 billion respectively).

Airbus maintains global market leadership. Airbus delivered
378 aircraft in 2005 (2004: 320), thus outperforming its main
competitor, Boeing, for the third consecutive year. With 1,055 firm
orders received, Airbus set a new record for incoming orders
in the aircraft industry. The enormous success of Airbus is also
reflected by its order backlog of 2,177 civil aircraft as of Decem-
ber 31, 2005 (Dec. 31, 2004: 1,500).

Airbus’ 21st century flagship, the
A380, introduces a new era of airline
transportation, carrying 555
passengers aboard the most spacious
and efficient aircraft in the world.

New Airbus projects for future growth. The Airbus A380, the
world’s largest passenger aircraft, successfully completed its
maiden flight on April 27, 2005. By the beginning of January 2006,
more than 220 test flights had been successfully conducted
with three A380 aircraft. At the end of 2005, Airbus had received
159 firm orders and commitments from 16 customers for the
new Airbus flagship.

The program for the new A350 long-distance aircraft was officially
launched on October 6, 2005. EADS is continuing its strategy
of internationalization with the new aircraft, as partners from
China and other countries participate in the A350 program.
At the end of 2005, Airbus had received 172 firm orders and
commitments for the A350.

In addition, six Chinese airlines ordered a total of 150 aircraft
of the A320 family in December 2005. This is the largest order
Airbus has received from China to date, and it underscores the
tremendous importance of the rapidly growing Chinese market.

Positive developments at other EADS divisions. The Eurocop-
ter division also maintained its leading position in the helicopter
market in 2005. No other helicopter manufacturer can boast
such a broad product range in both the civil and military sectors.
Eurocopter operates in all growth regions around the world: In
2005, the division reached an agreement with Chinese partners
to jointly develop and produce a new transport helicopter.

Signs of market recovery have been confirmed in the space
sector. The Space division reached breakeven in 2004, and EADS
expects it to make a positive contribution to earnings in full-
year 2005. Moreover, the decisions made by the ESA Council
of Ministers Conference in December 2005 will open up new
business opportunities for the German aerospace industry. The
agreement to further develop the Ariane program and recent
European Mars research initiatives are particularly positive sig-
nals in this regard.

Despite tight defense budgets in Europe, EADS expects to
achieve further growth in its defense business. Germany’s parti-
cipation in the development of the MEADS ground-based air
defense system illustrates the fact that urgently needed projects
for modernizing and strengthening armed forces can only be
conducted within an international and transatlantic framework.
At the same time, activities in the services sector – providing
secure communication systems for example – are becoming in-
creasingly important for long-term business developments.

DaimlerChrysler Off-Highway

Growth continues in a difficult market environment. Despite
higher prices for oil and raw materials, the off-highway diesel-
engine market expanded in the year under review, although at a
lower rate than the growth recorded in 2004. Developments
were particularly positive in the segments for commercial ship-
ping, raw-materials transport and infrastructure projects.

Strong growth in revenues and incoming orders. Revenues
at the DaimlerChrysler Off-Highway business unit increased
by 18% to €2.1 billion in the year under review. This growth was
primarily due to the Power Generation segment (engines for
stationary electricity generators), engines for use in mining,
agricultural and construction vehicles and the Marine segment.

Incoming orders at the Off-Highway business unit rose by
27% to €2.3 billion in the year under review. Nearly all segments
contributed to this positive development.

Cross-Divisional Activities

DaimlerChrysler’s financial success is based on the trust of the

people in all of the countries in which the Group is present. This

is why economic, ecological and social responsibility is firmly

anchored in our corporate strategy. We are convinced that entre-

preneurial success and social responsibility go hand in hand, and

that value creation always depends on value orientation within society.

Our actions are based on these principles.

Contents

90 Sustainability at DaimlerChrysler

96 DaimlerChrysler and the

• Committed to the principle of

sustainability
• Activities in 2005

92 Human Resources

• Number of employees worldwide at

prior year’s level

• Further enhancement of Global
Human Resources Strategy

• Workforce reduction program being

implemented at Mercedes Car Group
and in preparation for Group
administrative functions

Environment

• €1.5 billion spent on environmental

protection

• Mercedes-Benz S-Class is first

vehicle to receive environmental
certification

• BlueTec technology for the world’s

cleanest diesel engine

• Driving with the environment
in mind: hybrid drive concepts
• Environmental Leadership Awards
for our employees’ commitment to
the environment

• Implementation of “Safeguarding the

98 Global Procurement and Supply

Future 2012” agreement

• Approximately 9,900 traineeships

worldwide

94 Research and
Technology

• Investment of €5.6 billion in
research and development

• On the road to accident-free driving
with innovative safety systems

• Alternative drive systems for

sustainable mobility

• Innovative materials reduce costs
and help protect the environment

• Advanced global alignment of

purchasing activities

• Additional cost advantages and

progress with efficiency
• Managing rising raw-material

prices

• Global Supplier Awards presented

100 Social Responsibility

• Worldwide social commitment
• Enhancement of “Global Sustain-

ability Network”

• Comprehensive dialogue with
policy makers, the business
community and society
• Help for disaster victims
• Action to improve traffic safety

for children

Sustainability at DaimlerChrysler

In order to ensure the long-term success of the DaimlerChrysler Group,

we have committed ourselves to the guiding principle of sustainability.

This commitment entails an awareness of responsibility in three areas:

We bear responsibility for our Group’s business performance and longterm

economic success.

We conserve the earth’s resources and help to preserve an intact envi-

ronment for present and future generations.

We live up to our responsibilities toward our customers, employees,

shareholders and society as a whole; the DaimlerChrysler Group regards

itself as an integral part of all the communities within which it operates.

“Sustainability Profile 2005” is our
first report on the Group’s manifold
activities in the important field of
sustainability.

Committed to the principle of sustainability. At Daimler-
Chrysler, profitable growth and a sense of responsibility for
society and the environment are two sides of the same coin.
That’s why sustainability is an important guiding principle of
our business operations – in the interests of our customers,
employees, shareholders and society.

As a vehicle manufacturer with worldwide operations, Daimler-
Chrysler bears a great burden of responsibility. Several hundred
thousand people are involved in the production and distribution
of our products all over the globe. Our vehicles are on the road
in almost every country in the world. They satisfy people’s need
for mobility and offer flexible alternatives for transporting goods.
By laying the foundation for individual mobility and independence,
they play a significant role in modern societies.

At the same time, the manufacture and operation of our vehicles
requires the use of natural resources, and our business opera-
tions influence society in many different ways. The growing net-
working of the world economy and people’s increasing need
for mobility is altering the economic, ecological, social and poli-
tical conditions in which we live. Striking the right balance be-
tween these conditions and DaimlerChrysler’s business success
is a global challenge for the future.

The guiding principle of sustainability is an integral part of our
corporate strategy. It is in line with our internal guidelines and is
a key component of our corporate values and business strategy,
whose objectives are to ensure the Group’s long-term business
success.

Activities in 2005. Sustainability management at Daimler-
Chrysler was significantly enhanced during 2005. In order to
further enhance the Group’s sustainability profile, the
various sustainability initiatives were strategically combined.

Specific sustainability goals and measures were defined
within DaimlerChrysler’s economic, ecological and social respon-
sibility. And as part of an improved process of sustainability
reporting, we published a report entitled “DaimlerChrysler Sus-
tainability Profile 2005” in July.

We regard the reappearance of DaimlerChrysler’s shares in
the renowned Dow Jones Sustainability Index (DJSI) in Septem-
ber 2005 as confirmation that our work in this area has been
effective.

You will find a comprehensive summary of our activities in the
field of sustainability in the report “DaimlerChrysler Sustainabi-
lity Profile 2005” and on our website at
www.daimlerchrysler.com/sustainability.

Human Resources

Number of employees worldwide at prior year’s level | Further enhancement of Global

Human Resources Strategy | Workforce reduction program being implemented

at Mercedes Car Group and in preparation for Group administrative functions |

Implementation of “Safeguarding the Future 2012” agreement | Approximately 9,900

traineeships worldwide

Employees (at December 31 )

DaimlerChrysler Group

Mercedes Car Group

Chrysler Group

Commercial Vehicles

Sales Organization Automotive Businesses

Financial Services

Other Activities 1

2005

2004

382,724

104,345

83,130

117,183

48,773

11,129

18,164

384,723

105,857

84,375

114,602

48,029

11,224

20,636

1 DaimlerChrysler Off-Highway business unit, Corporate Research, real-estate activities

and holding and finance companies

382,700 employees at year-end, slightly lower than prior-
year figure. On December 31, 2005, DaimlerChrysler employed
382,724 people worldwide (2004: 384,723). Of this total,
182,060 worked in Germany (2004: 185,154) and 97,480 in the
United States (2004: 98,119). The number of trainees totaled
9,880 (2004: 10,047). Commercial Vehicles posted a particularly
large increase in the number of employees compared to the
prior year (+ 2%). The increase in hiring in this division was due
to strong demand for trucks, especially in the Europe/Latin
America and Trucks NAFTA regions. The number of employees
at the Mercedes Car Group (- 1%), the Chrysler Group (- 1%)
and Financial Services (- 1%) was slightly lower than the previous
year’s figures.

Further enhancement of the Global Human Resources
Strategy. Our Global Human Resources Strategy defines uni-
form principles, standards and processes for our business
operations worldwide. It does this in line with the requirements
of our business units, which are also globally oriented. That’s
why DaimlerChrysler defined uniform core challenges for its hu-
man resources departments all over the world. For the core
challenge, “Outstanding Performance and Productivity”, it insti-
tuted measures aimed at strengthening DaimlerChrysler’s com-
petitiveness. Important issues in this area were the reduction
and limitation of labor costs and the maintenance and enhance-
ment of our employees’ productivity and competitiveness. We
have defined the personnel principles supporting the establish-

ment and expansion of our business operations in China in the
“Human Resources China Book”, which establishes uniform
standards and increases efficiency. The introduction of a global
“Human Resources ScoreCard” will enable us to more effec-
tively measure and monitor the work of our human resources
activities all over the world.

Workforce reductions at the Mercedes Car Group, new
management model for DaimlerChrysler. At the end of Sep-
tember 2005, the Board of Management set a goal for the
Mercedes Car Group of reducing the number of employees at
its German locations by 8,500. The plan calls for these work-
force adjustments to be completed over a period of twelve months
(by the end of September 2006) through voluntary severance
agreements. The achieved increase in productivity will consider-
ably improve the competitiveness of Mercedes-Benz. Daimler-
Chrysler will adhere to the “Safeguarding the Future 2012”
agreement, which was concluded in 2004 and calls for voluntary
measures in the initial phase of a headcount reduction. The
actions taken for voluntary departures and early retirements
should lead to expenses of approximately €950 million, €570
million of which was already booked in 2005. Within the frame-
work of implementing the new management model announced
in January 2006, the number of persons employed in administra-
tive functions will be reduced by up to 20% by the end of 2008.

Implementation of the “Safeguarding the Future 2012”
agreement. DaimlerChrysler plans to use the “Safeguarding
the Future 2012” agreement reached in summer 2004 bet-
ween the Group’s management and the General Labor Council
primarily to achieve the following goals: improving competi-
tiveness, strengthening innovation power, increasing employee
flexibility and safeguarding jobs in Germany. With the aim of
achieving the agreed cost savings of €500 million annually in the
medium term, initial steps were taken toward implementing
appropriate measures in the year under review. The most impor-
tant of these measures were:
– For all employees covered by the collective bargaining agree-
ment with DaimlerChrysler AG, compensation levels will
be reduced by 2.79% as of January 1, 2006. The compensation
levels for new employees were already reduced in 2005.

The diversity of our cus-
tomers is reflected by the
diversity of our workforce,
which contributes to
DaimlerChrysler’s success.

– For senior executives in Germany, the variable compensation

for 2006 will be reduced by 10% in addition to the reduction of
their regular monthly salaries.

– In 2005, we worked on a comprehensive restructuring of the
compensation system, in connection with implementing the
Compensation Framework Agreement (ERA) beginning in 2007.
Extensive measures were taken at all production locations
in Germany in order to introduce a uniform compensation
system for salaried employees and wage earners.

– In industry-related service units, we have so far transferred

approximately 4,000 employees to the services-sector earn-
ings agreement.

– In 2005, approximately 3,500 new skilled workers were trans-
ferred to the internal staff-rotation program (“DCmove”). Of
this total, 350 were deployed in jobs at various locations in
Germany. This program increases the flexibility of staff assign-
ments at DaimlerChrysler and simplifies the exchange of
employees between different production locations. The young
skilled workers in the program are given systematic support
and have the opportunity to enhance their expertise in a var-
iety of work situations.

Progress in health care and workplace safety. At the Chrysler
Group, we have cooperated with the labor unions to continue
improving workplace safety and company healthcare programs.
These measures have been positively received. For example,
in 2005, the Chrysler Group received an award from the US Acad-
emy for Occupational and Environmental Medicine in recogni-
tion of its innovative healthcare and workplace safety programs
and the significant decrease in work-related injuries at its pro-
duction locations.

Management Development: LEADing the way to success.
Management development at DaimlerChrysler, which we are stan-
dardizing at our locations throughout the world with the help
of our management tool LEAD (Leadership Evaluation and Deve-
lopment), ensures compliance with Group-wide quality standards.
We have supplemented the LEAD program with the “Individual
Development Plan.” The courses offered by the DaimlerChrysler
Corporate University help our top managers ensure that their
qualifications remain world-class.

Diversity of our workforce will enable us to achieve long-
term success. In order to boost its competitiveness, Daimler-
Chrysler deliberately employs men and women with different
areas of expertise, types of experience and points of view. The
diversity of our employees in terms of age, gender or nationality
ensures that they complement one another and is one of the
keys to our success. Women are traditionally underrepresented
in technology-oriented companies, especially in Germany. Our
Global Diversity Council has taken action to help remedy this
situation. In an initial step, it set a target corridor for each divi-
sion regarding the proportion of women in management posi-
tions, with the aim of achieving these targets by 2008.

Image campaign – “Pioneers Welcome”. Global operations
can be successfully supported by human resources depart-
ments that recruit, integrate and train well-qualified and moti-
vated employees. DaimlerChrysler has launched a new per-
sonnel image campaign called “Pioneers Welcome” in order
to recruit outstanding university graduates and other skilled
workers even in economically difficult times.

Training programs ensure top employee performance over
the long term. In 2005, approximately 2,600 men and women
completed their traineeships at DaimlerChrysler locations in
Germany, matching the very high figure of the previous year.
In addition, 472 gratuates entered junior management training
programs. We are thus offering young people career prospects
while underscoring our responsibility to society. Daimler-
Chrysler currently employs approximately 8,300 trainees in
Germany and 9,900 worldwide. Providing job training to young
people will continue to be a focus of our human-resources work
in the future.

A thank you to our employees. The Board of Management
thanks all of DaimlerChrysler’s employees for their initiative,
commitment and achievements. We are convinced that their
ability, enthusiasm and energy will secure a successful future
for the Group. We also extend our thanks to the employee re-
presentatives for their constructive cooperation in 2005.

Research and Technology

Investment of €5.6 billion in research and development | On the road to

accident-free driving with innovative safety systems | Alternative drive systems

for sustainable mobility | Innovative materials reduce costs and help protect

the environment

Research safeguards competitiveness. The Group’s research
units provide the impetus for the technological expertise that
will ensure a bright future for DaimlerChrysler. All of our activities
here are geared toward the goals of safeguarding individual
mobility, conserving resources, creating innovations that benefit
our customers, and securing competitive advantages. To this
end, DaimlerChrysler invested a total of €5.6 billion in research
and development in 2005 (2004: €5.7 billion).

At the end of 2005, Corporate Research employed 2,600 people
(2004: 2,900), and a further 25,600 men and women were
employed in the development departments at the Mercedes Car
Group, Chrysler Group, and Commercial Vehicles (2004: 26,100).

Their research and development work focused on five core tech-
nology fields in 2005:
– Drive technology
– Vehicle layout and the human-machine interaction
– Production and materials technology
– Electric/electronic systems and intelligent transportation

systems

– Software and process technology

The results of this research work are applied by all of the busi-
ness units in the Group’s various product brands. Our research
units also focus on the general issues of diagnostics, testing
procedures and prevention. In addition, we conduct analyses
throughout the Group of the various social developments and
trends that result from the introduction of new technologies, so
that we can identify in a timely manner the new demands that
will be placed on our products and our company in the future.

The vision of accident-free driving. Our long-term objective
is to develop vehicles for our customers so that they can drive
accident-free. As we work toward this goal, the new S-Class and
its innovative systems are once again setting standards, parti-
cularly in the field of active safety.

The new Brake Assist PLUS system, for example, uses radar tech-
nology to monitor the area in front of the vehicle. If the vehicle
gets too close to the car in front, the system will calculate the

braking force needed to avoid a collision and then warn the driver
of the imminent danger. When Brake Assist PLUS is combined
with the PRE-SAFE® occupant protection system, the result is a
unique anticipatory safety system that supports drivers even
more effectively than before.

In addition, the new night vision assistant provides for greater
safety on dark roads. This system has two infrared headlights that
illuminate the road, significantly extending the driver’s range of
vision. An infrared camera records the reflected image of the
road ahead and displays this on the dashboard. These and other
systems are gradually transforming our vision of accident-free
driving into reality.

Further advances are being made with the next generation of
assistance systems. These will focus on intersections as a
common site of accidents. To this end, we have refined our anti-
cipatory systems within the framework of the publicly funded
INVENT project. More specifically, we have examined how drivers
can best be supported in dangerous situations, especially
those that occur at intersections. At the 2005 International Motor
Show (IAA) in Frankfurt, we presented the prototype of a video-
based assistance system that demonstrated for the first time how
accidents at intersections can be prevented in the future. At
the heart of the system is a module containing image process-
ing algorithms that recognize traffic lights and signs, as well
as a second module that analyzes the movements of cross traffic.
Drivers who fail to react to a dangerous situation are warned
of it in several stages – first visually, then acoustically, and, if
necessary, even by means of a brief automatic emergency
braking maneuver. Our goal here is to develop intelligent assis-
tance systems that can interpret critical situations before an
accident becomes unavoidable, utilizing the extra time gained
to make a decisive contribution to the realization of accident-
free driving.

The most frequent types of accident involving commercial ve-
hicles are rear-end accidents and vehicles leaving the road.
Rear-end accidents alone account for a quarter of all truck acci-
dents. We will achieve a drastic reduction in this kind of accident
with the new emergency braking system that is to be offered

F 600 HYGENIUS – The new
research vehicle with
pioneering fuel-cell drive and
customer-oriented innovations
for safety and driving pleasure.

on all Mercedes-Benz trucks as of 2006. And our Lane Assistant
gives a warning when a vehicle is about to leave its lane. This
innovative system will be available also on the new generation
of Setra and Mercedes-Benz travel buses starting in 2006.

corresponds to consumption of 2.9 liters of diesel fuel per
100 kilometers. We also succeeded in significantly improving
the cold-start capability of the fuel cell in the F600 HYGENIUS
to - 25°C.

Pioneer in the development of fuel cells. DaimlerChrysler
believes that fuel-cell drive will make a unique contribution to
sustainable mobility. Our fuel-cell buses, which have covered
more than one million kilometers in over 70,000 hours of opera-
tion in the most diverse climates and terrains, have convincingly
demonstrated the reliability and robustness of fuel-cell drive.

A new operational test began in Beijing in 2005 with three Mer-
cedes-Benz Citaro fuel-cell buses. As a result, there are now
36 Citaro buses with fuel-cell drive on the road in regular service
around the world – by far the largest test fleet. In the year under
review, more than 100 of our fuel-cell vehicles were in use with
customers, a figure that cannot be matched by any other com-
pany in the automotive industry. Much more important than the
number of vehicles on the road, however, are the results of the
practical tests for which they have been put to use. These tests
are helping to accelerate the development of fuel-cell technology
toward marketability.

The alliance between DaimlerChrysler, Ballard and Ford for the
further development of fuel-cell technology has now been reorga-
nized: DaimlerChrysler and Ford have acquired Ballard Power
Systems AG in Nabern, Germany, and established the NuCellSys
GmbH joint venture in order to move ahead even more quickly
with the integration of fuel-cell drive into motor vehicles.

F600 HYGENIUS – the fuel cell moves a step closer to series
production. The F600 HYGENIUS marks a major step toward series
production by fuel-cell drive systems, which we hope to achieve
sometime between 2012 and 2015. To this end, we refined the
fuel-cell drive concept for this family-friendly research vehicle.
One result of this work is that the F600 HYGENIUS has a power out-
put of 85 kW (115 hp). The fuel-cell stacks used in the car are
also 40% smaller than was previously the case, yet generate 30%
more power and consume 16% less energy. The F600 HYGENIUS
can travel more than 400 kilometers on a tank of hydrogen, which

Optimized human-machine interaction. Another focus of our
research involves the question of how to optimize the interac-
tion between humans and machines. Our answer in the F600
HYGENIUS is an instrument cluster consisting of two high-reso-
lution color displays that serve as virtual instruments. These in-
struments appear to be 1.4 meters in front of the driver, which
eliminates the need for the driver’s eyes to constantly adjust to
changing distances, resulting in much less driver fatigue. A fur-
ther innovation is the dual-mode operating concept, with controls
on the instrument panel and the COMAND unit located on the
armrest. This new vehicle and operating concept is linked to a
user-recognition system and allows for more rapid, more intui-
tive and safer control than conventional systems.

Paint technology improved with paint foils. DaimlerChrysler
is taking a completely new approach when it comes to manu-
facturing painted plastic exterior components. The solution here
is to use plastic components coated with paint foils. The first
step involves forming a paint-coated foil into a thin outer skin that
gives the component its final shape. After the paint hardens,
the component is filled with foam. The result is a stable painted
part that can be directly used in the assembly of a vehicle’s exte-
rior. We are now preparing the application of this technique in
the series production of passenger cars and commercial vehicles.

This innovative technology offers both economic and ecological
benefits. For example, the fact that we no longer conduct wet
painting operations means there are no paint residues or fumes
that have to be recycled or disposed of at great expense. This
also conserves resources and eases the burden on the environ-
ment. In addition, there is no loss of quality, as the paint foils
fulfill all criteria for exterior components with respect to color
and resistance to scratching and chemicals.

DaimlerChrysler and the Environment

€1.5 billion spent on environmental protection | Mercedes-Benz S-Class is first vehicle

to receive environmental certification | BlueTec technology for the world’s cleanest

diesel engine | Driving with the environment in mind: hybrid drive concepts |

Environmental Leadership Awards for our employees’ commitment to the environment

DaimlerChrysler takes on responsibility. At DaimlerChrysler,
environmental protection is an integral aspect of sustainable
mobility and of our corporate strategy, which is oriented toward
long-term value enhancement. That’s why we take a holistic ap-
proach toward our measures to protect the environment, across
the entire value creation process. In both the production and
application of our products, we aim to save resources and avoid
emissions. To achieve this goal, we spent €1.5 billion on environ-
mental protection in 2005.

Environment-oriented product development. As the recipi-
ent of the world’s first environmental certificate for an automo-
bile, the new S-Class is setting benchmarks for environmental
protection as well as in other areas. For example, the new S350
more than meets the currently valid emission limits, with nitro-
gen oxide emissions that are more than 85% below permissible
levels and hydrocarbon emissions that are approximately 75%
lower than the limit. What’s more, we are using an even larger
proportion of renewable raw materials and recycled materials
in the new S-Class than in its predecessor model. As a result,
we already reached the 95% quota of recyclable materials that
will be required by law in 2015; that also applies to the new
A-Class, which was introduced in 2004.

In the certificate, the certification board of TÜV Management
GmbH confirmed that we have integrated environmental protection
considerations into the development process of the S-Class.

BlueTec technology firmly established in the market. In
2004, we celebrated the market launch of BlueTec engines for
Mercedes-Benz commercial vehicles. These engines employ
Selective Catalytic Reduction (SCR) technology. The use of BlueTec
technology can reduce nitrogen oxide emissions by up to 80%.
As a result, these engines already comply with the emission limits
set by the Euro 4 and Euro 5 standards, which will go into effect
in 2006 and 2009 respectively.

What’s more, in 2005 we introduced particulate filters as stan-
dard equipment in all diesel-powered Mercedes-Benz passenger
car models. In the next step, we also intend to exploit the tre-
mendous potential of BlueTec in passenger cars. To this end, we

are currently testing the application of SCR technology in passen-
ger cars in many countries throughout the world. In June 2005,
we introduced the first diesel passenger car with SCR technology
at the Innovation Symposium in Washington. The vehicle invol-
ved – the Mercedes-Benz “bionic car” – is a concept vehicle.
In September 2005 we presented the S320 BLUETEC HYBRID
at the International Auto Show in Frankfurt to demonstrate the
capabilities of BlueTec in the luxury segment.

Both cars are currently the cleanest diesel-operated vehicles in
the world, and they comply with all of the future emission limits
known to us today. BlueTec is clearly playing a key role in mak-
ing diesel-operated vehicles more environmentally friendly than
ever before.

Drive concepts of the near future: direct hybrid, BlueTec
hybrid and two-mode hybrid. In city traffic, the advantages
of hybrid technology lead to noticeably lower fuel consumption
and lower emissions. At the IAA 2005 we employed the new
S-Class to demonstrate how hybrid technology can be used to
achieve significant additional reduction in both fuel consump-
tion and emissions. Our objective is to make gasoline engines
as efficient as diesel engines, and diesel engines as clean as
gasoline engines.

The S320 BLUETEC HYBRID is clear proof that the combination
of BlueTec and hybrid technology not only results in lower nitro-
gen oxide emissions but also reduces diesel fuel consumption
by an additional 20%. The intelligent combination of direct injec-
tion and hybrid technology in the S350 DIRECT HYBRID reduces
gasoline consumption by 25% compared to the previous model.
Both concept vehicles – BLUETEC HYBRID and DIRECT HYBRID –
are thus paving the way for the drive technologies of tomorrow
and have the potential for higher efficiency and environmental
compatibility while boosting driving comfort and enjoyment.

We are cooperating with General Motors Corporation on the
development of hybrid technology. In our Hybrid Competence
Center in Troy, Michigan, USA, we are working together to de-
velop a two-mode hybrid drive system. At the end of 2005, the
BMW Group joined this alliance of equal partners. By pooling

BlueTec – Innovative and
modern emission treatment for the
world’s cleanest diesel engine.

our development know-how, we can offer our customers superior
vehicles with an attractive performance and appealing comfort,
fuel consumption and emission levels at competitive prices. Be-
cause these features are interpreted differently for each model,
the distinctive product characteristics and the different brand
attributes remain untouched.

The two-mode hybrid drive system uses smaller electric motors
than the existing single-mode system, and therefore requires
significantly less space in a vehicle. A vehicle with a two-mode
system can operate either with the two electric motors, with
only the combustion engine, or with both drive systems simulta-
neously. That makes it possible to fully exploit the fuel savings
and performance potential of the hybrid drive system – in city
driving, at higher constant speeds on country roads and high-
ways, when passing, on steep slopes or when pulling a trailer.

Environmentally friendly hybrid buses in everyday use.
Our Orion brand hybrid buses demonstrate that hybrid techno-
logy opens up plenty of potential not only for passenger cars
but also for commercial vehicles. They also underscore our long-
term commitment to innovative products and environmentally
friendly technologies. Compared to diesel buses with conventio-
nal drive systems, the Orion hybrid buses not only significantly
reduce emission values and fuel consumption, but also deliver
better driving performance. In 2005, we received a major order
for 500 Orion VII hybrid city buses from the local public trans-
portation authorities of New York City. This supplements past
orders from New York City Transit and the Metropolitan Trans-
portation Authority (MTA Bus) for 200 and 125 Orion hybrid buses
respectively. In addition, we supply the Aero HEV low-entry city
bus from FUSO with hybrid drive. Hybrid Sprinters are also in
the trial stage and are being used by customers in everyday
operations. And the FUSO Canter truck with hybrid drive is
about to go into series production.

Alternative fuels as a future energy source. Alternative fuels
can make a significant contribution to environmentally compati-
ble mobility due to their more favorable CO2 balance, as well
as reducing dependence on fossil fuels. We are therefore working
hard in this area, for example to develop applications for bio-

mass-to-liquid (BTL) fuels and biodiesel. In the field of BTL fuels
(SunDiesel), we are cooperating with Choren Industries and
Volkswagen. SunDiesel has proven its suitability as an alterna-
tive fuel for passenger cars and commercial vehicles both on
the engine test bench and in practical use. The cooperation
agreed upon in 2005 between Choren Industries and Shell is an
important step on the way to the large-scale production and
marketing of SunDiesel.

In the United States, the tank of every Jeep Liberty CRD is already
filled up in the assembly plant with B5 fuel (diesel with a 5%
blend of biodiesel). We have entered into a partnership with Bio-
diesel Industries Inc. and NextEnergy Inc. in order to push for-
ward with the development of biodiesel technology. We are al-
ready very successful with the Flex-Fuel vehicles of the Chrysler
Group - for example with minivans, the Dodge Ram 1500, the
Dodge Stratus and the Chrysler Sebring. These are vehicles with
engines that can run on either conventional gasoline or a mix-
ture of gasoline and 85% bioethanol (E85). The Chrysler Group
has already sold 1.5 million such vehicles, which also offer sig-
nificant consumption and emission advantages.

DaimlerChrysler Environmental Leadership Award. In 2005
we once again honored our employees’ commitment to preserv-
ing the environment with our annual Environmental Leadership
Award. The following projects received the Environmental Lead-
ership Award for 2005:
– Dry treatment at the Untertürkheim plant. This is a new pro-
cess for the treatment of metals for mass production which
allows us to dispense with the previously used “cooling lubri-
cant” chemical mixture.

– Abaca natural fibers for passenger car exteriors. The fibers of
the abaca plant stand up to the extremely high stress to
which vehicle exteriors are subjected. The world’s first use of
these fibers in series-produced car exteriors was in the spare
tire well covers of A-Class vehicles.

– Jatropha plant from India delivers biodiesel. The extremely

undemanding tropical plant jatropha curcas has been cultiva-
ted since January 2004 on previously useless wasteland in
India. It provides oil-rich seeds from which biodiesel can be
extracted.

Global Procurement and Supply

Advanced global alignment of purchasing activities | Additional cost advantages

and progress with efficiency | Managing rising raw-material prices | Global Supplier

Awards presented

For all of our main commodities we have defined how they are
to be purchased – locally like body stampings, globally coordi-
nated like air conditioning devices (Lead Buying) or centrally like
leather (Central Buying).

In addition, we established the Material Strategy and Innovation
Council (MSIC), which coordinates the global activities of our
automotive divisions in the fields of engineering, procurement,
cost analysis and research and technology. MSIC has already
identified and implemented many opportunities to combine volu-
mes and reduce costs, while improving quality and innovation.

We also develop commodity strategies for major grouping of
purchases. These plans define the procurement for all of the
DaimlerChrysler business units. More than 80% of our total
spend with suppliers worldwide is covered by commodity stra-
tegies.

Global supplier management with Extended Enterprise™.
Our global supplier management is based on three key instru-
ments:

First, supplier management with Extended Enterprise™. This
program identifies the four value drivers quality, cost, technology
and supply as a basis for the global performance-based coope-
ration. In addition, it integrates the conduct-related aspects in-
tegrity, commitment and communication, which both sides –
DaimlerChrysler and its suppliers – acknowledge as a basis for
cooperation. In top-level executive meetings with our suppliers,
we discuss individual performance, supplier capabilities and agree
on measures for continuous improvement.

Global alignment of procurement and supply activities. Our
Group-wide organization, Global Procurement & Supply, is re-
sponsible for purchasing goods and services at DaimlerChrysler.
It includes the units Procurement Mercedes-Benz Passenger
Cars/smart, Procurement and Supply Chrysler Group and Procu-
rement Commercial Vehicles, as well as International Procure-
ment Services, which is responsible for purchasing non-production
materials and services.

Our primary objective is to increase corporate value by optimi-
zing the Group’s supply chain network. In concrete terms, this
means creating an effective global procurement network to fur-
ther improve the quality, cost, technology and supply of the
purchased goods and services.

Our strategic goals. In order to continuously improve the
efficiency and effectiveness of our operations, we have defined
three strategic areas for action:

– Global Scale Leverage. We are constantly identifying and reali-
zing new synergy potentials within our global organization.
– Global Supply Base Management. We analyze, evaluate and

support our suppliers on the basis of quantitative parameters
as well as conduct-related aspects. On an annual basis, we
present awards to the best performing suppliers.

– Global Infrastructure and Processes. We provide our suppliers
and divisions with a globally integrated purchasing system.

In order to achieve these goals, we actively involve our suppliers
in the processes and infrastructures of procurement and supply.

Advantages from bundling purchasing volumes. By bundling
our purchasing volumes worldwide, we achieve the maximum
possible volumes enabling us to realize significant price advan-
tages. This globally coordinated procurement (lead buying)
gives us substantial economies of scale when purchasing goods
and material. We also have central buying for select commodi-
ties, managed through “one face to the supplier” for a specific
commodity, supported by brand representatives from the parti-
cipating purchasing units.

The DaimlerChrysler Supplier
Portal provides our suppliers with
full online transparency of their
performance. The External
Balanced Scorecard (EBSC) has
become a valuable tool internally
and externally averaging 18,000
page hits per month.

Second, our External Balanced Scorecard (EBSC) was further
developed so that it now covers 80% of our supplier base. With
the help of EBSC, our suppliers can compare their performance
relative to the competition in the categories of cost, quality,
technology and supply; in this way we provide our suppliers with
an honest and fair evaluation process which is available online.

Third, effective communication. This is the foundation for all of
the supporting measures. In 2005, we saw a continuation of
intense global competition, continued rises in raw-material prices
and changing market conditions. We therefore intensified com-
munication with our suppliers to prepare solutions and offsets
to enhance our joint competitiveness. As a result, we were able
to secure our production processes in this more difficult envi-
ronment.

Increased efficiency through standardization. Through the
global alignment of processes and infrastructures, we provide
our internal and external partners with a globally integrated and
cost-optimized procurement network. For example, our global
supplier portal provides worldwide access to almost all of the
Group’s supplier applications. With a single sign-on and a com-
mon framework, we currently offer more than 160 procurement
and supply applications to over 50,000 active users. The conti-
nuous rollout of a common procurement system is another area
of standardized infrastructure that enables us to cover nearly
our total volume of business worldwide.

Risk-management systems guarantee continuous supply.
In the year under review, financially distressed suppliers and a
significant increase in supplier bankruptcies were a major chal-
lenge. We met these challenges with the help of risk-manage-
ment systems that we had already introduced in previous years.
With these tools and processes, we are able to continuously
evaluate the financial health of our suppliers and to react in suf-
ficient time. We thus minimized the impact on production and
financial risks.

In addition, managing the continued increase in raw-material
prices has developed into a key competitive factor. As a result
of ongoing high demand, mounting speculation in the commo-
dity markets and unforeseen natural disasters, raw-material prices
in 2005 remained at the historically high levels reached in the
second half of 2004. We permanently monitor the prices of raw
materials and react appropriately in this situation. We also
work with our suppliers to ensure that we achieve continuous
improvements in products and processes, as well as realizing
lasting price advantages. Wherever appropriate, we enter into
long-term agreements to maintain our supply of materials and
to minimize the impact of future price rises; this also enhances
planning security for our suppliers.

DaimlerChrysler Global Supplier Awards 2005. To its best
suppliers, Global Procurement and Supply presented the
DaimlerChrysler Global Supplier Awards for 2005. With these
awards, we recognize outstanding performance on the basis
of the External Balanced Scorecard as well as in the areas of
communication, commitment and integrity. All global suppliers
providing over €1 million in volume to at least two of the Group’s
automotive business units were eligible for the awards. The
awards were presented to the top suppliers in the following cate-
gories:

– Powertrain: Denso
– Exterior: Gentex
– Chassis: Mubea
– Interior: Johnson Controls
– Electric/Electronic: Yazaki
– General Goods & Services: Dell
– Manufacturing Goods & Services: Marposs
– Logistics: NYK Line

Social Responsibility

Worldwide social commitment | Enhancement of “Global Sustainability Network” |

Comprehensive dialogue with policy makers, the business community and

society | Help for disaster victims | Action to improve traffic safety for children

DaimlerChrysler assumes social responsibility. Through
its worldwide operations, DaimlerChrysler has a positive impact
on society and on people’s living conditions. Therefore, we
strengthened our social commitment once again in 2005, because
stable societies are a precondition for a good business environ-
ment. As one of the founding members of the UN “Global Com-
pact” initiative, we are committed to supporting and promoting
its guidelines. We have anchored the spirit of the Global Compact
in our Principles of Social Responsibility and our Integrity Code.
Numerous initiatives demonstrate how seriously we take these
principles.

Expanded “Global Sustainability Network”. By using the
locally grown abaca fibers in the Philippines as a substitute for
glass fibers in components for the A-Class, we have imple-
mented another project for the increased utilization of natural
materials in vehicle production. For several years now, Daimler-
Chrysler has been using coconut fibers from the Brazilian rain
forest as a part of the POEMA project. In India, we support
research on the jatropha plant as a source of biodiesel. Through
the “Global Sustainability Network”, DaimlerChrysler helps
people locally by creating qualified jobs, protecting the environ-
ment and ecosystems, and increasing the share of renewable
resources in industrial production (see page 97).

Intensified transatlantic dialogue. Good and strong trans-
atlantic relations are a key element of DaimlerChrysler’s role as
a German-American company – this is why we continuously
help foster dialogue on both sides of the Atlantic involving all of
the important groups and decision-making bodies. Most promi-
nently in 2005, we hosted the US-German Round Table, an annual
symposium organized by the Association of German Industry
(BDI) and the US-based International Management and Develop-
ment Institute (IMDI). At this event, US congressmen and
German business leaders debated key issues of the twenty-first
century.

And in June 2005, DaimlerChrysler organized an event at the
Convention Center in Washington DC showcasing our products
and underscoring our impact on American society – from the
creation of jobs to the transport of school children.

Help your neighbor. The DaimlerChrysler Corporation Fund
and the Group’s employees provide support to many communi-
ty-based organizations through our “Good Neighbors, Good
Citizens®” program in the United States. Since 1953, we have
assisted numerous non-profit organizations and charities in
the four areas of community vitality, public policy, future work-
force and employee volunteerism. Support is provided in the
form of active help as well as substantial financial donations.
Through this kind of partnership with numerous charitable or-
ganizations, we contribute to improving social stability. Further-
more, our employees throughout the United States donated
over US $8.6 million to the United Way charity in 2005.

In 2004, DaimlerChrysler employed 8,400 disabled people in
Germany, significantly exceeding the minimum rate stipulated by
law. In addition, the Group ordered goods and services worth
€43 million from companies primarily employing disabled per-
sons. For example, we are the biggest customer of the disabled
workshops in Sindelfingen, purchasing 40% of their output.

The Group also follows the good corporate citizen approach in
other areas – for example, through our longstanding partnership
with the International Olympic Committee (IOC). Furthermore,
in the context of the Olympic Solidarity development aid program
established in 1996, DaimlerChrysler is constructing new sports
facilities in primary and middle schools in China and Tibet, pri-
marily to the benefit of less privileged groups.

In Germany, we supported various cultural events in 2005
with the aim of helping young artists to achieve their interna-
tional breakthrough.

100

For the future of Afghanistan:
a Mercedes-Benz Vito for a
DaimlerChrysler training project
in Kabul.

Disaster relief efforts. In 2005, DaimlerChrysler responded
quickly and effectively to a series of natural disasters. For
example, the victims of the tsunami disaster in Southeast Asia
received aid worth more than €2 million in addition to numerous
donations from our employees all over the world. Furthermore,
our local subsidiaries provided transportation for rescue as well
as supplying drinking water and other goods. Also, a special
reconstruction fund was set up to help rebuild facilities such as
schools, hospitals and orphanages.

In the weeks following the destruction caused by hurricane Kat-
rina in the United States, DaimlerChrysler and its employees
once again demonstrated their support with donations totaling
more than US $7 million. This included 100 new vans and
sport utility vehicles that were sent to the area fully loaded with
relief goods. A benefit concert organized by DaimlerChrysler
raised a sum of US $500,000, which was donated to the chari-
table organization “Habitat for Humanity” to help build housing
for flood victims.

Ongoing commitment to the fight against HIV/AIDS. As a
major employer, we are concerned about the wellbeing of our
employees. Therefore, DaimlerChrysler is deeply committed to
the battle against the immune weakness, AIDS. Within the
framework of our “Workplace Initiative on HIV/AIDS”, we pro-
vide free medical treatment to employees in South Africa and
their families. We also promote education and prevention. The
positive results of this initiative encouraged us to extend our
fight – adjusted to local conditions – to other countries and Group
companies. In 2005, we developed a global HIV/AIDS policy
to provide a framework for tailored programs throughout all
operations.

Training gives young people a valuable opportunity. Job
training not only helps individuals to make a living, it also con-
tributes to the economic development and stability of these
societies. This is particularly true in regions with a risk of insta-
bility. Therefore, DaimlerChrysler has begun to establish a
network of training centers. In Kabul (Afghanistan), Beit Sahour
(Palestine) and Perm (Russia), we enable young people to

acquire a sound training as mechanics. In addition, Daimler-
Chrysler supports an agricultural training center in Harar
(Ethiopia) run by the aid organization “People for People”.

Mondialogo: intercultural learning and sustainable devel-
opment. Together with UNESCO, DaimlerChrysler has founded
the Mondialogo initiative. The goal of Mondialogo is to improve
the dialogue between various cultures. In addition, we aim to fos-
ter understanding, respect and acceptance among young people.
In May 2005, we presented the Mondialogo Engineering Award
to young engineers who had developed joint concepts to combat
poverty and promote sustainable development. The second
Mondialogo School Contest, initiated in November 2005, attrac-
ted more than 35,000 students from 138 countries.

More safety for children in road traffic. Playful learning is
the principle behind MobileKids, DaimlerChrysler’s unique traf-
fic-safety initiative designed for children between the ages of
eight and twelve. It includes a TV cartoon series (“The Nimbols”)
and an interactive Internet game platform (“Mokitown”) with
more than half a million registered users. Children in Italy, Sin-
gapore, India, Israel, Malaysia and China are able to participate
in numerous MobileKids activities. We also promote children’s
safety in road traffic with other worldwide initiatives such
as the “Global Road Safety Program” and “Seat-Check” in the
United States.

Responsible partnerships create mutual trust. Since the
social development of economies is also in the interest of the
DaimlerChrysler Group, we are entering into an increasing
number of “responsibility partnerships” with politics, society
and non-government organizations (NGOs). These partner-
ships foster trust, reduce alienation and build bridges between
different cultures and value systems, ultimately supporting
our overall goal – the success of DaimlerChrysler.

101

Corporate Governance

The Board of Management and the Supervisory Board of

DaimlerChrysler are committed to the principles of good corporate

governance. National and international investors rightly expect the

company to be managed and supervised responsibly, transparently,

and with a long-term orientation.

We orient our actions towards these expectations and have therefore

designed our system of corporate governance to reflect international

standards and to be transparent. On the following pages, the Board

of Management and the Supervisory Board explain the principles of

corporate governance at DaimlerChrysler. Further information can

be found on our website at www.daimlerchrysler.com/corpgov_e.

102

Contents

104 Corporate Governance Report

116 Report of the Supervisory Board

• General conditions
• DaimlerChrysler’s corporate bodies
• Principles guiding our actions
• Directors’ Dealings

110 Compensation Report

• Compensation of the Board of Management
• Compensation of the Supervisory Board

• Cooperation between the Supervisory
Board and the Board of Management
• Issues discussed at the meetings in the

year 2005

• Report on the work of the committees
• Personnel changes in the Supervisory
Board and the Board of Management

120 Members of the Supervisory

Board

114 Declaration of Compliance with the

German Corporate Governance Code

121 Report of the Audit Committee

• Deviations from the Recommendations

• Issues discussed at the meetings of the

of the German Corporate Governance Code

Audit Committee

• Deviations from the Suggestions of the
German Corporate Governance Code

103

Corporate Governance Report

General conditions

DaimlerChrysler’s corporate bodies

DaimlerChrysler is a stock corporation with its domicile in Ger-
many. The legal framework for corporate governance there-
fore derives from German law, particularly the Stock Corpora-
tion Act, the Codetermination Act and legislation concerning
capital markets, as well as from the Memorandum and Articles
of Incorporation of DaimlerChrysler AG.

As our shares are listed on stock exchanges outside Germany,
and in particular on the New York Stock Exchange (NYSE),
we also have to adhere to those countries’ capital-market legis-
lation and the listing requirements applicable at those stock
exchanges. We are therefore in favor of the convergence of inter-
national stock-exchange regulations.

A description of the differences between DaimlerChrysler’s cor-
porate-governance principles and those applicable to US com-
panies under NYSE corporate-governance listing standards can
be seen on our website at
www.daimlerchrysler.com/corpgov_e.

Shareholders and the Annual Meeting. The company’s share-
holders exercise their rights and cast their votes at the Annual
Meeting. Each share in DaimlerChrysler AG entitles its owner to
one vote. There are no shares with multiple voting rights, no
preferred or privileged stock, and no maximum voting rights.

Various important decisions can only be made by the Annual
Meeting. These include the decision on the appropriation of dis-
tributable profits, the ratification of the actions of the members
of the Board of Management and the Supervisory Board, the
election of the independent auditors and the election of mem-
bers of the Supervisory Board. The Annual Meeting also makes
decisions on amendments to the Memorandum and Articles
of Incorporation, capital measures, and the approval of certain
intercompany agreements. The influence of the Annual Meet-
ing on the management of the company is limited by law, how-
ever. The Annual Meeting can only make management deci-
sions if it is requested to do so by the Board of Management.

Separation of corporate management and supervision.
DaimlerChrysler AG is obliged by the German Stock Corporation
Act to apply a dual management system featuring the strict
separation of the two boards responsible for managing and for
supervising the company (two-tier board). With this system,
the company’s Board of Management is responsible for the exec-
utive functions, while the Supervisory Board monitors the
Board of Management. No person may be a member of these
two boards at the same time.

Supervisory Board. In accordance with the German Codeter-
mination Act, the Supervisory Board of DaimlerChrysler AG
comprises 20 members. Half of them are elected by the share-
holders at the Annual Meeting. The other half comprises
members who are elected by the company’s employees in Ger-
many. The members representing the shareholders and the
members representing the employees are equally obliged by
law to act in the company’s best interests.

104

Annual Meeting

Supervisory Board

Board of Management

each share in DaimlerChrysler AG
entitles its owner to one vote

election of shareholder
representatives

10 shareholder representatives +
10 employee representatives

appointment,
monitoring and advisory

tions to the Supervisory Board, concerning the appropriation
of distributable profits and capital measures for example. Final-
ly, the Audit Committee approves services provided by the
independent auditors or affiliated companies to DaimlerChrysler
AG or to companies of the DaimlerChrysler Group that are not
directly related to the annual audit.

The Supervisory Board is convinced of the independence of the
members of Audit Committee representing the shareholders.
The Chairman of the Audit Committee, Mr. Bernhard Walter, has
special expertise and experience in the application of account-
ing principles and internal monitoring systems. Therefore, the
Supervisory Board has appointed Mr. Walter as Financial Expert.

The Mediation Committee is formed solely to perform the func-
tions laid down in Section 31, Subsection 3 of the German
Codetermination Act. Accordingly, it has the task of making
proposals for the appointment of members of the Board of
Management if a previous proposal did not obtain the legally
required majority of votes.

Board of Management. As of December 31, 2005, the Board
of Management of DaimlerChrysler AG comprised ten members.
The duties of the Board of Management include setting the
Group’s strategic focus and managing its business. It is also
responsible for preparing the individual and consolidated
annual financial statements and the quarterly financial state-
ments, and for installing and monitoring a risk-management
system. The Rules of Procedure define the areas of responsibili-
ty of the Board of Management and its members; these are
described on pages 20 and 21 of this Annual Report.

The Supervisory Board monitors and advises the Board of Man-
agement in its management of the company. Its duties also
include appointing and recalling members of the Board of Man-
agement, as well as deciding on their compensation, whereby
the details of the compensation of the Board of Management’s
members are delegated to the Presidential Committee. How-
ever, the Supervisory Board reviews and advises on the struc-
ture of the system of compensation whenever this is neces-
sary. It also reviews the individual and consolidated annual
financial statements and reports to the Annual Meeting on the
results of its review.

The work of the Supervisory Board is coordinated by its Chair-
man. The Supervisory Board has formed three committees:
the Presidential Committee, the Audit Committee and the Medi-
ation Committee.

The Presidential Committee has particular responsibility for the
contractual affairs of the members of the Board of Manage-
ment and determines their compensation. It also supports and
advises the Chairman of the Supervisory Board and his
deputy and prepares the meetings of the Supervisory Board.

The Audit Committee deals with questions of accounting and
risk management. It discusses the effectiveness of the internal
control systems and regularly receives reports on the work of
the Corporate Audit department. It also discusses the interim
financial statements and the annual financial statements,
individual and consolidated, of DaimlerChrysler AG. The Audit
Committee makes recommendations concerning the selec-
tion of independent auditors, assess such auditors’ suitability
and independence, and, after the independent auditor is
elected by the Annual Meeting, commissions it to conduct the
annual audit of the individual and consolidated financial
statements, negotiates an audit fee and determines the focus-
es of that audit. The Audit Committee receives reports from
the independent auditors on any accounting matters that might
be regarded as critical and on any differences of opinion with
the Board of Management. In addition, it makes recommenda-

105

Audit Committee

Presidential Committee

Mediation Committee

Supervisory Board

Principles guiding our actions

Integrity Code and compliance activities. The Integrity Code
is a guideline for behavior which has been in effect since
1999 and which was revised in 2003 that defines a binding
framework for the actions of all our employees worldwide.
Among other things, the guidelines define correct behavior in
international business and in any cases of conflicts of inter-
est, questions of equal treatment, proscription of corruption,
the role of internal monitoring systems and the duty to con-
form with applicable law and other internal and external regula-
tions. DaimlerChrysler expects all of its employees to adhere
strictly to the Integrity Code.

Already in the year 2003, the Audit Committee of the Super-
visory Board established a Business Practices Office (BPO) at
the DaimlerChrysler Group with two contact centers in
Stuttgart and Auburn Hills. Employees can submit confidential
complaints to the BPO concerning suspected violations of
accounting regulations or the Integrity Code.

In addition, the Corporate Compliance Operations department
was established at the beginning of 2006 with the objective
of securing a uniform compliance organization throughout the
Group. This organization will ensure that DaimlerChrysler’s
business practices in the entire Group are examined in detail
and that guidelines are updated and implemented as neces-
sary. Possible violations of anti-corruption laws, internal guide-
lines and rules of conduct are examined; necessary counter-
measures are initiated and their implementation is monitored.
Compliance managers will be deployed in DaimlerChrysler
subsidiaries and certain regions. In addition, training programs
will be designed with a focus on corporate compliance and
will be executed worldwide. The Corporate Compliance organi-
zation will report directly to the Chairman of the Board of
Management of DaimlerChrysler.

The Sales Practices Hotline, which was established in 2005,
is also allocated to the Corporate Compliance organization. Our
officers have again been notified in several events and written
communications of the special significance of the Integrity Code
to our company. The Sales Practices Hotline is particularly res-
ponsible for replying to questions from sales personnel regard-
ing the correct business approach to public-sector institutions,
and in this context also accepts information on any questionable
events for further investigation.

Reports are regularly submitted to the Audit Committee of
the Supervisory Board on the complaints received by the BPO
and the Sales Practices Hotline and the processing of such
complaints.

Code of Ethics. In July 2003, we approved a “Code of Ethics”.
This code addresses the members of the Board of Management
and a large number of senior officers who have a significant
influence on planning and reporting in the context of the annual
and interim financial statements. The provisions of the code
aim to prevent mistakes by the persons addressed and to pro-
mote ethical behavior as well as the complete, appropriate,
accurate, timely and clear disclosure of information on the
Group. The wording of the Code of Ethics can be seen on our
website at www.daimlerchrysler.com/corpgov_e.

Risk management. DaimlerChrysler has a risk-management
system commensurate with its position as a company with
global operations (see pages 58 ff). The risk-management sys-
tem is one component of the overall planning, controlling
and reporting process. Its goal is to enable the company’s man-
agement to recognize significant risks at an early stage and
to initiate appropriate countermeasures in a timely manner. The
Chairman of the Supervisory Board has regular contacts with
the Board of Management to discuss not only the Group’s strat-
egy and business development but also the issue of risk man-
agement. The Corporate Audit department monitors adherence
to the legal framework and Group standards by means of
targeted audits, and, if required, initiates appropriate actions.

106

Accounting principles. The consolidated financial statements
of the DaimlerChrysler Group are prepared in accordance
with the United States Generally Accepted Accounting Princi-
ples (US GAAP). Details of US GAAP can be found in the
Notes to the Consolidated Financial Statements (see Note 1).

The annual financial statements of DaimlerChrysler AG, which
is the parent company, are prepared in accordance with the
accounting guidelines of the German Commercial Code (HGB).
Both sets of financial statements are audited by independent
auditors.

Transparency. DaimlerChrysler regularly informs its share-
holders, financial analysts, shareholders’ associations, the
media and the interested public on the situation of the Group
and on any significant changes in its business. We have posted
an overview of all the significant information disclosed in the
year 2005 on our website at www.daimlerchrysler.com/ir/
annualdoc05.

Fair disclosure. In principle, all new facts that are communi-
cated to financial analysts and institutional investors are simul-
taneously also made available to all shareholders and the
interested public. If any information is made public outside Ger-
many as a result of the regulations governing capital markets
in the respective countries, we also make this information avail-
able without delay in Germany in the original version, or at
least in English. In order to ensure that information is provided
quickly, DaimlerChrysler makes use of the Internet and of
other methods of communication.

Financial calendar. All the dates of important disclosures
(e.g. the Annual Report, interim reports, the Annual Meeting) are
announced in advance in a Financial Calendar. The Financial
Calendar can be seen inside the rear cover of this Annual Report
and on our website at www.daimlerchrysler.com/ir/calendar.

Ad-hoc publicity. In addition to its regular scheduled repor-
ting, DaimlerChrysler discloses, in accordance with applicable
law without delay, any so-called inside information which
directly affects the Group.

Major shareholdings. DaimlerChrysler also reports without
delay after receiving notification that by means of acquisition,
disposal or any other method, the shareholding in Daimler-
Chrysler AG of any person or institution has reached, exceeded
or fallen below 5, 10, 25, 50 or 75 percent of the company’s
voting rights.

Shares held by the Board of Management and the Supervi-
sory Board. As of December 31, 2005, the members of the
Board of Management held a total of 8.5 million shares, options
or stock appreciation rights of DaimlerChrysler AG (0.833%
of the shares issued). As of the same date, the members of the
Supervisory Board held a total of 0.1 million shares, options
or stock appreciation rights of DaimlerChrysler AG (0.012% of
the shares issued).

Directors’ Dealings. In 2005, the following securities trans-
actions took place involving members of the Board of Manage-
ment and the Supervisory Board and certain senior officers
who regularly have access to inside information and who are
authorized to make significant business decisions (and, in
accordance with the provisions of the German Securities
Trading Act, involving persons in a close relationship with the
aforementioned persons). DaimlerChrysler discloses these
transactions without delay after receiving notification of them.
This information is also available on our website at
www.daimlerchrysler.com/corpgov_e.

107

Directors’ Dealings

Date

Name

Function

Type and place of transaction

Number

of shares 1

May 2, 2005

Mr. Bodo Uebber

Board of Management

Acqusition of shares, Frankfurt

May 4, 2005

Dr. Michael Mühlbayer

Senior officer

Acqusition of shares, Frankfurt

May 25, 2005

Mr. Thomas W. LaSorda

Board of Management

Acqusition of shares, New York

May 25, 2005

Mr. Thomas W. LaSorda

Board of Management

Acqusition of shares, New York

May 25, 2005

Mr. Thomas W. LaSorda

Board of Management

Acqusition of shares, New York

May 26, 2005

Mr. Thomas W. LaSorda

Board of Management

Acqusition of shares, New York

July 11, 2005

Ms. Christine K. Cortez

July 15, 2005

Mr. Gary E. Dilts

July 15, 2005

Mr. Gary E. Dilts

July 19, 2005

Ms. Nancy Rae

Senior officer

Sale of shares, New York

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

July 19, 2005

Ms. Nancy Rae

Senior officer

Sale of new shares, Frankfurt

July 28, 2005

Mr. Robert G. Liberatore

Senior officer

Sale of shares, New York

July 29, 2005

Dr. Eckhard Cordes

Board of Management

Acquisition of shares by exercise
of options, off-exchange

July 29, 2005

Dr. Eckhard Cordes

Board of Management

Sale of new shares, Frankfurt

July 29, 2005

Mr. Günter Egle

Senior officer

July 29, 2005

Mr. Günter Egle

July 29, 2005

Mr. Wolfgang Diez

July 29, 2005

Mr. Wolfgang Diez

July 29, 2005

Mr. Ulrich Walker

July 29, 2005

Mr. Ulrich Walker

July 29, 2005

Mr. Herbert Kauffmann

July 29, 2005

Mr. Herbert Kauffmann

Aug. 1, 2005

Mr. Harald Bölstler

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acquisition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Aug. 1, 2005

Mr. Harald Bölstler

Senior officer

Sale of new shares, Frankfurt

Aug. 1, 2005

Mr. Thomas W. Sidlik

Board of Management

Acqusition of shares by exercise
of options, off-exchange

Aug. 1, 2005

Mr. Thomas W. Sidlik

Board of Management

Sale of new shares, Frankfurt

Aug. 1, 2005

Dr. Albert Kirchmann

Senior officer

Acqusition of shares by exercise
of options, off-exchange

3,000

1,500

570

1,300

1,900

2,423

3,000

22,500

24,000

7,000

92,500

15,000

20,000

10,000

50,000

8,500

Price

€30.64

€30.39

$40.68

$40.40

$40.39

$40.27

$40.42

€34.40

€34.74

€34.40

€35.20

$48.11

€34.40

€39.58

€34.40

€39.80

€34.40

€40.20

€34.40

€40.04

€34.40

€39.63

€34.40

€40.52

€34.40

€40.52

€34.40

Total

volume

(rounded)

€91,920

€45,585

$23,188

$52,520

$76,741

$97,574

$121,278

€774,000

€781,650

€825,600

€844,800

$336,770

€3,182,000

€3,661,150

€516,000

€597,000

€688,000

€804,000

€688,000

€800,800

€688,000

€792,600

€344,000

€405,200

€1,720,000

€2,026,000

€292,400

Aug. 1, 2005

Dr. Albert Kirchmann

Senior officer

Sale of new shares, Frankfurt

8,500

€40.46

€343,910

1 The information pertains to no par value registered shares of DaimlerChrysler AG with a pro rata amount of €2.60 of the capital stock.

108

Date

Name

Function

Type and place of transaction

Aug. 1, 2005

Mr. David H. Olsen

Senior officer

Aug. 1, 2005

Mr. David H. Olsen

Aug. 2, 2005

Mr. Peter M. Rosenfeld

Aug. 2, 2005

Mr. Peter M. Rosenfeld

Aug. 2, 2005

Ms. Christine K. Cortez

Aug. 2, 2005

Ms. Christine K. Cortez

Aug. 3, 2005

Mr. Paul S. Halata

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Aug. 3, 2005

Mr. Paul S. Halata

Senior officer

Sale of new shares, Frankfurt

Aug. 3, 2005

Mr. Hans-Heinrich Weingarten

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Aug. 3, 2005

Mr. Hans-Heinrich Weingarten

Senior officer

Sale of new shares, Frankfurt

Aug. 4, 2005

Dr. Rolf Bartke

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Aug. 4, 2005

Dr. Rolf Bartke

Senior officer

Sale of new shares, Frankfurt

Aug. 4, 2005

Mr. Thomas W. Sidlik

Board of Management

Acqusition of shares by exercise
of options, off-exchange

Aug. 4, 2005

Mr. Thomas W. Sidlik

Board of Management

Sale of new shares, Frankfurt

Aug. 5, 2005

Mr. George Murphy

Senior officer

Aug. 5, 2005

Mr. George Murphy

Aug. 8, 2005

Mr. Susan J. Unger

Aug. 18, 2005

Mr. Frank J. Ewasyshyn

Sept. 5, 2005

Dr. Gerald Weber

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Sale of shares, New York

Acqusition of shares by exercise
of options, off-exchange

Sept. 5, 2005

Dr. Gerald Weber

Senior officer

Sale of new shares, Frankfurt

Sept. 12, 2005

Mr. Earl G. Graves

Supervisory Board

Sale of shares, New York

Nov. 22, 2005

Mr. Hubertus Troska

Senior officer

Nov. 22, 2005

Mr. Hubertus Troska

Dec. 12, 2005

Mr. Steven A. Torok

Senior officer

Acqusition of shares by exercise
of options, off-exchange

Sale of new shares, Frankfurt

Acqusition of shares by exercise
of options, off-exchange

Dec. 13, 2005

Mr. Steven A. Torok

Senior officer

Sale of new shares, Frankfurt

Dec. 21, 2005

Mr. Helmut Lense

Supervisory Board

Sale of shares, Frankfurt

Number

of shares 1

Price

9,000

€34.40

9,000

12,000

22,500

20,000

15,000

27,500

25,000

22,500

18,200

2,500

17,000

501

4,000

20,000

224

€40.01

€34.40

€41.36

€34.40

€40.52

€34.40

€41.26

€34.40

€41.08

€34.40

€40.65

€34.40

€40.65

€34.40

€40.36

$50.84

$51.63

€34.40

€40.70

$52.08

€34.40

€44.17

€34.40

€42.90

€42.81

1 The information pertains to no par value registered shares of DaimlerChrysler AG with a pro rata amount of €2.60 of the capital stock.

Total

volume

(rounded)

€309,600

€360,090

€412,800

€496,320

€774,000

€911,700

€688,000

€825,200

€516,000

€616,200

€946,000

€1,117,875

€860,000

€1,016,250

€774,000

€908,100

$925,288

$129,075

€584,800

€691,900

$26,092

€137,600

€176,680

€688,000

€858,000

€9,589

109

Compensation Report

As an element of the Corporate Governance Report, the Com-
pensation Report summarizes the principles that are applied to
determine the compensation of the Board of Management of
DaimlerChrysler AG and explains the level and structure of its
members’ compensation.

Furthermore, the principles and level of the compensation of
the Supervisory Board are also described.

Compensation of the Board
of Management

Responsibility. Responsibility for determining the structure
and level of compensation of the Board of Management of
DaimlerChrysler AG is delegated by the Supervisory Board to
the Presidential Committee (see page 105). The principles
to be applied have been laid down by the Supervisory Board in
the Rules of Procedure for the Presidential Committee. If
requested by the Committee, the Supervisory Board also holds
discussions on the structure of the compensation system for
the Board of Management and regularly reviews this structure.

Goals. The aim of the compensation system for the Board
of Management is to compensate the members of the Board of
Management commensurately with their areas of activity and
responsibility when compared internationally. The system
should also clearly and directly reflect in the variability of com-
pensation the joint and individual performance of the Board
of Management members and the success of the Group.

For this purpose, the compensation system comprises a base
salary, an annual bonus and an element of stock-based compen-
sation as variable compensation with a long-term incentive
effect and risk component.

In order to ensure the competitiveness and appropriateness of
Board of Management compensation, its structure, the indivi-
dual components and the total compensation are reviewed each
year in relation to a benchmark group of companies in the
United States and Europe. For this purpose, the Presidential
Committee is regularly assisted by external consultants.

Structure of Board of Management compensation. Board
of Management compensation in 2005 comprised three compo-
nents, set out below:

– The fixed base salary, paid in twelve monthly installments,
is related to the area of responsibility of each Board of
Management member.

– The annual bonus is variable cash compensation, the level of
which is related to the fixed base salary and varies in relation
to the degree to which DaimlerChrysler’s planned operating
profit is achieved. Additional targets may also be taken into
account, such as the development of total shareholder return
in relation to comparable automotive companies. When set-
ting the level of the annual bonus, the Presidential Committee
of the Supervisory Board also has the possibility to reflect
the Board of Management members’ individual performance,
which is not directly reflected in the performance of the
Group, with a supplementary payment or deduction of up to
25%. The operating-profit target is determined annually in
advance on the basis of the planning approved by the Super-
visory Board.

As of the 2006 financial year, the level of the annual bonus
is related not only to the achievement of the operating-profit
target, but in equal measure also to the comparison of the
achieved operating profit with the respective prior-year result.

110

– The new model of stock-based compensation, which was

applied for the first time in the 2005 financial year, is the so-
called Performance Phantom Share Plan. This plan is
linked to the long-term development of corporate value and
is based on the factors of performance orientation, bench-
mark comparison and share ownership. This new component
of compensation replaced the two components granted in
2004 for the last time, the medium-term incentive plan and
the stock option plan.

The new model takes into consideration all of the key criteria
recommended in connection with good corporate gover-
nance. With a term of four years, the plan is oriented toward
mid-term performance targets, while also having a long-
term effect through the obligation to hold shares. With this
model, target achievement is measured in terms of the
return on net assets that is actually achieved by the Group
and its return on sales compared with the relevant com-
petitors, which are BMW, Ford, GM, Honda, Iveco, Toyota,
Volvo and VW. Due to the allocation of phantom shares at the
beginning of the four-year period, the development of Daimler-
Chrysler’s share price is taken into consideration; these phan-
tom shares are also entitled to a dividend during the four-
year period. After three years, the final number of phantom
shares is calculated from the degree of target achievement.
These phantom shares must then be held for one more year.
After four years, the amount to be paid out is calculated by
multiplying the number of phantom shares by the share price
relevant at that time. The members of the Board of Man-
agement have to use a quarter of this gross amount paid out
to purchase “real” DaimlerChrysler shares, so that the
stipulations arising from the guidelines for share ownership
are fulfilled (see below).

No retroactive change in the defined performance targets
or the comparative parameters is possible in connection with
allocating the stock-based compensation.

Guidelines for share ownership. As a supplement to these
three components of Board of Management compensation, the
Presidential Committee of the Supervisory Board of Daimler-
Chrysler AG has approved Stock Ownership Guidelines for the
Board of Management, under which the members of the Board
of Management are required to invest a portion of their private
assets in DaimlerChrysler shares within a period of several
years and to hold these shares until the end of their Board of
Management membership. The real shares acquired in the
context of the new stock-based compensation are generally to
be used to fulfill the provisions of these guidelines, but the
shares can also be acquired in a different way.

Total Board of Management compensation in 2005.
The total compensation paid by Group companies to the mem-
bers of the Board of Management of DaimlerChrysler AG is
calculated from the amount of compensation paid in cash and
from the non-cash benefits in kind.

€9.3 million was paid as fixed compensation, €24.6 million
as short-term and medium-term performance-related compen-
sation, and €1.0 million as long-term performance-related
compensation. This totaled an amount of €34.9 million in 2005.

In 2005, the members of the Board of Management were grant-
ed a total of 454,914 phantom shares within the framework
of the long-term stock-based compensation, the so-called Per-
formance Phantom Share Plan. Payment is made for these
phantom shares, depending on internal and external perfor-
mance targets for continuous activity in the Board of Manage-
ment, in the year 2009. The reference share price for the
allocation of the phantom shares is the average price of Daimler-
Chrysler shares between January 1, 2005 and the day before
the first meeting of the Presidential Committee in which the
allocation is decided upon. This value was €35.41 per phantom
share in 2005. Disclosure of those amounts will then take
place in connection with the performance-related compensation
for the year 2009.

111

Stock options were exercised in 2005 relating to the stock
option plans of previous years. Members of the Board of Man-
agement exercised a total of 167,500 options from the Stock
Option Plan 2003.

Further details of directors’ dealings can be found in the
Corporate Governance Report (see page 107 ff). Information
on stock-based compensation is given in Note 24 of the
Notes to the Consolidated Financial Statements.

Board of Management Members whose term of office ended in
2005 were entitled to receive compensation earned before
the respective retirement date from current mid-term and the
new 2005 long-term share-based remuneration components
calculated on a pro-rata basis. We also had expenditures in
connection with certain previously accrued retirement benefit
obligations of other Board of Management members. The aggre-
gate amount of both items is €23.8 million.

Pensions. The pension agreements of the Board of Manage-
ment members with DaimlerChrysler AG in 2005 included
a commitment to an annual retirement pension, which is calcu-
lated as a percentage of the fixed annual base salary.

In 2005, disbursements to former members of the Board of
Management of DaimlerChrysler AG and their survivors
amounted to €16.9 million. An amount of €292.2 million has
been accrued for pension obligations to former members
of the Board of Management and their survivors.

As of the 2006 financial year, the pension agreements of the
Board of Management members with DaimlerChrysler AG have
been changed over to defined-contribution pension plans.

Sideline activities of the Board of Management members.
Members of the Board of Management require the consent
of the Supervisory Board before commencing any sideline activ-
ities. This ensures that neither the time required nor the
compensation paid for such activities lead to any conflict with
the members’ duties to the Group.

Insofar as such sideline activities are memberships of other
supervisory boards or comparable boards, these are disclosed
in the annual financial statements of DaimlerChrysler AG and
on the Internet.

No compensation is paid to Board of Management members for
other positions held at companies of the Group.

Compensation of the Supervisory Board

Supervisory Board compensation in 2005. The compen-
sation of the Supervisory Board is determined by the Annual
Meeting of DaimlerChrysler AG and is governed by the com-
pany’s Articles of Incorporation. The current regulation spec-
ifies that the members of the Supervisory Board receive, in
addition to the refund of their expenses and the costs of any
value-added tax incurred by them in the performance of their
office, a fixed compensation of €75,000, three times this
amount for the Chairman of the Supervisory Board, twice this
amount for the Deputy Chairman of the Supervisory Board
and the Chairman of the Audit Committee, 1.5 times this
amount for the chairmen of other Supervisory Board commit-
tees and 1.3 times this amount for members of Supervisory
Board committees. If a member of the Supervisory Board exer-
cises several of the aforementioned functions, he shall be
remunerated solely for the function with the highest compen-
sation. The individual compensation of the members of
the Supervisory Board is shown in the table on the right.

112

The members of the Supervisory Board and its committees
receive a meeting fee of €1,100 for each Supervisory
Board meeting and committee meeting that they attend.

Compensation of the members of the Supervisory Board

Name

Function

Total 2005
€

Hilmar Kopper

Chairman of the Supervisory Board

243,700

Except for the compensation paid to the employee representa-
tives within the Supervisory Board in accordance with their con-
tracts of employment, no compensation was paid for services
provided personally beyond the aforementioned board and com-
mittee activities, in particular for advisory or agency services.

The compensation paid in 2005 to the members of the
Supervisory Board of DaimlerChrysler AG for their services
to the Group therefore totaled €2.0 million.

Loans to members of the Board of Management or the
Supervisory Board. In 2005, no advances or loans existed to
members of the Board of Management or the Supervisory
Board of DaimlerChrysler AG.

Erich Klemm 1

Deputy Chairman of the
Supervisory Board

Heinrich Flegel

Member of the Supervisory Board

Nate Gooden 2

Member of the Supervisory Board

Earl G. Graves

Member of the Supervisory Board

Victor Halberstadt

Thomas Klebe 1, 3

Arnaud Lagardère 5

Member of the Supervisory Board
(retired April 6, 2005)

Member of the Supervisory Board
and of the Presidential Committee

Member of the Supervisory Board
(since April 6, 2005)

Jürgen Langer 1

Member of the Supervisory Board

Robert J. Lanigan

Member of the Supervisory Board

Helmut Lense 1

Member of the Supervisory Board

Peter A. Magowan

Member of the Supervisory Board

William A. Owens

Member of the Supervisory Board

Gerd Rheude 1

Udo Richter 1

Member of the Supervisory Board

Wolf Jürgen Röder 1

Member of the Supervisory Board

Manfred Schneider

Stefan Schwaab 1

Bernhard Walter

Member of the Supervisory Board
and of the Presidential Committee

Member of the Supervisory Board
and of the Audit Committee

Member of the Supervisory Board
and Chairman of the Audit Committee

Lynton R. Wilson 4

Member of the Supervisory Board

Mark Wössner

Member of the Supervisory Board

168,700

80,500

79,400

77,200

20,826

107,400

56,579

80,500

106,300

111,800

164,300

80,500

1 The members representing the employees have stated that their compensation should be paid to

the Hans-Böckler Foundation, in accordance with the guidelines of the German Trade Union
Federation.

2 Mr. Gooden abstained from receiving his compensation and meeting fees.
At his request, these amounts were paid to the Hans-Böckler Foundation.

3 Dr. Klebe also received €2,000 in meeting fees for his activity as a member of the Supervisory

Board of DaimlerChrysler Luft- und Raumfahrt Holding AG

4 Mr. Wilson also received €18,900 for committee activities at Mercedes-Benz Canada and

DaimlerChrysler Canada Inc.

5 Mr. Lagardère also receives compensation for his activity as Chairman of the Board of Directors of
EADS N.V.. For 2004, the total amount was €320,000. Due to variable compensation components,
the respective amount for 2005 is not yet available.

113

Declaration of Compliance
with the German Corporate Governance Code

Section 161 of the German Stock Corporation Act (AktG) requi-
res the Board of Management and the Supervisory Board of
a listed stock corporation to declare each year that the recom-
mendations of the “German Corporate Governance Code
Government Commission” published by the Federal Ministry of
Justice in the official section of the electronic Federal Gazette
have been and are being met or, if not, which recommendations
have not been or are not being applied. Shareholders must be
given permanent access to such declaration.

The Board of Management and the Supervisory Board of
DaimlerChrysler AG declare that both the recommendations and
the suggestions of the “German Corporate Governance Code
Government Commission”, have been and are being met. The
Board of Management and the Supervisory Board also intend to
follow the recommendations and suggestions of the German
Corporate Governance Code in the future. The following recom-
mendations and suggestions are the only ones not been or
being applied:

The German Corporate Governance Code (“Code”) contains rules
with varying binding effects. Apart from outlining aspects of
the current German Stock Corporation Act, it contains recom-
mendations from which companies are permitted to deviate.
However, if they do so, they must disclose this each year. The
Code also contains suggestions which can be ignored without
giving rise to any disclosure requirement.

The Board of Management and the Supervisory Board of
DaimlerChrysler AG have decided to disclose not only deviations
from the Code’s recommendations (see I.) but also – without
being legally obliged to do so – deviations from its suggestions
(see II.).

For the period from December 2004 until July 20, 2005, the fol-
lowing declaration refers to the Code in effect as of May 21,
2003. For the corporate governance practice of DaimlerChrysler
AG since July 21, 2005, this declaration refers to the require-
ments of the Code in effect as of June 2, 2005, published in the
electronic Federal Gazette on July 20, 2005.

I. Deviations from the Recommendations of the German
Corporate Governance Code

1. Deductible with the D&O insurance (Code Clause 3.8,
Paragraph 2) The Directors’ and Officers’ Liability (D&O) insu-
rance obtained by DaimlerChrysler AG for the Board of Manage-
ment and the Supervisory Board does not provide any insurance
cover for intentional acts and omissions or for breaches of duty
knowingly committed.

Insurance cover is limited to negligent breaches of duty by
members of the Board of Management and Supervisory Board,
so that this is the only context in which the question of the
agreement of a deductible arises.

It is not advisable to agree on a deductible for negligence on
the part of the members of the Supervisory Board, as Daimler-
Chrysler AG endeavors to staff its Supervisory Board with
prominent members of the community from Germany and ab-
road who have extensive business experience, and the company
may be impeded in this aim if members of its Supervisory Board
have to accept far-reaching liability risks for potential negligen-
ce. The fact that a deductible is fairly unusual in other countries
makes this even more of a problem.

114

On the part of members of the Board of Management, the D&O
insurance of DaimlerChrysler AG envisages a deductible for
cases of ordinary or gross negligence. Moreover, in cases of a
grossly negligent breach of duty by a member of the Board
of Management, the Presidential Committee of the Supervisory
Board which is responsible for the Board of Management’s
service contracts may agree to make a percentage deduction
from the variable portion of the compensation of the member
of the Board of Management concerned. In terms of its overall
financial result, this would be the same as an additional
deductible. In the view of DaimlerChrysler AG, this rule enables
individual cases to be judged more fairly on their merits than
the blanket approach of the Code.

2. Individualized reporting of Board of Management
compensation (Code Clause 4.2.4) As in the past, the com-
pensation for the Board of Management is not reported indi-
vidually. The compensation of the Board of Management for the
2005 fiscal year will also be reported, broken down into fixed
and variable elements and into components with a long-term
incentive effect. This information is crucial for assessing
whether the division of such compensation between fixed and
performance-related components is appropriate and whether
the structure of such compensation provides adequate incenti-
ves for the Board of Management. As the Board of Manage-
ment operates according to the principle of collective responsi-
bility, the incentives provided for the Board of Management
as a whole are the decisive factor, not those for each individual
member.

For the 2006 fiscal year, the compensation will be published in
accordance with the provisions of the German Law on the
Disclosure of the Compensation of Members of the Board of
Management (Vorstandsvergütungsoffenlegungsgesetz).

3. Approval of sideline activities (Code Clause 4.3.5) For
reasons of practicality, approval of sideline activities by mem-
bers of the Board of Management has been granted by the
Chairman of the Supervisory Board. In future the Supervisory
Board will reach a decision regarding approval in its entirety.

4. Compensation of the Supervisory Board
(Code Clause 5.4.7, Paragraph 2) As long as the ways by which
criteria for the assessment of success can adequately be
structured are still subject to substantial legal uncertainties, no
performance-related compensation shall be set.

II.Deviations from the Suggestions of the German Corpora-
te Governance Code

1. Broadcast of the Annual Meeting (Code Clause 2.3.4) The
Annual Meeting of DaimlerChrysler AG will be broadcast on
the Internet until the end of the Board of Management’s report.
Continuing the broadcast after this point, particularly the
broadcast of individual shareholders’ spoken contributions could
be construed as interference in those shareholders’ privacy
rights. For this reason the company will further on not broad-
cast this part of the Annual Meeting.

2. Variable compensation of the Supervisory Board rela-
ting to the company’s long-term success (Code Clause
5.4.7) We draw attention to the comments on I. 4. with regard
to the introduction of performance-related compensation.

Stuttgart, December 2005

The Board of Management

The Supervisory Board

115

Report of the Supervisory Board

In five meetings during the 2005 financial year, the Supervisory
Board dealt in detail with the business situation of Daimler-
Chrysler and the strategic development of the Group and its
divisions. In addition to important personnel decisions, the
agendas of the meetings also included various individual issues
that were dealt with and discussed together with the Board
of Management.

Cooperation between the Supervisory Board and the Board
of Management. In its meetings, the Supervisory Board was
regularly and fully informed by the Board of Management about
the situation of the Group, particularly its business and
financial developments, personnel situation, investment plans
and questions of fundamental business policy and strategy.
The Board of Management presented the Group’s key perfor-
mance figures to the Supervisory Board in the form of monthly
reports, and submitted in good time those issues requiring the
specific approval of the Supervisory Board. The Supervisory
Board approved these issues after reviewing various documents,
making inquiries with the Board of Management and holding
intensive discussions with the members of the Board of Manage-
ment. The Supervisory Board was also kept fully informed of
specific matters between its meetings, and in urgent cases it
was requested to pass resolutions in writing. In addition,
the Chairman of the Board of Management informed the Chair-
man of the Supervisory Board in regular individual discussions
about all important developments and forthcoming decisions.
Whenever necessary, the Supervisory Board also convened
without the Board of Management.

In an environment featuring generally stable growth of the world
economy, but at lower rates than in the prior year due to the
higher level of interest rates and above all the repeated sharp
rise in the price of crude oil, the Supervisory Board dealt in
2005 in depth with the development of the individual divisions.
One major focus of discussions throughout the year was the
development of the Mercedes Car Group, both of Mercedes-
Benz Passenger Cars and of the smart brand. In the middle
of the year, a personnel decision was made with great signifi-
cance for the Group’s future: the appointment of the new Chair-
man of the Board of Management as of January 1, 2006.

116

Issues discussed at the meetings in the year 2005. In the
meeting held in February 2005, the Supervisory Board dealt
with the audited 2004 financial statements of DaimlerChrysler
AG, the 2004 consolidated financial statements, the 2004 man-
agement report of DaimlerChrysler AG, the 2004 Group man-
agement report and the proposal made by the Board of
Management on the appropriation of earnings. The Supervisory
Board also received information on the settlement agreement
approved a short time before with Mitsubishi Motors Corpora-
tion concerning compensation payments to DaimlerChrysler for
charges incurred in connection with the acquisition of Mitsu-
bishi Fuso Truck & Bus Corporation. Other issues dealt with at
the meeting were a discussion about the development of alter-
native drive systems and a report on the Group’s interest in
debis AirFinance, the sale of which was approved by the Super-
visory Board later in the same year.

The main topic dealt with in the meeting in April 2005 was the
situation of the Mercedes Car Group. The Supervisory Board
received a presentation of the restructuring plans for smart, and
subsequently approved the program after detailed discussion of
the required personnel reductions and the effects on the quar-
terly results. In line with its principle of dealing with strategic
issues in each regular meeting, the Supervisory Board was given
a presentation by the Board of Management on the strategy of
the Commercial Vehicles division and business activities
planned or already implemented in Asia, particularly in China.

The meeting held in July focused on the personnel decisions in
the Board of Management and on the interim report on the first
half of the year. In this context, the business development and
strategy of the Financial Services division was described in
detail. Approval was granted for DaimlerChrysler Financial Ser-
vices to apply for a license to establish an industrial bank in the
United States. Another item on the agenda was information con-
cerning the engagement of KPMG Deutsche Treuhand-Gesell-
schaft Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, to
conduct the independent audit and the important audit issues
determined by the Audit Committee in conjunction with KPMG.

Hilmar Kopper
Chairman of the Supervisory Board

In addition, the Supervisory Board discussed the effects of
bridge financing that had previously been approved in writing
for an insolvent supplier, as well as various internal corporate
restructuring measures in North America.

In the meeting held in September, consultations centered on
the staff-reduction program at the Mercedes Car Group. The
Supervisory Board approved the funds required to achieve
the reduction goals set by the Board of Management. Further-
more, the Board of Management reported on the completed
acquisition of the remaining shares in MTU Friedrichshafen GmbH,
which had previously been approved by the Supervisory Board
in writing. Approval was granted for the planned sale of a
vehicle testing facility in the United States and for additional
investments for the production of vehicles in China by the
Chrysler Group. The Supervisory Board received reports on
the course of business and the competitive situation at the
Chrysler Group, the strategy of the Procurement department
and new legal developments in the field of corporate gover-
nance.

In December, the main subjects for discussion were the
operative planning for the period of 2006 through 2008 and
the approval of a financing limit for the 2006 financial year.
The planning data was backed up by extensive documentation
and was debated in depth. In this context, the Board of Man-
agement also reported to the Supervisory Board in detail on the
company’s risk-monitoring system and its results. A report
was given on the sale of shares in Mitsubishi Motors Corpora-
tion, which the Supervisory Board had previously approved.
In addition, the Supervisory Board gave its approval for the sale
of the DaimlerChrysler Off-Highway business unit, which
includes MTU Friedrichshafen, subject to a defined limit for
the ongoing negotiations.

Corporate governance. A number of corporate-governance
issues were also dealt with in the December meeting. In this
context, pursuant to Section 161 of the German Stock Corpora-
tion Act, the declaration of compliance with the German
Corporate Governance Code in its version of June 2, 2005 was
approved.

Following one of the Code’s recommendations, the Supervisory
Board stated that in its view, it is capable of independently
advising and monitoring the Board of Management provided
that more than half of the members representing the share-
holders are independent directors. After due investigation, it
stated that this condition is also fulfilled at DaimlerChrysler
AG and that the members of the Audit Committee representing
the shareholders also fulfill the criterion of independence.

Any possible conflicts of interest connected with the Group’s
involvement in Toll Collect or the sale of the Off-Highway
business unit caused by other board positions held by some
members of the Supervisory Board were avoided, since
those members disclosed such positions to the entire Super-
visory Board and did not participate in the discussions or
voting on the relevant topics.

Two members of the Supervisory Board, Mr. Earl G. Graves and
Mr. Arnaud Lagardère, attended fewer than half of the meetings
held during 2005.

Report on the work of the committees. The Presidential
Committee convened six times in 2005, and dealt in detail with
various Board of Management matters and compensation
issues. Another major topic was the discussion about changing
the pension plan for the members of the Board of Manage-
ment from a defined-benefit to a defined-contributions plan.
At the beginning of 2006, the Committee was involved in the
plans for a new management structure and the changes in Board
of Management members’ responsibilities intended in this
context.

117

In addition, the Presidential Committee prepared the plenary
meetings and dealt with questions of corporate governance.

The Audit Committee met nine times in 2005. Details of these
meetings are given in a separate report of this committee
(see page 121). The Mediation Committee, a body formed in
accordance with the stipulations of the German Codetermina-
tion Act, was not required to convene last year. The Supervisory
Board was regularly informed about the work, and especially
the decisions, of the committees.

Personnel changes in the Supervisory Board. After Mr. Hal-
berstadt announced that he would retire from the Supervisory
Board for personal reasons with effect as of the 2005 Annual
Meeting, in April 2005, that Annual Meeting approved the
proposal to appoint Mr. Arnaud Lagardère as a member of the
Supervisory Board representing the shareholders for a period
of 5 years.

Personnel changes in the Board of Management. During the
year, the Supervisory Board made decisions on various Board of
Management matters.

In February 2005, the Supervisory Board resolved to reappoint
Mr. Thomas Weber for a period of five years as of January 1,
2006 with unchanged responsibility for the area of “Research
and Technology”.

Mr. Jürgen Hubbert, previously responsible for the “Executive
Automotive Committee”, retired from the Board of Management
of DaimlerChrysler AG upon the expiry of his period of office
on April 6, 2005.

118

In July 2005, the Supervisory Board accepted the early retire-
ment of the Chairman of the Board of Management, Mr. Jürgen
E. Schrempp, effective December 31, 2005. It also resolved to
appoint Mr. Dieter Zetsche Chairman of the Board of Manage-
ment effective January 1, 2006, and to extend his membership
by another five years. With an unchanged period of office until
2007, Mr. Thomas W. LaSorda was appointed CEO of the Chrysler
Group as successor to Mr. Zetsche. Mr. LaSorda’s previous
position of Chief Operating Officer of the Chrysler Group was
allocated to Mr. Eric R. Ridenour, who was newly appointed
as a member of the Board of Management for an initial period
of three years.

In August 2005, the Supervisory Board accepted the early retire-
ment of Mr. Eckhard Cordes, effective August 31, 2005, and in
this context resolved that Mr. Zetsche would become CEO of the
Mercedes Car Group effective September 1, 2005 and that
Mr. LaSorda and Mr. Ridenour would already assume their new
duties on that date.

In January 2006, the Board of Management reported to the
Supervisory Board on plans for a new management structure at
the Group and the schedule prepared for its implementation.
In this context, the Supervisory Board approved various changes
in Board of Management members’ responsibilities.

In February 2006, the Supervisory Board resolved to reappoint
Mr. Bodo Uebber for a period of five years as of December 16,
2006 with unchanged responsibility for the area of “Finance &
Controlling/Financial Services.”

Audit of the 2005 financial statements. The DaimlerChrysler
AG financial statements and the management report for 2005
were audited by KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Berlin and
Frankfurt am Main, and were given an unqualified audit opinion.
The same applies to the consolidated financial statements
prepared according to US GAAP, which were supplemented with
a group management report and additional notes. Pursuant to
Articles 57 and 58 of the Introductory Law of the German Com-
mercial Code (EGHGB) in connection with Section 292a of

the German Commercial Code (HGB), the US GAAP consolidated
financial statements presented in this report grant exemption
from the obligation to prepare consolidated financial statements
in accordance with German law.

The financial statements and the appropriation of earnings pro-
posed by the Board of Management, as well as the auditors’
report, were submitted to the Supervisory Board. They were
thoroughly inspected by the Audit Committee and the Super-
visory Board and discussed in the presence of the auditors, who
reported on the results of their audit. The Supervisory Board
has declared itself in agreement with the results of the audit
and has established that there are no objections to be made.
The Supervisory Board has approved the financial statements
presented by the Board of Management. The financial state-
ments are thereby adopted. Finally, the Supervisory Board has
also examined the appropriation of earnings proposed by the
Board of Management and is in agreement with that proposal.

Appreciation. The Supervisory Board expresses its gratitude
to the management and the departing members of the Super-
visory Board and the Board of Management. Particular thanks
are due to Mr. Jürgen E. Schrempp for more than 40 years’
successful work for DaimlerChrysler, thereof more than 10
years as the Chairman of the Board of Management. He rende-
red outstanding services to the Group.

The Supervisory Board also thanks the employees of the Daimler-
Chrysler Group for their outstanding personal commitment and
their achievements in 2005.

Stuttgart-Möhringen, February 2006

The Supervisory Board

Hilmar Kopper
Chairman

119

Members of the Supervisory Board

Hilmar Kopper
Frankfurt am Main
Chairman of the Supervisory Board
of DaimlerChrysler AG
Chairman

Arnaud Lagardère
Paris
General Partner and
CEO of Lagardère SCA
(since April 6, 2005)

Erich Klemm 1
Sindelfingen
Chairman of the Corporate Works
Council, DaimlerChrysler Group
and DaimlerChrysler AG
Deputy Chairman

Prof. Dr. Heinrich Flegel 1
Stuttgart
Director Research Materials and
Manufacturing, DaimlerChrysler AG,
Chairman of the Management
Representative Committee,
DaimlerChrysler Group

Nate Gooden 1
Detroit
Vice President of the International
Union, United Automobile, Aerospace
and Agricultural Implement Workers
of America (UAW)

Earl G. Graves
New York
Publisher, Black Enterprise Magazine

Dr. Thomas Klebe 1
Frankfurt am Main
Director Department for General Shop
Floor Policy and Codetermination,
German Metalworkers’ Union (IG Metal)

Jürgen Langer 1
Frankfurt am Main
Chairman of the Works Council of
the Frankfurt/Offenbach Dealership,
DaimlerChrysler AG

Robert J. Lanigan
Toledo
Chairman Emeritus of Owens-Illinois,
Inc.; Founding Partner, Palladium Equity
Partners

Helmut Lense 1
Stuttgart
Chairman of the Works Council,
Untertürkheim Plant,
DaimlerChrysler AG

Peter A. Magowan
San Francisco
President of San Francisco Giants

William A. Owens
Kirkland
Retired President and Chief Executive
Officer of Nortel Networks Corporation

Gerd Rheude 1
Wörth
Chairman of the Works Council,
Wörth Plant, DaimlerChrysler AG

Udo Richter 1
Bremen
Chairman of the Works Council,
Bremen Plant, DaimlerChrysler AG

Wolf Jürgen Röder 1
Frankfurt am Main
Member of the Executive Board of
the German Metalworkers’ Union
(IG Metal)

Dr. rer. pol. Manfred Schneider
Leverkusen
Chairman of the Supervisory Board
of Bayer AG

Stefan Schwaab 1
Gaggenau
Vice Chairman of the Corporate
Works Council, DaimlerChrysler
Group and DaimlerChrysler AG,
Vice Chairman of the Works Council
Gaggenau Plant, DaimlerChrysler AG

Bernhard Walter
Frankfurt am Main
Former Spokesman of the Board of
Management of Dresdner Bank AG

Lynton R. Wilson
Toronto
Chairman of the Board of CAE Inc.;
Chairman Emeritus, Nortel
Networks Corporation

Dr.- Ing. Mark Wössner
Munich
Former CEO and Chairman of the
Supervisory Board of Bertelsmann AG

Committees of the Supervisory
Board:
Committee pursuant to Section 31,
Subsection 3 of the German Law
of Industrial Codetermination
Hilmar Kopper (Chairman)
Erich Klemm
Dr. rer. pol. Manfred Schneider
Dr. Thomas Klebe

Presidential Committee
Hilmar Kopper (Chairman)
Erich Klemm
Dr. rer. pol. Manfred Schneider
Dr. Thomas Klebe

Audit Committee
Bernhard Walter (Chairman)
Hilmar Kopper
Erich Klemm
Stefan Schwaab

Retired from the
Supervisory Board:
Prof. Victor Halberstadt
Amsterdam
Professor for Public Economics
at Leiden University, Netherlands
(retired April 6, 2005)

1 Representative of the employees

120

Report of the Audit Committee

Bernhard Walter
Chairman of the Audit Committee

The Audit Committee convened nine times in 2005. In February
2005, in the presence of the external auditors the Audit Com-
mittee reviewed the financial statements and the consolidated
financial statements for 2004 with the respective management
reports, including the annual report on Form 20-F, and the
proposal on the appropriation of earnings made by the Board
of Management. The audit reports and important accounting
matters were discussed in detail with the external auditors.
The Audit Committee then recommended that the Supervisory
Board agree to the Board of Management’s proposal on the
appropriation of distributable profits and approve the financial
statements. In further meetings during the course of the year,
the Audit Committee held detailed discussions with the Board of
Management attended by the external auditors concerning the
2005 half-year financial statements and the interim reports on
the first and third quarters of 2005.

The Audit Committee’s work in the year 2005 focused in partic-
ular on the investigations taking place in the company that
were initiated by the United States Securities and Exchange
Commission (SEC). In each regular meeting, as well as in
the additional special meetings convened for that purpose, the
Audit Committee received information about the progress of
the investigations from the company’s management and the
lawyers and external auditors involved in the investigations. This
included receiving reports on the existence, application and
monitoring of international guidelines and rules of conduct, the
further development of compliance management, and the
elimination of deficits identified at the Group. The Audit Com-
mittee also met several times to discuss these matters with-
out any other representatives of the company. The willingness
of DaimlerChrysler’s management to cooperate fully in these
investigations also applies to the Audit Committee.

The Audit Committee regularly examined the qualifications
and independence of the external auditors, and, in a particular
matter, their efficiency. In this context, during the year, the
Audit Committee monitored the implementation of the princi-
ples decided upon for the approval of services provided by
the external auditors. After receiving the approval of the Annual
Meeting, the Audit Committee engaged KPMG Deutsche Treu-
hand-Gesellschaft Aktiengesellschaft, Wirtschaftsprüfungsge-
sellschaft, Berlin and Frankfurt am Main, to conduct the annual
audit, negotiated the audit fee of the external auditors and
determined the important audit issues for the year 2005.

In addition, the Audit Committee dealt regularly with complaints
and criticism with regard to accounting, the internal monitoring
systems and the annual audit that were received confidentially,
and if so desired anonymously, from DaimlerChrysler employ-
ees, and received information separately concerning violations
of Section 302, Subsection 5 of the Sarbanes-Oxley Act. The
Audit Committee also received regular reports, taking into con-
sideration any justified complaints or criticism, about he intro-
duction and effectiveness of the internal monitoring of financial
reporting relating to the correct implementation of the provi-
sions of the Sarbanes-Oxley Act.

Furthermore, in the year 2005, the Audit Committee was occu-
pied with new accounting standards and their interpretation,
as well as with the status of the introduction within the compa-
ny of the International Financial Reporting Standards. The Audit
Committee was also occupied with the risk-monitoring system,
the company’s risk reports and the risks from legal proceedings,
the reports and programs of the Corporate Audit department,
the Group’s effective tax rate and tax structure, new statutory
developments of relevance for the Audit Committee, and the
Group’s interest-rate and exchange-rate management.

Once again in the year 2005, the Audit Committee conducted
a specific self-evaluation of its activities.

Stuttgart-Möhringen, February 2006

The Audit Committee

Bernhard Walter
Chairman

121

Consolidated Financial Statements

The accompanying consolidated financial statements (consolidated ba-

lance sheets as of December 31, 2005 and 2004, consolidated statements

of income, cash flows and changes in stockholders’ equity for each of

the financial years 2005, 2004 and 2003 as well as notes to consolidated

financial statements) were prepared in accordance with generally

accepted accounting principles in the United States of America (U.S. GAAP).

In order to comply with Section 57 and 58 of the EGHGB (Introductory

Law to German Commercial Code) in conjunction with Section 292a of

the HGB (German Commercial Code), the consolidated financial state-

ments were supplemented with the Group management report and

additional explanations. Therefore, the consolidated financial statements,

which have to be filed with the Commercial Register and published in the

Federal Gazette, comply with the Fourth and Seventh Directive of the

European Community. For the interpretation of these directives we relied

on Article 2 of the German Amendment Accounting Standard No. 2 issued

by the German Accounting Standards Committee. The consolidated financial

statements and the Group management report as of December 31, 2005,

prepared according Section 57 and 58 of the EGHGB in conjunction with

Section 292a of the HGB and filed with the Commercial Register in

Stuttgart under the number HRB 19 360, will be provided to shareholders

on request.

122

Contents

122 Overview

124 Statement by the Board of

Management

Notes to Consolidated Financial
Statements –

134 Basis of Presentation

125 Report of Independent Registered

Public Accounting Firm

151 Notes to Consolidated State-
ments of Income (Loss)

126 Consolidated Statements of

160 Notes to Consolidated Balance

Income (Loss)

Sheets

128 Consolidated Balance Sheets

129 Consolidated Statements of

Changes in Stockholders’ Equity

130 Consolidated Statements of

Cash Flows

132 Consolidated Fixed Assets

Schedule

182 Notes to Consolidated

Statements of Cash Flows

182 Other Notes

123

Statement by the Board of
Management

The Board of Management of DaimlerChrysler AG is responsible
for preparing the accompanying financial statements.

We have implemented effective controlling and monitoring
systems to guarantee compliance with accounting principles
and the adequacy of reporting. These systems include the
application of uniform guidelines group-wide, the use of reliable
software, the selection and training of qualified personnel, and
regular reviews by our internal auditing department.

In accordance with German legal requirements we have inte-
grated the group’s early warning systems into a risk management
system. This enables the Board of Management to identify
significant risks at an early stage and to initiate appropriate
measures. KPMG Deutsche Treuhand-Gesellschaft Aktienge-
sellschaft Wirtschaftsprüfungsgesellschaft audited the consoli-
dated financial statements, which were prepared in accordance
with US generally accepted accounting principles, and issued an
unqualified audit report.

Together with the independent auditors, the Supervisory Board’s
Audit Committee examined and discussed the consolidated
financial statements including the business review report and
the auditors’ report in depth. Subsequently, the entire Super-
visory Board reviewed the documentation related to the conso-
lidated financial statements. The result of this examination is
included in the Report of the Supervisory Board.

Dieter Zetsche

Bodo Uebber

124

Report of Independent Registered Public Accounting Firm

The Supervisory Board
DaimlerChrysler AG:

We have audited the accompanying consolidated balance sheets
of DaimlerChrysler AG and subsidiaries (“DaimlerChrysler”) as
of December 31, 2005 and 2004, and the related consolidated
statements of income, changes in stockholders’ equity, and
cash flows for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements
are the responsibility of DaimlerChrysler’s management. Our re-
sponsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also in-
cludes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial posi-
tion of DaimlerChrysler as of December 31, 2005 and 2004,
and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2005,
in conformity with generally accepted accounting principles in the
United States of America.

As described in Note 11 to the consolidated financial state-
ments, DaimlerChrysler adopted FASB Interpretation No. 47,
“Accounting for Conditional Asset Retirement Obligations –
an interpretation of FASB Statement No. 143” in 2005. As de-
scribed in Note 1 to the consolidated financial statements,
DaimlerChrysler changed its method of accounting for stock-
based compensation in 2003. As described in Notes 3 and 11
to the consolidated financial statements, DaimlerChrysler also
adopted the required portions of FASB Interpretation No. 46
(revised December 2003), “Consolidation of Variable Interest
Entities – an interpretation of ARB No. 51”, in 2003.

Stuttgart,
February 23, 2006

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

Nonnenmacher
Wirtschaftsprüfer

Krauß
Wirtschaftsprüfer

125

Consolidated Statements of Income (Loss)

Note

2005

Year ended December 31,
2003

2004

Consolidated

35.

149,776

142,059

136,437

(122,894)

(114,567)

(109,926)

26,882

27,492

26,511

(18,984)

(17,972)

(17,772)

(5,649)

(5,658)

(5,571)

895

–

(145)

4,612

689

–

(469)

3,388

–

(1,960)

966

(30)

3,221

–

217

3,438

(513)

(74)

2,851

–

(5)

2,846

12.

10.

11.

36.

(1,077)

3,535

(1,177)

108

2,466

–

2,466

2.80

2.43

–

2.80

2.43

2.80

2.43

–

2.80

2.43

(832)

(2,792)

596

(979)

(35)

(418)

882

(30)

448

(0.41)

0.01

0.87

(0.03)

0.44

(0.41)

0.01

0.87

(0.03)

0.44

(in millions of €, except per share amounts)

Revenues

Cost of sales

Gross profit

Selling, administrative and other expenses

Research and development

Other income

Goodwill impairment

Turnaround plan Chrysler Group

Income before financial income

Impairment of investment in EADS

Other financial income (expense), net (therein loss on issuance of
associated company stock of €135 million in 2004 and gain on issuance
of related company stock of €24 million in 2003)

Financial income (expense), net

Income (loss) before income taxes

Income tax (expense) benefit

Minority interests

Income (loss) from continuing operations

Income from discontinued operations, net of taxes

Income on disposal of discontinued operations, net of taxes

Cumulative effects of changes in accounting principles: transition
adjustments resulting from adoption of FIN 47 and FIN 46R, net of taxes

Net income (loss)

Earnings per share

Basic earnings per share

Income (loss) from continuing operations

Income from discontinued operations

Income on disposal of discontinued operations

Cumulative effects of changes in accounting principles

Net income

Diluted earnings per share

Income (loss) from continuing operations

Income from discontinued operations

Income on disposal of discontinued operations

Cumulative effects of changes in accounting principles

Net income

The accompanying notes are an integral part of these Consolidated Financial Statements.

126

Industrial Business 1

Financial Services 1, 2

Year ended December 31,
2003

2004

2005

Year ended December 31,
2003

2004

2005

(in millions of €, except per share amounts)

134,340

128,133

122,397

15,436

13,926

14,040

Revenues

(110,326)

(103,771)

(98,937)

(12,568)

(10,796)

(10,989)

Cost of sales

24,014

24,362

23,460

(17,725)

(16,741)

(16,374)

(5,649)

(5,658)

(5,571)

921

(30)

1,567

–

192

1,759

133

(63)

1,829

–

(5)

1,824

833

–

(145)

2,651

637

–

(469)

1,683

–

(1,960)

(1,043)

1,608

(442)

113

1,279

–

1,279

(775)

(2,735)

(1,052)

(352)

(30)

(1,434)

882

(30)

(568)

2,868

(1,259)

3,130

(1,231)

3,051

Gross profit

(1,398)

Selling, administrative and other expenses

–

1,654

–

1,679

(646)

(11)

1,022

–

1,961

–

(34)

1,927

(735)

(5)

1,187

–

Research and development

Other income

Goodwill impairment

Turnaround plan Chrysler Group

1,705

Income before financial income

–

Impairment of investment in EADS

Other financial income (expense), net (therein loss on issuance of
associated company stock of €135 million in 2004 and gain on issuance
of related company stock of €24 million in 2003)

Financial income (expense), net

Income (loss) before income taxes

Income tax (expense) benefit

(57)

1,648

(627)

(5)

Minority interests

1,016

Income (loss) from continuing operations

–

Income from discontinued operations, net of taxes

Income on disposal of discontinued operations, net of taxes

Cumulative effects of changes in accounting principles: transition
adjustments resulting from adoption of FIN 47 and FIN 46R, net of taxes

1,022

1,187

1,016

Net income (loss)

Earnings per share

Basic earnings per share

Income (loss) from continuing operations

Income from discontinued operations

Income on disposal of discontinued operations

Cumulative effects of changes in accounting principles

Net income

Diluted earnings per share

Income (loss) from continuing operations

Income from discontinued operations

Income on disposal of discontinued operations

Cumulative effects of changes in accounting principles

Net income

1 Additional information about the Industrial Business and Financial Services is not required under U.S. GAAP and is unaudited.
2 Contains the financing and leasing business of the Financial Services segment without Mobility Management and activities of DaimlerChrysler Financial Services AG.

127

Consolidated Balance Sheets

(in millions of €)

Assets

Goodwill

Other intangible assets

Property, plant and equipment, net

Investments and long-term financial assets

Equipment on operating leases, net

Fixed assets

Inventories

Trade receivables

Receivables from financial services

Other assets

Securities

Cash and cash equivalents

Non-fixed assets

Deferred taxes

Prepaid expenses

Disposal group Off-Highway, assets held for sale

Total assets
(thereof short-term 2005: €74,909; 2004: €68,679)

Liabilities and stockholders’ equity

Capital stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

Treasury stock

Stockholders’ equity

Minority interests

Accrued liabilities

Financial liabilities

Trade liabilities

Other liabilities

Liabilities

Deferred taxes

Deferred income

Disposal group Off-Highway, liabilities held for sale

Total liabilities
(thereof short-term 2005: €86,399; 2004: €77,158)

Consolidated

Industrial Business 1

Financial Services 1, 2

Note

At December 31,
2004

2005

At December 31,
2004

2005

At December 31,
2005
2004

12.

13.

14.

20.

15.

16.

17.

18.

19.

20.

21.

22.

10.

1,881

3,191

36,739

6,356

34,238

82,405

19,139

7,595

61,101

8,731

4,936

7,711

2,003

2,671

34,017

7,039

26,711

72,441

16,805

7,001

56,785

12,931

3,884

7,782

1,822

3,133

36,565

6,084

3,629

51,233

17,674

7,348

–

4,654

4,502

6,894

109,213

105,188

41,072

7,249

1,391

1,374

4,213

1,030

–

7,060

1,299

1,374

1,945

2,602

33,851

6,763

3,099

48,260

15,330

6,805

–

9,216

3,474

6,782

41,607

4,071

953

–

174

272

30,609

31,172

1,465

247

61,101

4,077

434

817

166

276

23,612

24,181

1,475

196

56,785

3,715

410

1,000

68,141

63,581

189

–

142

–

201,632

182,872

102,038

94,891

99,594

87,981

2,647

8,221

31,688

(6,107)

–

2,633

8,042

30,361

(7,514)

–

23.

36,449

33,522

26,859

25,445

653

46,682

80,932

14,591

9,053

104,576

4,203

8,298

771

25.

26.

27.

28.

29.

10.

909

41,938

76,270

12,920

8,745

97,935

2,312

6,256

–

614

45,389

4,146

14,381

6,561

25,088

(2,309)

5,626

771

885

40,864

8,330

12,710

6,110

27,150

(3,854)

4,401

–

9,590

1,293

76,786

210

2,492

8,077

1,074

67,940

210

2,635

79,488

70,785

6,512

2,672

–

6,166

1,855

–

165,183

149,350

75,179

69,446

90,004

79,904

Total liabilities and stockholders’ equity

201,632

182,872

102,038

94,891

99,594

87,981

The accompanying notes are an integral part of these Consolidated Financial Statements.

128

Consolidated Statements of Changes in Stockholders’ Equity

(in millions of €)

Capital
stock

Additional
paid-in
capital

Retained
earnings

Cumulative
translation
adjustment

Available-
for-sale
securities

Derivative
financial
instruments

Minimum
pension
liability

Treasury
stock

Accumulated other comprehensive loss

Balance at January 1, 2003

2,633

7,819

30,485

Net income

Other comprehensive income (loss)

Total comprehensive income

Stock based compensation

Issuance of shares upon conversion
of notes

Purchase of capital stock

Re-issuance of treasury stock

Dividends

–

Balance at December 31, 2003

2,633

7,915

Net income

Other comprehensive loss

Total comprehensive income

Stock based compensation

Purchase of capital stock

Re-issuance of treasury stock

Dividends

–

127

–

Balance at December 31, 2004

2,633

8,042

Net income

Other comprehensive income (loss)

Total comprehensive income

Stock based compensation

Issuance of new shares

Purchase of capital stock

Re-issuance of treasury stock

Dividends

Other

–

Balance at December 31, 2005

2,647

–

141

–

(49)

8,221

448

–

(1,519)

29,414

2,466

–

(1,519)

30,361

2,846

–

(1,519)

–

465

–

(1,628)

–

(74)

–

407

–

1,065

–

1,162

(7,317)

–

444

–

(1,163)

333

2,227

(6,873)

–

(715)

–

(206)

–

(369)

–

(748)

–

(1,878)

127

1,858

(7,621)

–

2,727

–

(18)

–

(1,223)

–

(79)

–

31,688

849

109

635

(7,700)

–

(28)

–

(30)

–

(21)

–

The accompanying notes are an integral part of these Consolidated Financial Statements.

Total

35,076

448

385

833

(28)

(1,519)

34,486

2,466

(2,038)

428

127

(30)

(1,519)

33,522

2,846

1,407

4,253

155

(21)

(1,519)

(49)

36,449

129

Consolidated Statements of Cash Flows *

(in millions of €)

Net income (loss)

Income (loss) applicable to minority interests

Cumulative effects of changes in accounting principles

Gains on disposals of shares in companies

Impairment of investment in EADS

Depreciation and amortization of equipment on operating leases

Depreciation and amortization of fixed assets

Change in deferred taxes

Equity (income) loss from equity method investments

Change in financial instruments

(Gains) losses on disposals of fixed assets/securities

Change in trading securities

Change in accrued liabilities

Turnaround plan expenses (gains) – Chrysler Group

Turnaround plan payments – Chrysler Group

Consolidated

Year ended December 31,
2003

2004

2005

2,846

(732)

–

6,341

6,312

(809)

(103)

298

(1,370)

(4)

170

(36)

(92)

2,466

(108)

–

(281)

–

5,445

5,817

(593)

933

(275)

(520)

(26)

1,344

145

(219)

448

(956)

1,960

5,579

5,838

644

538

160

(424)

1,015

469

(279)

Net changes in inventory-related receivables from financial services

(207)

(2,455)

(2,670)

Changes in other operating assets and liabilities:

– Inventories, net

– Trade receivables

– Trade liabilities

– Other assets and liabilities

Cash provided by operating activities

Purchases of fixed assets:

– Increase in equipment on operating leases

– Purchases of property, plant and equipment

– Purchases of other fixed assets

Proceeds from disposals of equipment on operating leases

Proceeds from disposals of fixed assets

Payments for investments in businesses

Proceeds from disposals of businesses

Investments in/collections from wholesale receivables

Proceeds from sale of wholesale receivables

Investments in retail receivables

Collections on retail receivables

Proceeds from sale of retail receivables

Acquisitions of securities (other than trading)

Proceeds from sales of securities (other than trading)

Change in other cash

Cash used for investing activities

Change in commercial paper borrowings and short-term financial liabilities

Additions to long-term financial liabilities

Repayment of long-term financial liabilities

Dividends paid (including profit transferred from subsidiaries)

Proceeds from issuance of capital stock (including minority interests)

Purchase of treasury stock

Cash provided by (used for) financing activities

Effect of foreign exchange rate changes on cash and cash equivalents
(maturing within 3 months)

Net increase (decrease) in cash and cash equivalents (maturing within 3 months)

Cash and cash equivalents (maturing within 3 months)

At beginning of period

At end of period

The accompanying notes are an integral part of these Consolidated Financial Statements.
* For other information regarding Consolidated Statements of Cash Flows, see Note 30.

130

(1,519)

(443)

802

820

(1,393)

242

1,186

(648)

(293)

(441)

1,081

1,021

12,353

11,060

13,826

(20,236)

(6,580)

(272)

11,643

1,098

(552)

516

(5,195)

5,288

(17,678)

(6,386)

(514)

10,468

741

(264)

1,218

(5,978)

6,331

(27,073)

(30,488)

21,262

8,612

(10,773)

11,025

17,148

9,531

(4,211)

3,481

(81)

(15,604)

(6,614)

(303)

11,951

643

(1,021)

1,209

(10,432)

10,260

(28,946)

16,577

9,196

(5,175)

4,785

(134)

(11,222)

(16,682)

(13,608)

1,407

14,322

(15,867)

(1,575)

227

(27)

(1,513)

620

238

7,381

7,619

2,453

15,013

(13,370)

(1,547)

(30)

2,549

(313)

(3,386)

10,767

7,381

129

16,436

(12,518)

(1,537)

(36)

2,518

(1,069)

1,667

9,100

10,767

Industrial Business 1

Financial Services 1, 2

Year ended December 31,
2003

2004

2005

Year ended December 31,
2003

2004

2005

(in millions of €)

(568)

1,022

1,187

1,016

Net income (loss)

1,824

(732)

–

667

6,251

(356)

(92)

297

(1,320)

(3)

(36)

(92)

1,279

(113)

–

(281)

–

544

5,693

(1,211)

951

(288)

(524)

(29)

1,198

145

(219)

(1,518)

(1,535)

210

1,193

(805)

3,753

(3,828)

(6,298)

(496)

4,514

705

(244)

1,176

(956)

1,960

609

5,735

194

539

141

(424)

1,098

469

(279)

(502)

(500)

1,082

715

6,785

(3,973)

(6,539)

(250)

4,577

606

(967)

1,179

(207)

(2,455)

(2,670)

29,911

(27,849)

37,346

(34,938)

4,457

(3,848)

(115)

(4,210)

3,445

(189)

(2,869)

1,481

2,661

(6,953)

(585)

(255)

(30)

3,829

(3,206)

(361)

(4,963)

4,687

(207)

(3,180)

(1,392)

5,469

(4,229)

(908)

(220)

(36)

(3,681)

(1,316)

(291)

(3,088)

9,469

6,381

(981)

1,308

8,161

9,469

(419)

806

989

6,220

(4,181)

(6,537)

(253)

4,996

1,066

(566)

186

26,963

(27,246)

3,818

(2,824)

(504)

(10,773)

11,017

(4,763)

848

2,297

(4,609)

(287)

195

(27)

(1,583)

548

422

6,381

6,803

–

5,674

(453)

(11)

(50)

(1)

–

(1)

(24)

(4)

(169)

6,133

–

Income (loss) applicable to minority interests

Cumulative effects of changes in accounting principles

Gains on disposals of shares in companies

Impairment of investment in EADS

4,901

4,970

Depreciation and amortization of equipment on operating leases

124

618

(18)

146

–

142

(7)

157

7,307

103

450

(1)

–

(11)

(83)

–

209

(1)

306

7,041

Depreciation and amortization of fixed assets

Change in deferred taxes

Equity (income) loss from equity method investments

Change in financial instruments

(Gains) losses on disposals of fixed assets/securities

Change in trading securities

Change in accrued liabilities

Turnaround plan expenses (gains) – Chrysler Group

Turnaround plan payments – Chrysler Group

Net changes in inventory-related receivables from financial services

Changes in other operating assets and liabilities:

– Inventories, net

– Trade receivables

– Trade liabilities

– Other assets and liabilities

Cash provided by operating activities

Purchases of fixed assets:

(16,055)

(13,850)

(11,631)

– Increase in equipment on operating leases

(43)

(19)

6,647

330

(32,158)

32,534

(30,891)

24,086

9,116

–

(60)

(6,459)

559

12,025

(11,258)

(1,288)

–

(184)

1,000

816

(88)

(18)

5,954

(20)

(35,889)

34,180

(34,945)

20,996

9,646

(1)

108

(75)

(53)

7,374

(54)

(47,778)

45,198

(32,775)

19,783

9,557

(212)

– Purchases of property, plant and equipment

– Purchases of other fixed assets

Proceeds from disposals of equipment on operating leases

Proceeds from disposals of fixed assets

Payments for investments in businesses

Proceeds from disposals of businesses

Investments in/collections from wholesale receivables

Proceeds from sale of wholesale receivables

Investments in retail receivables

Collections on retail receivables

Proceeds from sale of retail receivables

Acquisitions of securities (other than trading)

Proceeds from sales of securities (other than trading)

Change in other cash

(13,813)

(10,428)

Cash used for investing activities

972

12,352

(6,417)

(962)

285

–

6,230

(22)

(298)

1,298

1,000

1,521

10,967

(8,289)

(629)

264

Change in commercial paper borrowings and short-term financial liabilities

Additions to long-term financial liabilities

Repayment of long-term financial liabilities

Dividends paid (including profit transferred from subsidiaries)

Proceeds from issuance of capital stock (including minority interests)

–

Purchase of treasury stock

3,834

Cash provided by (used for) financing activities

(88)

359

939

1,298

Effect of foreign exchange rate changes on cash and cash equivalents
(maturing within 3 months)

Net increase (decrease) in cash and cash equivalents (maturing within 3 months)

Cash and cash equivalents (maturing within 3 months)

At beginning of period

At end of period

131

Consolidated Fixed Assets Schedule

(in millions of €)

Goodwill

Other intangible assets

Intangible assets

Land, leasehold improvements and buildings
including buildings on land owned by others

Technical equipment and machinery

Other equipment, factory and
office equipment

Advance payments relating to plant and
equipment and construction in progress

Property, plant and equipment

Investments in affiliated companies

Loans to affiliated companies

Investments in associated companies

Investments in related companies

Loans to associated and related companies

Long-term securities

Other loans

Investments and long-term financial assets

Equipment on operating leases

Balance at
January
1, 2005

Currency
change

Change in
consolidated
companies

Additions

Reclassifica-
tions

Disposals

Balance at
December
31, 2005

Acquisition or Manufacturing Costs

3,049

3,477

6,526

20,995

32,536

361

417

778

1,145

2,766

22,797

2,242

4,268

80,596

1,026

247

4,334

1,033

242

611

258

7,751

35,080

494

6,647

–

4,425

–

(15)

(161)

(108)

(22)

–

(4)

(274)

275

176

274

450

270

847

–

169

377

1,976

520

205

725

3,082

4,132

7,214

393

1,854

22,379

36,275

1,502

1,517

1,856

26,207

4,002

6,621

(4,053)

(183)

4,150

4,680

89,541

930

138

3,983

768

607

226

126

513

568

190

180

244

165

140

312

147

837

–

(14)

–

201

20,236

(187)

14,933

44,896

1,869

6,725

1 Currency translation changes with period end rates.

The consolidated fixed assets schedule is part of the Notes to Consolidated Financial Statements.

132

Balance at
January
1, 2005

Currency
change

Change in
consolidated
companies

Additions

Reclassifica-
tions

Disposals

Balance at
December
31, 2005

Balance at
December
31, 2004

(in millions of €)

Depreciation/Amortization

Book Value 1

1,046

806

1,852

9,570

21,436

130

187

465

1,596

15,497

1,448

46,579

3,524

211

(2)

253

164

712

–

8,369

1,035

–

(5)

(3)

–

(8)

(6)

(17)

–

(4)

(28)

201

231

671

3,005

2,351

6,039

–

6,341

–

(7)

(9)

(2)

–

(41)

120

125

1,201

941

2,142

207

1,697

10,501

24,328

1,881

3,191

5,072

11,878

11,947

2,003

2,671

4,674

11,425

11,100

1,484

17,872

8,335

7,300

–

101

4,579

3,388

52,802

36,739

4,192

34,017

815

237

766

132

Goodwill

Other intangible assets

Intangible assets

Land, leasehold improvements and buildings
including buildings on land owned by others

Technical equipment and machinery

Other equipment, factory and
office equipment

Advance payments relating to plant and
equipment and construction in progress

Property, plant and equipment

Investments in affiliated companies

Loans to affiliated companies

3,973

4,336

Investments in associated companies

588

606

219

780

599

194

Investments in related companies

Loans to associated and related companies

Long-term securities

Other loans

–

164

180

363

5,102

369

6,356

10,658

34,238

7,039

26,711

Investments and long-term financial assets

Equipment on operating leases

133

Notes to Consolidated Financial Statements
Basis of Presentation

1. Summary of Significant Accounting Policies

General. The consolidated financial statements of Daimler-
Chrysler AG and subsidiaries (“DaimlerChrysler” or the “Group”)
have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S.
GAAP”). All amounts are presented in millions of euros (“€”).

Certain amounts reported in previous years have been reclassi-
fied to conform to the 2005 presentation. In connection
with an internal investigation of certain accounts, transactions
and payments, DaimlerChrysler made adjustments to its
January 1, 2003 stockholders’ equity balance to correct for
misstatements in years prior to 2003 and recognized charges
in its 2005 consolidated financial income statement to correct
for misstatements in the years 2003 and 2004 (see Note 31).
DaimlerChrysler also adjusted its January 1, 2003 stockholders’
equity balance and recognized charges in its 2005 income
relating to the years 2003 and 2004 to correct the accounting
for certain derivative instruments that did not qualify for
hedge accounting treatment, deferred income taxes of its U.S.
subsidiaries, and other minor misstatements. The charges
recognized for 2003 and 2004 had the effect of reducing oper-
ating profit by €55 million, financial income by €58 million,
tax expense by €7 million, and 2005 net income by €106 million
in the 2005 statement of income. The total adjustments
relating to the years prior to 2003 had the effect of increasing
stockholders’ equity as of January 1, 2003 by €72 million.
The 2003 and 2004 misstatements were not material to those
years and the charges recognized in 2005 to correct the mis-
statements of those years were not material to the consolidated
statement of income for 2005. In addition, the adjustments
to January 1, 2003 stockholders’ equity to correct the cumula-
tive misstatements as of that date were not material to be-
ginning stockholders’ equity as of January 1, 2003.

134

Commercial practices with respect to certain products manu-
factured by DaimlerChrysler necessitate that sales financing,
including leasing alternatives, be made available to the Group’s
customers. Accordingly, the Group’s consolidated financial
statements are also significantly influenced by activities of its
financial services business. To enhance the readers’ under-
standing of the Group’s consolidated financial statements, the
accompanying financial statements present, in addition to
the audited consolidated financial statements, unaudited infor-
mation with respect to the results of operations and financial
position of the Group’s industrial and financial services busi-
ness activities. Such information, however, is not required by
U.S. GAAP and is not intended to, and does not represent the
separate U.S. GAAP results of operations and financial position
of the Group’s industrial or financial services business
activities. Information concerning the financial services busi-
ness activities of the Group contains the financing and leasing
business of the Financial Services segment without Mobility
Management and the activities of DaimlerChrysler Financial Ser-
vices AG. Transactions between the Group’s industrial and
financial services business activities principally represent inter-
company sales of products, intercompany borrowings and
related interest, and other support under special vehicle financ-
ing programs. The effects of transactions between the industrial
and financial services businesses have been eliminated within
the industrial business columns.

Use of Estimates. Preparation of the financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions related to the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses for the
period. Significant items related to such estimates and assump-
tions include recoverability of investments in equipment on
operating leases, collectibility of sales financing and finance lease
receivables, realizability of investments in associated compa-
nies, warranty obligations, sales incentive obligations, valuation
of derivative instruments, and assets and obligations related
to employee benefits. Actual amounts could differ from those
estimates.

Foreign Currencies. The assets and liabilities of foreign opera-
tions where the functional currency is not the euro are gen-
erally translated into euro using period-end exchange rates. The
resulting translation adjustments are recorded as a component
of accumulated other comprehensive loss. The statements
of income and the statements of cash flows are translated using
average exchange rates during the respective periods.

The exchange rates of the U.S. dollar, as the significant foreign
currency, used in preparation of the consolidated financial
statements were as follows:

2005

€ 1 =

2004

€ 1 =

2003

€ 1=

Exchange rate at December 31,

1.1797

1.3621

1.2630

Average exchange rates

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

1.3113

1.2594

1.2199

1.1897

1.2497

1.2046

1.2218

1.2977

1.0735

1.1355

1.1248

1.1885

The assets and liabilities of foreign operations in highly infla-
tionary economies are translated into euro on the basis of peri-
od-end rates for monetary assets and liabilities and at histori-
cal rates for non-monetary items, with resulting translation gains
and losses recognized in earnings. Further, for foreign opera-
tions in such economies, depreciation and gains and losses from
the disposal of non-monetary assets are determined using
historical rates. In all periods presented the Group had foreign
operations in one economy that was considered highly inflation-
ary.

Risks and uncertainties. DaimlerChrysler’s financial position,
results of operations, and cash flows are subject to numerous
risks and uncertainties. Factors that could affect Daimler-
Chrysler’s future financial statements and cause actual results
to vary materially from expectations include, but are not limited
to, adverse changes in global economic conditions; overcapa-
city and intense competition in the automotive industry; depen-
dence on suppliers of parts and services, primarily single
source suppliers; the concentrations of DaimlerChrysler’s rev-
enues derived from the United States and Western Europe;
the significant portion of DaimlerChrysler’s workforce subject to
collective bargaining agreements; fluctuations in currency
exchange rates, interest rates and commodity prices; significant
legal proceedings and environmental and other government
regulations.

Principles of Consolidation. The accompanying consolidated
financial statements include the financial statements of
DaimlerChrysler AG and all of its material, majority-owned sub-
sidiaries and certain variable interest entities for which Daimler-
Chrysler is determined to be the primary beneficiary (see
Note 2).

All significant intercompany accounts and transactions relating
to consolidated subsidiaries and consolidated variable interest
entities have been eliminated.

Investments in Associated Companies. Significant equity
investments in which DaimlerChrysler does not have a control-
ling financial interest, but has the ability to exercise signifi-
cant influence over the operating and financial policies of the
investee (“associated companies”) are accounted for using
the equity method.

The excess of DaimlerChrysler’s initial investment in equity
method companies over the Group’s ownership percentage in
the underlying net assets of those companies is attributed to
certain fair value adjustments with the remaining portion recog-
nized as goodwill (“investor level goodwill”) which is not amor-
tized.

A decline in fair value of an investment in any associated com-
pany below its carrying amount that is deemed to be other
than temporary results in a reduction in carrying amount of the
investment to fair value. The impairment is charged to earnings
and a new cost basis for the investment is established.

The European Aeronautic Defence and Space Company EADS
N.V. (“EADS”) represents a significant associated company.
Because the financial statements of EADS are not made avail-
able timely to DaimlerChrysler in order to apply the equity
method of accounting, the Group’s proportionate share of the
results of operations of this associated company are included
in DaimlerChrysler’s consolidated financial statements on a
three month lag.

135

Revenue Recognition. Revenue for sales of vehicles, service
parts and other related products is recognized when persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price of the transaction is
fixed and determinable, and collectibility is reasonably assured.
Revenues are recognized net of discounts, cash sales incen-
tives, customer bonuses and rebates granted. Non-cash sales
incentives that do not reduce the transaction price to the cus-
tomer are classified within cost of sales. Shipping and handling
costs are recorded as cost of sales in the period incurred.

When below market rate loans under special financing programs
are used to promote sales of vehicles and the Financial Ser-
vices segment finances the vehicle, the effect of the rate differ-
ential at the contract origination date is deducted from rev-
enues and recorded as unearned income in the consolidated
balance sheet. The Financial Services segment amortizes
the unearned income balance into earnings using the interest
method over the original (contractual) life of the receivables.
Upon prepayment or sale of the receivable, the unamortized un-
earned income is recognized into earnings.

Sales under which the Group guarantees the minimum resale
value of the product, such as in sales to certain rental car
company customers, are accounted for similar to an operating
lease in accordance with Emerging Issues Task Force (“EITF”)
95-1, “Revenue Recognition on Sales with a Guaranteed Mini-
mum Resale Value.” The guarantee of the resale value may take
the form of an obligation by DaimlerChrysler to pay any defi-
ciency between the proceeds the customer receives upon resale
in an auction and the guaranteed amount or an obligation to
reacquire the vehicle after a certain period of time at a set price.
Gains or losses from resale of these vehicles are included in
gross profit.

Revenue from operating leases is recognized on a straight-line
basis over the lease term.

Revenue from sales financing and finance lease receivables
is recognized using the interest method. Recognition of revenue
is generally suspended when a finance or lease receivable be-
comes contractually delinquent for periods ranging from 60 to
120 days.

DaimlerChrysler uses price discounts to adjust market pricing
in response to a number of market and product factors, includ-
ing: pricing actions and incentives offered by competitors,
economic conditions, the amount of excess industry production
capacity, the intensity of market competition, and consumer
demand for the product. The Group may offer a variety of sales
incentive programs at any point in time, including: cash offers
to dealers and consumers, lease subsidies which reduce
the consumer’s monthly lease payment, or reduced financing
rate programs offered to consumers.

The Group records as a reduction to revenue at the time of
sale to the dealer the estimated impact of sales incentives pro-
grams offered to dealers and consumers. This estimated im-
pact represents the incentive programs offered to dealers and
consumers as well as the expected modifications to these pro-
grams in order for the dealers to sell their inventory.

The Group offers extended, separately priced warranty con-
tracts for certain products. Revenues from these contracts are
deferred and recognized into income over the contract period
in proportion to the costs expected to be incurred based on
historical information. In circumstances in which there is insuffi-
cient historical information, income from extended warranty
contracts is recognized on a straight-line basis. A loss on these
contracts is recognized in the current period if the sum of
expected costs for services under the contract exceeds unearn-
ed revenue.

For transactions with multiple deliverables, such as when vehi-
cles are sold with free service programs, the Group allocates
revenue to the various elements based on their relative fair val-
ues when criteria for separation are met.

136

Sales of receivables. The Group transfers significant amounts
of automotive finance receivables in the ordinary course of
business to trusts in “asset-backed securitizations” and “whole
loan sales” and usually remains as servicer for a servicing fee.
The accounting for securitized sold receivables is based upon
the financial component approach that focuses on control
according to the provisions of Statement of Financial Account-
ing Standards (“SFAS”) 140, “Accounting for Transfers and Ser-
vicing of Financial Assets and Extinguishment of Liabilities.”

Servicing fees are recognized on a consistent yield basis over
the remaining term of the related receivables sold.

Gains and losses from the sale of finance receivables are recog-
nized as revenues in the period in which the sale occurs. In
determining the gain or loss for each qualifying sale of finance
receivables, the investment in the receivable pool sold is allo-
cated between the portion sold and the portion retained based
upon their relative fair values.

Further information on the Group’s securitized sold receivables
is included in Note 34.

Estimated Credit Losses. DaimlerChrysler determines its allo-
wance for credit losses based on an ongoing systematic review
and evaluation performed as part of the credit-risk evaluation
process. The evaluation performed considers historical loss ex-
perience, the size and composition of the portfolios, current
economic events and conditions, the estimated fair value and
adequacy of collateral and other pertinent factors. Certain
homogeneous loan portfolios are evaluated collectively, taking
into consideration primarily historical loss experience adjust-
ed for the estimated impact of current economic events and con-
ditions, including fluctuations in the fair value and adequacy
of collateral. Other receivables, such as wholesale receivables
and loans to large commercial borrowers, are evaluated for
impairment individually based on the fair value of the underlying
collateral. Credit exposures deemed to be uncollectible are
charged against the allowance for doubtful accounts. Daimler-
Chrysler generally does not originate or purchase receivables
for resale. Loans that are classified as held for sale are carried
at the lower of cost or market when it is determined that mar-
ket price for the loan represent the estimated future cash flows
on the loan.

Research and Development and Advertising. Research and
development and advertising costs are expensed as incurred.

Sales of Newly Issued Subsidiary Stock. Gains and losses re-
sulting from the issuance of stock by a Group subsidiary to
third parties that reduce DaimlerChrysler’s percentage owner-
ship (“dilution gains and losses”) and DaimlerChrysler’s share
of any dilution gains and losses reported by its investees
accounted for under the equity method are recognized in the
Group’s consolidated statement of income in the line item
“Other financial income (expense), net.”

Income taxes. Current income taxes are determined based on
respective local taxable income and tax rules. In addition,
current income taxes include adjustments for uncertain tax pay-
ments or tax refunds for periods not yet assessed. Deferred
tax reflects the changes in deferred tax assets and liabilities ex-
cept for changes recognized in other comprehensive loss.
Deferred tax assets or liabilities are determined based on tem-
porary differences between financial reporting and the tax
basis of assets and liabilities including differences from consoli-
dation, loss carry forwards and tax credits. Amortization of
these differences or realization of loss carry forwards and tax
credits are based on enacted local tax rules and tax rates.
DaimlerChrysler recognizes a valuation allowance on deferred
tax assets if it is more likely than not that the benefit from the
deferred tax asset will not be realized.

Discontinued Operations. The results of operations of dis-
continued Group components and gains or losses from their dis-
posal are each presented separately net of tax in the Group’s
statement of income for all periods presented. A Group compo-
nent is considered a discontinued operation if its operations
and cash flows have been or will be eliminated from the ongoing
activities of the Group as a result of the disposal transaction,
the Group will not have any significant subsequent continuing
involvement with the component, and the component can be
clearly distinguished operationally and for financial reporting
purposes. If not disposed of by the balance sheet date, to
qualify as discontinued operations, a component must also meet
the conditions to be classified as held for sale. Net assets
of a discontinued Group component classified as held for sale
are measured at the lower of its carrying amount or fair value
less cost to sell. Gains from the sale of a discontinued Group
component are recognized in the period realized and report-
ed separately.

137

Pension and Other Postretirement Plans. The measurement
of pension and postretirement benefit liabilities is based upon
the projected unit credit method in accordance with SFAS 87,
“Employers’ Accounting for Pensions,” and SFAS 106, “Employ-
ers’ Accounting for Postretirement Benefits Other Than Pen-
sions,” respectively. As permitted under SFAS 87 and SFAS 106,
changes in the amount of either the projected benefit obliga-
tion (for pension plans), the accumulated benefit obligation (for
other postretirement plans) or differences between actual and
expected return on plan assets and from changes in assumptions
can result in gains and losses not yet recognized in the Group’s
consolidated financial statements. The expected return on
plan assets is determined based on the expected long-term rate
of return on plan assets and the fair value or market-related
value of plan assets. Amortization of an unrecognized net gain
or loss is included as a component of the Group’s net peri-
odic benefit plan cost for a year if, as of the beginning of the year,
that unrecognized net gain or loss exceeds 10 percent of
the greater of (1) the projected benefit obligation (for pension
plans) or the accumulated postretirement benefit obligation
(for other postretirement plans) or (2) the fair value or market-
related value of that plan’s assets. In such case, the amount
of amortization recognized by the Group is the resulting excess
divided by the average remaining service period of active
employees expected to receive benefits under the plan (see
Note 25a).

DaimlerChrysler elected retroactive application as of January 1,
2004, to account for subsidies provided under the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(“Medicare Act”). Under certain conditions, the Medicare Act
provides for subsidies related to postretirement healthcare ben-
efits that reduce the accumulated postretirement benefit obli-
gation (“APBO”) of companies in the United States. See Note
25a for further information about the impact of the Medicare
Act on the Group’s consolidated financial statements.

Earnings Per Share. Basic earnings per share are calculated
by dividing income from continuing operations and net income,
respectively, by the weighted average number of shares out-
standing. Diluted earnings per share reflect the potential dilu-
tion that would occur if all securities and other contracts to
issue ordinary shares were exercised or converted (see Note
36).

Goodwill and Other Intangible Assets. The Group accounts
for all business combinations initiated after June 30, 2001,
using the purchase method of accounting. Goodwill represents
the excess of the cost of an acquired entity over the fair val-
ues assigned to the assets acquired and the liabilities assumed
after taking into consideration the types of acquired intan-
gible assets that are required to be recognized and reported
separately from goodwill.

Goodwill acquired and intangible assets determined to have an
indefinite useful life are not amortized, but instead are tested
for impairment. DaimlerChrysler evaluates the recoverability of
its goodwill at least annually or when significant events occur
or there are changes in circumstances that indicate the fair val-
ue of a reporting unit of the Group is less than its carrying val-
ue. The Group determines the fair value of each of its reporting
units by estimating the present value of their future cash flows.
In addition, any recognized intangible asset determined to have
an indefinite useful life is tested at least annually for impair-
ment until its life is determined to no longer be indefinite. Intan-
gible assets with estimable useful lives are valued at acquisition
cost, are amortized on a straight-line basis over their res-
pective estimated useful lives (2 to 10 years) to their estimated
residual values, and are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the asset or asset group may not be recoverable.

138

Property, Plant and Equipment. Property, plant and equipment
is valued at acquisition or manufacturing costs plus the fair
value of related asset retirement costs, if any and if reasonably
estimable, less accumulated depreciation. Plant and equipment
under capital leases are stated at the lower of present value
of minimum lease payments or fair value less accumulated amor-
tization. Depreciation expense is recognized using the straight-
line method. The costs of internally produced equipment and
facilities include all direct costs and allocable manufacturing
overhead including depreciation charges as well as the fair val-
ue of related asset retirement cost, if any. Costs of the con-
struction of certain long-term assets include capitalized interest,
which is amortized over the estimated useful life of the related
asset. Property, plant and equipment are depreciated over the
following useful lives:

Impairment of Long-Lived Assets. Long-lived assets held
and used, such as property, plant and equipment and purchased
intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indi-
cate that the carrying amount of an asset or group of assets
may not be recoverable. Recoverability of assets to be held and
used is measured by comparing the carrying amount of an
asset or asset group to the estimated future undiscounted cash
flows expected to be generated by the asset or group of
assets. If the carrying amount of an asset or group of assets
exceeds its estimated future undiscounted cash flows, an
impairment charge is recognized in the Group’s financial state-
ments by the amount by which the carrying amount of the
asset or group of assets exceeds fair value of the asset or group
of assets.

Assets and liabilities held for sale. Long-lived assets and
disposal groups classified as held for sale (including discontin-
ued operations) are disclosed separately. Long-lived assets
held for sale are reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated.
See Notes 4 and 10 for further information.

Non-fixed Assets. Non-fixed assets represent the Group’s
inventories, receivables, securities and cash, including amounts
to be realized in excess of one year. In the accompanying
notes, the portion of assets to be realized in excess of one year
has been disclosed.

Inventories. Inventories are valued at the lower of acquisition
or manufacturing cost or market, cost being generally deter-
mined on the basis of an average or first-in, first-out method
(“FIFO”). Certain of the Group’s U.S. inventories are valued
using the last-in, first-out method (“LIFO”). Manufacturing costs
comprise direct material and labor and applicable manufactur-
ing overheads, including depreciation charges.

Buildings

Site improvements

Technical equipment and machinery

Other equipment, factory and office equipment

10 to 50 years

5 to 40 years

3 to 30 years

2 to 33 years

Leasing. Leasing includes all arrangements that transfer the
right to use specified property, plant or equipment for a stated
period of time, even if the right to use such property, plant
or equipment is not explicitly described in an arrangement. The
Group is a lessee of property, plant and equipment and lessor
of equipment, principally passenger cars and commercial vehi-
cles. All leases that meet certain specified criteria intended
to represent situations where the substantive risks and rewards
of ownership have been transferred to the lessee are accounted
for as capital leases. All other leases are accounted for as
operating leases. Rent expense on operating lease where the
Group is lessee is recognized over the respective lease terms
using the straight-line method. Equipment on operating leases
where the Group is lessor is carried initially at its acquisition
or production cost and is depreciated over the contractual term
of the lease, using the straight-line method, to its estimated
residual value. The estimated residual value is initially deter-
mined using published third party information as well as projec-
tions based on historical experience about expected resale
values for the types of equipment leased.

139

Marketable Securities and Investments. Securities and cer-
tain investments are accounted for at fair value, if fair value
is readily determinable. Unrealized gains and losses on trading
securities, representing securities bought and held principally
for the purpose of near term sales, are included in earnings.
Unrealized gains and losses on available-for-sale securities are
included as a component of accumulated other comprehensive
loss, net of applicable taxes, until realized. All other securi-
ties and investments are recorded at cost. A decline in value of
any available-for-sale security or cost method investment below
cost that is deemed to be other than temporary results in
an impairment charge to earnings that reduces the carrying
amount of the security or the cost method investment to
fair value establishing a new cost basis.

Valuation of Retained Interests in Securitized Sold Receiv-
ables. DaimlerChrysler retains residual beneficial interests in
certain pools of sold and securitized retail and wholesale
finance receivables. The retained interest balance represents
DaimlerChrysler’s right to receive collections on the transferred
receivables in excess of amounts required by the securitiza-
tion trust to pay the interest and principal to investors, servicing
fees, and other required payments. The Group determines the
value of its retained interests using discounted cash flow mod-
eling upon the sale of receivables and at the end of each quarter.
The valuation methodology considers historical and projected
principal and interest collections on the securitized sold receiv-
ables, expected future credit losses arising from the collection
of the securitized sold receivables, and estimated repayment of
principal and interest on notes issued to third parties and
secured by the sold receivables.

The Group recognizes unrealized gains or losses attributable to
the change in the fair value of the retained interests, which
are recorded in a manner similar to available-for-sale securities,
net of related income taxes as a component of accumulated
other comprehensive loss until realized. The Group is not aware
of an active market for the purchase or sale of retained inter-
ests, and accordingly, determines the estimated fair value of
the retained interests by discounting the estimated cash
flow releases (the cash-out method) using a discount rate that
is commensurate with the risks involved. In determining the
fair value of the retained interests, the Group estimates the
future rates of prepayments, net credit losses and forward yield
curves. These estimates are developed by evaluating the
historical experience of comparable receivables and the specific
characteristics of the receivables sold, and forward yield
curves based on trends in the economy.

An impairment adjustment to the carrying value of the retain-
ed interests is recognized in the period a decline in the estimat-
ed cash flows below the cash flows inherent in the cost basis
of an individual retained interest (the pool-by-pool method) is
considered to be other than temporary. Other than temporary
impairment adjustments are generally recorded as a reduction
of revenue.

Cash Equivalents. The Group’s liquid assets are recorded
under various balance sheet captions as more fully described in
Note 21. For purposes of the consolidated statements of
cash flows, the Group considers those highly liquid instru-
ments with original maturities of three months or less to be
cash equivalents.

Derivative Instruments and Hedging Activities. Daimler-
Chrysler uses derivative financial instruments such as forward
contracts, swaps, options, futures, swaptions, forward rate
agreements, caps and floors for hedging purposes. The account-
ing of derivative instruments is based upon the provisions of
SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended. On the date a derivative contract is
entered into, DaimlerChrysler designates the derivative as either
a hedge of the fair value of a recognized asset or liability or of
an unrecognized firm commitment (fair value hedge), a hedge of
a forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability (cash
flow hedge), or a hedge of a net investment in a foreign opera-
tion. DaimlerChrysler recognizes all derivative instruments as
assets or accrued liabilities on the balance sheet and measures
them at fair value, regardless of the purpose or intent for hold-

140

ing them. Changes in the fair value of derivative instruments are
recognized periodically either in earnings or stockholders’ equi-
ty, as a component of accumulated other comprehensive loss,
depending on whether the derivative is designated as a hedge
of changes in fair value or cash flows. For derivatives designat-
ed as fair value hedges, changes in fair value of the hedged
item and the derivative are recognized currently in earnings.
For derivatives designated as cash flow hedges, fair value
changes of the effective portion of the hedging instrument are
recognized in accumulated other comprehensive loss on
the balance sheet, net of applicable taxes, until the hedged item
is recognized in earnings. The ineffective portions of the fair
value changes are recognized in earnings immediately. Deriva-
tives not meeting the criteria for hedge accounting are marked
to market and impact earnings. SFAS 133 also requires that
certain derivative instruments embedded in host contracts be
accounted for separately as derivatives.

Further information on the Group’s financial instruments is
included in Note 33.

Commitments and Contingencies. Liabilities for loss contin-
gencies are recorded when it is probable that a liability to third
parties has been incurred and the amount can be reasonably
estimated. Liabilities for loss contingencies are regularly adjust-
ed as further information develops or circumstances change.

The accrued liability for expected warranty-related costs is
established when the product is sold, upon lease inception, or
when a new warranty program is initiated. Estimates for accrued
warranty costs are primarily based on historical experience.
Because portions of the products sold and warranted by the
Group contain parts manufactured (and warranted) by suppliers,
the amount of warranty costs accrued also contains an esti-
mate of recoveries from suppliers.

The accrued liability for sales incentives is based on the esti-
mated cost of the sales incentive programs and the number of
vehicles held in dealers’ inventory. The majority of vehicles
held in dealers’ inventory are sold to consumers within the next
quarter and the sales incentives accrued liability is adjusted
to reflect recent actual experience.

In accordance with Financial Accounting Standards Board
(“FASB”) Interpretation (“FIN”) 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others – an interpretation of
FASB Statements No. 5, 57 and 107 and rescission of FASB
Interpretation No. 34” DaimlerChrysler recognizes, at inception
of a guarantee, a liability for the fair value of the non-contin-
gent portion of the obligation due to the issuance of the guaran-
tee. DaimlerChrysler applies these provisions for guarantees
issued or modified after December 31, 2002. If performance
under the guarantee is probable and the amount can be reason-
ably estimated, a liability for the contingent obligation is re-
cognized for any guarantee regardless of its date of issuance.
Further information on the Group’s obligations under guaran-
tees is included in Note 25b and 32.

DaimlerChrysler records the fair value of an asset retirement
obligation in the period in which it incurs a legal obligation asso-
ciated with the retirement of tangible long-lived assets and
subsequently adjusts the carrying amount for changes in expect-
ed cash flows and the passage of time.

Deposits from Direct Banking Business. Demand deposit
accounts are classified as financial liabilities. Interest paid on
demand deposit accounts is recognized in cost of sales as
incurred.

141

Stock-Based Compensation. DaimlerChrysler adopted the
fair value recognition provisions of SFAS 123, “Accounting for
Stock-Based Compensation,” prospectively to all employee
awards granted, modified, or settled after January 1, 2003.
Compensation expense for all stock-options granted after De-
cember 31, 2002, has been measured principally at the grant
date based on the fair value of the equity award using a modi-
fied Black-Scholes option-pricing model. Compensation expense
is recognized over the employee service period with an offset-
ting credit to equity (paid-in capital). DaimlerChrysler options
granted prior to January 1, 2003, continue to be accounted for
using the intrinsic value based approach under Accounting
Principles Board Opinion (“APB”) No. 25, “Accounting for Stock
Issued to Employees,” and related Interpretations. Compensa-
tion expense under APB 25 was measured at the grant date
based on the difference between the strike price of the equity
award and the fair value of the underlying stock as of the date of
grant. The following table illustrates the effect on net income
and earnings per share if the fair value based method had been
applied to all outstanding and unvested awards in each period.

(in millions of €)

2005

2004

2003

Year ended December 31,

Net income

2,846

2,466

448

Add: Stock-based employee
compensation expense included in
reported net income, net of related
tax effects

Deduct: Total stock-based
employee compensation expense
determined under fair value based
method for all awards, net of
related tax effects

Pro forma net income

Earnings per share (in €)

Basic

Basic – pro forma

Diluted

Diluted – pro forma

(59)

2,844

(113)

2,434

2.80

2.79

2.43

2.40

2.43

2.40

(164)

365

0.44

0.36

0.44

0.36

Further information on stock-based compensation is included in
Note 24.

New Accounting Standards Not Yet Adopted. In December
2004 the FASB issued SFAS 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”). SFAS 123R establishes the account-
ing for transactions in which an entity exchanges its equity
instruments for goods or services. SFAS 123R also addresses
transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the enti-
ty’s equity instruments or that may be settled by the issuance
of those equity instruments. Equity-classified awards are meas-
ured at grant date fair value and are not subsequently remea-
sured. Liability-classified awards are remeasured to fair value at
each balance sheet date until the award is settled. SFAS 123R
originally applied to all awards granted after July 1, 2005, and to
awards modified, repurchased or cancelled after that date.
The effective date of SFAS 123R was deferred by an SEC Rule
until the beginning of the first annual period beginning after
June 15, 2005. DaimlerChrysler will adopt SFAS 123R as of Jan-
uary 1, 2006, using a modified version of prospective applica-
tion. DaimlerChrysler expects the cumulative effect from the
adoption of SFAS 123R to increase expense by €9 million in the
first quarter of 2006.

In June 2005 the FASB ratified EITF 05-5, “Accounting for Early
Retirement or Postemployment Programs with Specific Features
(Such As Terms Specified in Altersteilzeit Early Retirement
Arrangements).” EITF 05-5 provides guidance on the accounting
for the German Altersteilzeit (“ATZ”) early retirement program
and other types of benefit arrangements with the same or simi-
lar terms. The ATZ program is an early retirement program in
Germany designed to create an incentive for employees within
a certain age group, to transition from full or part-time employ-
ment into retirement before their legal retirement age. The
ATZ program provides the employee with a bonus which is reim-
bursed by subsidies from the German government if certain
conditions are met. According to EITF 05-5, the bonuses provid-
ed by the employer should be accounted for as postemployment
benefits under SFAS 112, “Employer’s Accounting for Post-
retirement Benefits,” with compensation cost recognized over
the remaining service period beginning when the individual
agreement is signed by the employee and ending when the
active service period ends. The government subsidy should be
recognized when the employer meets the necessary criteria and
is entitled to the subsidy. The effect of applying EITF 05-5
should be recognized prospectively as a change in accounting
estimate in fiscal years beginning after December 15, 2005.
DaimlerChrysler expects the adoption of EITF 05-5 to result in
income after taxes of approximately €0.1 billion from the reduc-
tion of the related provision that will be recognized in the
income of the first quarter 2006 in the Group’s consolidated
financial statements.

142

2. Scope of Consolidation and Certain Variable Interest
Entities

Scope of Consolidation. DaimlerChrysler comprises, besides
DaimlerChrysler AG, 494 (2004: 485) German and non-
German subsidiaries as well as 4 (2004: 4) companies (variable
interest entities) that have been consolidated in accordance
with the requirements of FASB Interpretation No. 46 (revised
December 2003) “Consolidation of Variable Interest Entities”
(“FIN 46R”). A total of 96 (2004: 105) companies are accounted
for in the consolidated financial statements using the equity
method of accounting. During 2005, 18 subsidiaries were
included in the consolidated financial statements for the first
time. A total of 9 subsidiaries were no longer included in the
consolidated group. The effects of changes in the Group’s con-
solidated balance sheets and the consolidated statements of
income, if material, are explained further in the notes to the con-
solidated financial statements. In addition, 3 (2004: 3) compa-
nies administering pension funds whose assets are subject to
restrictions have not been included in the consolidated financial
statements. The impact of non-consolidated subsidiaries (affili-
ated companies) and investments that were not accounted
for using the equity method of accounting (associated compa-
nies) on the consolidated financial position, results of opera-
tions or cash flows of the Group was neither material for indi-
vidual companies nor in the aggregate.

Variable Interest Entities. DaimlerChrysler applied the provi-
sions of FIN 46R to special purpose entities as of December 31,
2003, and to all other entities as of March 31, 2004. The imple-
mentation of FIN 46R resulted in the consolidation of several
leasing arrangements that were off-balance in the past and
qualify as special purpose entities as defined in FIN 46R. Daimler-
Chrysler is the primary beneficiary of those structures and,
accordingly, consolidated them effective December 31, 2003.
Under the leasing arrangements, variable interest entities were
established which raised funds by issuing either debt or equity
securities to third party investors. The variable interest entities
used the debt and equity proceeds to purchase property and
equipment, which is leased by the Group and used in the normal
course of business. At the end of the lease term, Daimler-
Chrysler generally has the option to purchase the property and
equipment or re-lease the property and equipment under new
terms. Total assets of those consolidated entities amount to
€0.5 billion and €0.7 billion and total liabilities amount to €0.7
billion and €0.8 billion as of December 31, 2005 and 2004,
respectively. The cumulative effect of consolidating these spe-
cial purpose entities on the Group’s consolidated statement
of income in 2003 was €(30) million, net of taxes of €35 million
(€(0.03) per share). The assets consist primarily of property,
plant and equipment that generally serves as collateral for the
entities’ long-term borrowings. The creditors of these entities
do not have recourse to the general credit of the Group, except
to the extent of guarantees provided.

In addition, DaimlerChrysler has equity or other variable inter-
ests in a number of other variable interest entities where it
is not the primary beneficiary. Among these entities are Toll
Collect, multi-seller bank conduits, and other variable interest
entities. Note 3 provides disclosure about the Group’s involve-
ment in Toll Collect, while multi-seller bank conduits are dis-
cussed in Note 34. DaimlerChrysler’s aggregate maximum expo-
sure to loss arising from its investments in the other variable
interest entities was €0.4 billion as of December 31, 2005.

143

The carrying amount of DaimlerChrysler’s investment in EADS
at December 31, 2005 and 2004 was €3,564 million and €3,854
million, respectively. DaimlerChrysler’s share of the underly-
ing reported net assets of EADS exceeded the carrying value of
DaimlerChrysler’s investment at December 31, 2005 and
2004, by €1,899 million, primarily as a result of the impairment
recognized in the third quarter of 2003. The market value at
December 31, 2005, of DaimlerChrysler’s investment in EADS
based on quoted market prices was €8,507 million.

The following table presents summarized U.S. GAAP financial
information for EADS, which was the basis for applying the equi-
ty method in the Group’s consolidated financial statements:

EADS

(in millions of €)

2005

2004

2003

Income statement information 1

Revenues

Net income

Balance sheet information 2

Fixed assets

Non-fixed assets

Total assets

Stockholders’ equity

Minority interests

Accrued liabilities

Other liabilities

32,542

30,977

27,650

980

753

348

32,462

36,935

69,397

16,557

1,811

10,825

40,204

29,331

34,525

63,856

17,434

1,971

9,299

35,152

Total liabilities and stockholders’
equity

69,397

63,856

1 For the period October 1 to September 30.
2 Balance sheet information as of September 30.

3. Significant Equity Method Investments

EADS. At December 31, 2005, the European Aeronautic Defence
and Space Company EADS N.V. (“EADS”) was the most
significant investment accounted for under the equity method.
The Group’s legal ownership percentage in EADS as of De-
cember 31, 2005, was 30%.

On July 7, 2004, DaimlerChrysler entered into a securities lend-
ing agreement with Deutsche Bank AG concerning 22,227,478
EADS shares (3% of the voting stock). The securities lending
has several tranches with terms ranging between three and
four years. As collateral, DaimlerChrysler received a lien on a
securities account of equivalent value as the shares loaned by
DaimlerChrysler. Because this transaction does not meet
the criteria of a sale, the loaned shares continue to be carried
as investments on the balance sheet and, accordingly, our
proportionate share of EADS’ income is still accounted at a per-
centage of 33%.

As of September 30, 2003, DaimlerChrysler determined that
the decline in fair value below the carrying value of its investment
in EADS was other than temporary. To evaluate the fair value
of the investment the Group used the market price of a share
of EADS common stock, multiplied by the number of shares
owned. In making that determination, DaimlerChrysler consider-
ed the duration and severity of the decline and the reasons
for the decline. Although EADS is involved in a variety of busi-
nesses, it is primarily an aircraft manufacturer because of its
Airbus division, which manufactures commercial aircraft and rep-
resents more than 60 % of EADS’ revenues. As a consequence,
EADS’ share price declined as a result of the negative outlook
for the airline industry in the aftermath of the terrorist attacks
at September 11, 2001, the outbreak of the SARS disease, the
war in Iraq and the decline of the U.S. dollar compared to the
euro which further depressed market participants’ expectations
for the commercial airline industry. Consequently, Daimler-
Chrysler reduced the carrying value of its investment in EADS
by €1.96 billion to its market value, based on the quoted mar-
ket price, which approximated €3.5 billion at that time. As a
result of the impairment a new cost basis was established.

DaimlerChrysler’s equity in the earnings or losses of EADS
was €324 million, €249 million and €(1,845) million in 2005,
2004 and 2003, respectively, including investor-level adjust-
ments. DaimlerChrysler’s equity in the earnings or losses of
EADS is shown in the Group’s statements of income within
“Financial income (expense), net,” except for the other than
temporary impairment of €1,960 million in 2003, which is
included in a separate caption within “financial income
(expense), net.”

144

MMC. On April 22, 2004, the Board of Management and the
Supervisory Board of DaimlerChrysler AG decided to withdraw
from providing any financial support to Mitsubishi Motors
Corporation (“MMC”) and not to participate in a recapitalization
of MMC anticipated to occur in July 2004. At the time of this
decision, DaimlerChrysler held 37% of MMC’s voting stock and
was represented by 3 of the 8 (37.5%) of the members of MMC’s
board of directors.

Between DaimlerChrysler’s Board vote on April 22, 2004, and
the MMC shareholder meeting on June 29, 2004, MMC worked
with its other significant shareholders, lenders and potential
investors on a restructuring plan that included a recapitalization
of MMC which was presented for vote at the June 29 sharehold-
er meeting. DaimlerChrysler was not party to those discussions
nor did DaimlerChrysler participate in any of the measures
set forth in the restructuring plan; however, DaimlerChrysler’s
concurrence to the measures was required as its ownership
level at such time provided it with veto powers.

On June 29, 2004, the shareholders of MMC approved the
restructuring plan which resulted in a new investor obtaining a
33.3% interest in MMC’s voting stock, thereby becoming MMC’s
largest shareholder, and in the issuance of three classes of
convertible preferred instruments to other investors and some
existing MMC shareholders (not including DaimlerChrysler).

The new investor that acquired a 33.3% voting interest entered
into a contractual agreement with MMC that awarded it the
unilateral right to make significant operating decisions. In addi-
tion, the new shareholder acted in concert with other large
institutional shareholders who together with the new sharehold-
er own a majority of the voting stock. Accordingly, such Japan-
ese shareholder groups who acted in concert in the recapitaliza-
tion were in a position to control MMC.

The MMC board of directors was comprised of 12 board mem-
bers in total, with DaimlerChrysler’s board representation re-
duced to 2 board members (16.7%) which did no longer enable
DaimlerChrysler to block or veto any matters coming to a vote
at board level.

DaimlerChrysler’s ownership interest in voting stock was diluted
from 37.0% to 24.7% in the second quarter of 2004. The dilution
below one-third was significant because Japanese laws require a
one-third minimum quorum to afford shareholder protective
rights, e.g. in cases of the dissolution of the company, the sale
of all or substantial part of the business of the company, or
agreements to merge with other companies. As a result, Daimler-
Chrysler no longer had the blocking and veto rights that
DaimlerChrysler believes are essential to exercise significant
influence by ownership interest. DaimlerChrysler surrendered
significant rights by agreeing not to oppose the restructuring
plan. Upon conversion of the mandatory convertible preferred
instruments issued to other MMC investors, DaimlerChrysler’s
interest in MMC’s voting stock would have been further diluted
to below 11%.

Furthermore, all executive officers appointed by Daimler-
Chrysler resigned and all other DaimlerChrysler expatriates,
in total more than 50 managers that were assigned to this
investee, left MMC prior to June 30, 2004, and returned to
DaimlerChrysler. Even prior to the June 29, 2004 shareholder
meeting, an announcement was made on May 24, 2004 inform-
ing MMC employees that DaimlerChrysler’s assignees had
been released from their managerial responsibilities and had
delegated their responsibilities to other managers, none of
whom were related to DaimlerChrysler.

Based on the factors outlined above, DaimlerChrysler lost its
ability to significantly influence MMC’s operating and financial
policies. Consequently, as of the annual shareholders’ meeting
of MMC on June 29, 2004, DaimlerChrysler ceased to account
for its investment in MMC using the equity method and has
accounted for MMC shares as a marketable security at fair val-
ue until the disposition of such shares (see Note 20).

Through June 29, 2004, the results from MMC were included
in the Group’s consolidated statements of income using the
equity method of accounting. The Group’s proportionate share
in the negative results of MMC through June 29, 2004 and
2003, was €(655) million and €(281) million, respectively. The
amount for 2004 includes the effects from the dilution of
the Group’s interest in MMC of €(135) million and related real-
ized gains from currency hedging of the net investment of
€195 million (after tax €120 million). These effects from the
dilution as well as these realized gains from currency hedging are
reflected in DaimlerChrysler’s consolidated statement of in-
come in the line item “financial income (expense), net”.

In November 2005, DaimlerChrysler sold all of its MMC shares
for €970 million in cash. Due to the gain on that sale, Daimler-
Chrysler’s financial income and net income for 2005 increased
by €681 million and €502 million, respectively.

The following table presents summarized U.S. GAAP financial
information for MMC, which was the basis for applying the equi-
ty method in the Group’s consolidated financial statements:

MMC

(in millions of €)

Income statement information 1

Revenues

Net loss

2004

2003

9,858

(1,730)

27,129

(759)

1 2004 for the period October 1, 2003 to March 31, 2004;

2003 for the period October 1, 2002 to September 30, 2003, respectively.

145

Toll Collect. In 2002, our subsidiary DaimlerChrysler Financial
Services AG (formerly DaimlerChrysler Services AG), Deutsche
Telekom AG and Compagnie Financiere et Industrielle des
Autoroutes S.A. (Cofiroute) contracted with the Federal Repub-
lic of Germany to develop and, within a joint venture company,
install and operate a system for electronic collection of tolls
from all commercial vehicles over 12t GVW using German high-
ways. DaimlerChrysler Financial Services AG and Deutsche Tele-
kom AG each hold a 45% equity interest and Cofiroute holds
the remaining 10% equity interest in both the consortium (Toll
Collect GbR) and the joint venture company (Toll Collect GmbH)
(together “Toll Collect”). DaimlerChrysler accounts for its 45%
ownership interest in Toll Collect using the equity method of
accounting. The Group has a significant variable interest in Toll
Collect, a variable interest entity, but determined that it is not
the primary beneficiary and therefore not required to consolidate
Toll Collect. In the operating agreement, each of the consortium
members (including DaimlerChrysler Financial Services AG) has
provided guarantees supporting the obligations of Toll Collect
GmbH towards the Federal Republic of Germany. These guaran-
tees are described in more detail below. Cofiroute’s risks and
obligations are limited to €70 million. DaimlerChrysler Financial
Services AG and Deutsche Telekom AG are jointly obliged to
indemnify Cofiroute for amounts exceeding this limitation.

The following table presents summarized U.S. GAAP financial
information for Toll Collect, which was the basis for applying
the equity method in the Group’s consolidated financial state-
ments:

Toll Collect

(in millions of €)

2005

2004

2003

Income statement information for
the year

Revenues

Net loss

522

(143)

–

(1,071)

–

(206)

Balance sheet information
as of December 31

Noncurrent assets

Current assets

Total assets

Equity

Noncurrent liabilities

Current liabilities

Total liabilities and equity

457

467

924

(789)

1,675

924

458

535

(934)

1,173

296

535

During the construction period of the toll collection system,
the most significant assumptions used in accounting for the in-
vestment in Toll Collect related to the launch date of the toll
collection system, the estimated cost to design and construct the
system, and the operation of the system.

According to the Operating Agreement, the toll collection sys-
tem was to be operational no later than August 31, 2003. After
a delay in the launch date of the toll collection system, which
resulted in a loss of revenue for Toll Collect and in payments of
contractual penalties for delays, the toll collection system was
introduced on January 1, 2005, with on-board units that allowed
for slightly less than full technical performance in accordance
with the technical specification (phase 1). On January 1, 2006,
the toll collection system was installed and started to operate
with full effectiveness as specified in the Operating Agreement
(phase 2). On December 20, 2005 Toll Collect GmbH received a
preliminary operating permit as specified in the Operating
Agreement. Toll Collect GmbH expects to receive a final operat-
ing permit in April 2006. Failure to obtain the final operating
permit by January 1, 2007, at the latest, may lead to termina-
tion of the operating agreement by the Federal Republic of
Germany.

With the successful start of phase 1, for the period beginning
January 1, 2005, Toll Collect GmbH received remuneration for
the infrastructure and the operation of the toll collection system
from the Federal Republic of Germany. Certain immaterial
penalties have been set off from the remuneration by the Feder-
al Republic of Germany. According to the implementation
agreement of April 23, 2004, the Federal Republic of Germany
paid Toll Collect GmbH only 95% of the fees which would other-
wise had been payable under the Operating Agreement due to
the slightly reduced technical functionality during phase 1.

Failure to perform various obligations under the Operating
Agreement may result in penalties, additional revenue reduc-
tions and damage claims that could become significant over
time. However, penalties and revenue reductions are capped at
€75 million per year until September 30, 2006, at €150 million
per year thereafter until the final operating permit has been
issued, and at €100 million per year following issuance of the
final operating permit. These cap amounts are subject to a 3%
increase for every year of operation.

146

During phase 1 any offsetting with claims of the Federal Repub-
lic of Germany stemming from the period before January 1,
2005, including contractual penalties and damages, was exclud-
ed. The exclusion of offsetting according to the implementa-
tion agreement does not cover damages and contractual penal-
ties arising with the beginning of phase 1. In phase 2 there
are no limitations to offsetting by the Federal Republic of Ger-
many. In case of any offsetting Toll Collect GmbH insofar may
not receive remuneration. In case of offsetting, the consortium
members may be required to provide Toll Collect GmbH with
sufficient liquidity.

The Operating Agreement calls for submission of all disputes
related to the toll collection system to arbitration. The Federal
Republic of Germany has initiated arbitration proceedings
against DaimlerChrysler Financial Services AG, Deutsche Tele-
kom AG and the consortium. According to the statement of
claims received in August 2005, the Federal Republic of Germany
is seeking damages, including contractual penalties and reim-
bursement of lost revenues that allegedly arose from delays in
the operability of the toll collection system. See Note 31 for
additional information.

Each of the consortium members (including DaimlerChrysler
Financial Services AG) have provided guarantees supporting the
obligations of Toll Collect GmbH towards the Federal Republic
of Germany relating to the completion and operation of the toll
collection system, which are subject to specific triggering
events. In addition, DaimlerChrysler AG has guaranteed bank
loans obtained by the consortium. The guarantees are describ-
ed in detail below:
– Guarantee of bank loan. DaimlerChrysler AG issued a guaran-
tee to third parties up to a maximum amount of €600 million,
which represents a 50% share of security to bank loans
obtained by the consortium.

– Guarantee of obligations. Towards the Federal Republic of Ger-

many the consortium members have jointly and severally
guaranteed the obligations of Toll Collect GmbH resulting
from the operating agreement concerning the delivery and
operation of the toll collection system. This guarantee expires
one year after the successful launch of the completed toll
collection system which we expect in April 2006.

– Equity Maintenance Undertaking. The consortium members

have the obligation to contribute, on a joint and several basis,
additional funds to Toll Collect GmbH as may be necessary for
Toll Collect GmbH to maintain a minimum equity (based on
German Commercial Code accounting principles) of 15% of
total assets (so called “Equity Maintenance Undertaking”).
This obligation will terminate on August 31, 2015, when the
Operating Agreement expires, or earlier if the agreement is
terminated. Such obligation may arise if Toll Collect GmbH is
subject to revenue reductions caused by underperformance,
if the Federal Republic of Germany is successful in claiming
lost revenues against Toll Collect GmbH for any period the
system was not fully operational or if Toll Collect GmbH incurs
penalties that may become payable under the above men-
tioned agreements. If such penalties, revenue reductions and
other events reduce Toll Collect GmbH’s equity to a level
that is below the minimum equity percentage agreed upon,
the consortium members are obligated to fund Toll Collect
GmbH’s operations to the extent necessary to reach the
required minimum equity.

While DaimlerChrysler’s maximum future obligation resulting
from the guarantee of the bank loan can be determined (€600
million), the Group is unable to accurately estimate its maxi-
mum exposure to loss resulting from the guarantee of obliga-
tions and the guarantee in form of the equity maintenance
undertaking due to the various uncertainties described above.
Therefore, in addition to the maximum exposure from the
guarantee of the bank loan and the risks already provided for
under the established accruals, the Group’s exceeding maxi-
mum exposure to loss could be material.

debis AirFinance. In November 1995, DaimlerChrysler assumed
a 45% equity ownership interest in debis AirFinance B.V. (“dAF”),
an Amsterdam registered Private Limited Liability Company
that was established for purposes of leasing aircraft and related
technical equipment to airlines and financial intermediaries.
Several banks held the remaining ownership interests in dAF.
DaimlerChrysler held significant variable interests in dAF, a
variable interest entity, but determined that it was not the pri-
mary beneficiary and therefore not required to consolidate
dAF. DaimlerChrysler’s involvement with dAF consisted primari-
ly of its equity interest and also subordinated loans receivable
and unsecured loans provided to dAF. In the fourth quarter of
2004, DaimlerChrysler recorded impairment charges of €222
million relating to its investment which were based on esti-
mates of the fair value of DaimlerChrysler’s proportionate share
of dAF’s underlying equity and of the loans provided to dAF.

147

In June 2005, as part of the Group’s ongoing strategy to focus
on its core automotive business, DaimlerChrysler sold its 45%
equity interest in dAF and its outstanding subordinated loans
receivable and unsecured loans to dAF for €325 million in
cash to Cerberus Capital Management, L.P., subject to indemni-
fication for exposures incurred prior to the sale up to a maxi-
mum of $30 million. The sale did not have a material impact on
the Group’s net income.

Prior to the sale, DaimlerChrysler accounted for its investment
in dAF using the equity method of accounting.

Subsequent to DaimlerChrysler’s acquisition of a controlling
interest in MFTBC, a number of quality problems concerning
MFTBC vehicles spanning production years since July 1974
were identified. During the second and third quarters of 2004,
DaimlerChrysler was able to comprehensively assess those
quality issues and define necessary technical solutions and a
course of action to implement them. The estimates of cost in
the interim periods of 2004 were based on the status of the
investigation and DaimlerChrysler’s best estimate of the proba-
ble costs to be incurred to address and remedy the identified
quality issues.

Of the €1.1 billion quality costs recorded in 2004 by MFTBC,
(i) €0.1 billion was recognized in “Financial income (expense),
net” in the statement of income representing DaimlerChrysler’s
proportionate share of the results of MFTBC, which was in-
cluded on a one month lag relating to amounts attributed to re-
finements to estimates that were made before MFTBC was
fully consolidated, (ii) €0.7 billion to cost of sales representing
the sum of the 43% attributed to the March 2003 investment
(for which the purchase price allocation period was closed)
and the 35% of the costs attributed to minority shareholders of
MFTBC; (iii) €0.2 billion to goodwill attributed to the 22% inter-
est acquired in 2004; and (iv) €0.1 billion to deferred tax assets.

DaimlerChrysler assigned €95 million of the aggregate prelimi-
nary purchase price to registered trademarks that are not
subject to amortization, €81 million to technology with a useful
life of 10 years, €49 million to other identifiable intangible
assets and €14 million to acquired in-process R&D that was ex-
pensed in the periods the investments were made. In addition,
DaimlerChrysler assigned €6,206 million to tangible assets
acquired and €5,469 million to liabilities assumed. The remain-
ing €275 million was allocated to goodwill of the Commercial
Vehicles segment and is not expected to be deductible for tax
purposes.

4. Acquisitions and Dispositions

Acquisitions
MFTBC. On March 14, 2003, as part of the Group’s global com-
mercial vehicle strategy, DaimlerChrysler acquired from MMC
a 43% non-controlling interest in Mitsubishi Fuso Truck and Bus
Corporation (“MFTBC”) for €764 million in cash plus certain
direct acquisition costs. MFTBC is involved in the development,
design, manufacture, assembly and sale of small, mid-size and
heavy-duty trucks and buses, primarily in Japan and other
Asian countries. Also, on March 14, 2003, ten Mitsubishi Group
companies entered into a separate share sale and purchase
agreement with MMC pursuant to which they purchased from
MMC 15% of MFTBC’s shares for approximately €266 million
in cash. On March 18, 2004, DaimlerChrysler acquired from MMC
an additional 22% interest in MFTBC for €394 million in cash,
thereby reducing MMC’s interest in MFTBC to a non-controlling
20%. The aggregate amount paid by DaimlerChrysler for its 65%
controlling interest in MFTBC was €1,251 million, consisting
of consideration paid plus direct acquisition costs in 2003 and
2004 (€770 million and €394 million, respectively), plus a
re-allocation of €87 million of the initial purchase price of MMC
pertaining to MFTBC and previously included in the Group’s
investment in MMC, which was an equity method investee of
DaimlerChrysler when the business combination with MFTBC
was consummated. DaimlerChrysler has included the consoli-
dated results of MFTBC beginning at the consummation date in
the Group’s Commercial Vehicles segment. Prior to then, the
Group’s proportionate share of MFTBC’s results was included in
the Commercial Vehicles segment using the equity method of
accounting (see also Note 35).

148

During the first quarter of 2005, MFTBC finished investigating
the product quality reports and finalized its conclusions
about the issues that required action. The level of information
reached during this process enabled DaimlerChrysler to refine
its estimate of the probable cost and an additional amount
of €5 million was recorded in the first quarter of 2005. MFTBC
expects to be able to complete the majority of the field cam-
paigns by the end of the first quarter of 2006.

Under the two share purchase agreements under which Daimler-
Chrysler acquired 43% and 22%, respectively, of MFTBC
shares, DaimlerChrysler had the right to a price adjustment if
the warranty reserve recorded on the books of MFTBC proved
to be inadequate. Negotiations with MMC resulted in a settle-
ment agreement on March 4, 2005, in which the parties agreed
on such a price adjustment. Under the terms of the settlement
agreement, DaimlerChrysler received (i) MMC’s remaining 20%
stake in MFTBC, (ii) a cash payment of €72 million, (iii) promis-
sory notes having an aggregate face value of €143 million,
payable in four equal installments over the next four years and
(iv) certain other assets and rights pertaining to the distribution
of MFTBC products in one Asian market. The parties also
clarified the terms of their cooperation under other, ongoing
agreements. The fair value assigned to the consideration re-
ceived from MMC was €0.5 billion and has been allocated to
income and goodwill consistent with DaimlerChrysler’s account-
ing for the quality issues subsequent to the business combina-
tion. Accordingly, €0.3 billion was recognized as a reduction
of cost of sales in the first quarter of 2005 based on Daimler-
Chrysler’s proportionate after-tax loss recorded in the second
and third quarter of 2004 relating to quality measures and €0.2
billion was recognized as reduction of goodwill.

As a result of the settlement with MMC, DaimlerChrysler’s
controlling interest in MFTBC increased from 65% to 85% and
the aggregate purchase price after giving effect to the price
reduction was €1,014 million. As of June 30, 2005, goodwill of
€53 million related to final purchase price allocation of MFTBC
was allocated to the Commercial Vehicles segment. The good-
will is not expected to be deductible for tax purposes.

Dispositions
Off-Highway business. In September 2005, DaimlerChrysler
acquired the 11.65% interest in MTU Friedrichshafen GmbH
(“MTU-F”) held by minority shareholders for €171 million in cash,
including direct transaction costs. DaimlerChrysler has subse-
quently owned 100% of the MTU-F shares. As a result of this
transaction, DaimlerChrysler recorded a preliminary goodwill of
€134 million that was allocated to goodwill of the Other Activi-
ties segment.

On December 27, 2005, as part of the Group’s ongoing strategy
to focus on its core automotive business, DaimlerChrysler ent-
ered into a share sale and purchase agreement with the Swedish
investor group EQT regarding the sale of a major portion of its
Off-Highway Business Unit, including the MTU-F Group and the
Off-Highway activities of Detroit Diesel Corporation. The sale
price, which still has to be determined finally, is based on an
enterprise value of €1,600 million which is subject to adjust-
ments for cash, debts, pensions and a standardized net working
capital.

The closing of the transaction, which is expected to occur in
the first quarter of 2006, is subject to certain closing conditions,
e.g. approval of the relevant anti-trust authorities. Further-
more, the transaction has to be submitted for review by the
Federal Ministry of Economics and Technology under the German
Foreign Trade and Payments Act (see Note 10 for presentation).

ALF. In the third quarter of 2005, as part of the Group’s ongoing
strategy to focus on its core automotive business, Freightliner,
a wholly-owned U.S. subsidiary of DaimlerChrysler, entered into
an agreement to sell major parts of its subsidiary American
LaFrance (“ALF”), a fire-truck manufacturer, to an U.S. invest-
ment company. The sale was closed in the fourth quarter of
2005. Prior to the sale and based upon the agreed purchase
price, Freightliner recorded asset impairment charges in 2005
of €87 million, related to the write-down of inventories and cer-
tain long-lived assets, which are reflected in cost of sales and
other operating expenses of the Commercial Vehicles segment.

149

In September 2003, as part of the Group’s ongoing strategy
to focus on its core automotive business, DaimlerChrysler sold
its 50% interest in CTS Fahrzeug-Dachsysteme GmbH to
Porsche AG for €55 million in cash, resulting in a pretax gain
of €50 million which is included in financial income (expense),
net, of the Mercedes Car Group segment. Prior to the sale,
DaimlerChrysler accounted for CTS Fahrzeug-Dachsysteme
GmbH using the cost method.

Hyundai. In May 2004, as part of the realignment of its strate-
gic alliance with Hyundai Motor Company (“HMC”), Daimler-
Chrysler terminated discussions with HMC regarding the forma-
tion of a commercial vehicles joint venture. Also in May 2004,
DaimlerChrysler sold its non-controlling 50% interest in Daimler-
Hyundai Truck Corporation (“DHTC”) to HMC for a total pretax
gain of €60 million (€27 million was recognized in other income
and €33 million is recognized in financial income (expense),
net), which is attributed to the Commercial Vehicles segment.
In August 2004, as part of the realignment of its strategic
alliance with HMC, DaimlerChrysler sold its 10.5% stake in HMC
for €737 million in cash, resulting in a pretax gain of €252 mil-
lion that is included in financial income (expense), net.

MTU Aero Engines. On December 31, 2003, as part of the
Group’s ongoing strategy to focus on its core automotive busi-
ness, DaimlerChrysler sold its 100% equity interest in MTU
Aero Engines GmbH (“MTU Aero Engines”) to Kohlberg, Kravis
Roberts & Co. Ltd. (“KKR”), an investment company. The sales
price for the operative business of MTU Aero Engines amount-
ed to €1,450 million. Excluding cash, cash equivalents and
debts, which remain at MTU Aero Engines, the net sales price
amounted to €1,052 million. Consideration received by
DaimlerChrysler included a note receivable from KKR and cash
of €877 million. As a result of this transaction, DaimlerChrysler
paid a compensation of $250 million to United Technologies
Corporation, the parent company of Pratt & Whitney, in January
2004. In 2003, DaimlerChrysler realized a gain of €882 million
from this sale, net of taxes of €149 million. The operating re-
sults and cash flows from MTU Aero Engines’ business are in-
cluded in DaimlerChrysler’s consolidated financial statements
through December 31, 2003. However the operating results
and gain are presented as discontinued operations in accordance
with SFAS 144 (see Note 10).

Other dispositions. In November 2003, as part of the Group’s
ongoing strategy to focus on its core automotive business,
DaimlerChrysler sold a 60% interest in Mercedes-Benz Lenkun-
gen GmbH, its 100% interest in Mercedes-Benz Lenkungen
U.S. LLC and its 100% interest in the steering activities of
DaimlerChrysler do Brasil Ltda. to ThyssenKrupp Automotive AG
(“ThyssenKrupp”) for €42 million in cash. DaimlerChrysler’s
remaining 40% interest in Mercedes-Benz Lenkungen GmbH was
subject to put and call options held by DaimlerChrysler and
ThyssenKrupp, respectively, of approximately €28 million. The
sales resulted in an aggregate pretax gain of €11 million in
2003, which is included in other income of the Commercial
Vehicles segment. DaimlerChrysler’s remaining 40% interest in
Mercedes-Benz Lenkungen GmbH was accounted for using
the equity method. In November 2005, the Group exercised its
Put Option to sell its remaining 40%-stake in ThyssenKrupp
Presta SteerTec (formerly: Mercedes-Benz Lenkungen GmbH) to
ThyssenKrupp for a purchase price of €28 million.

150

Notes to Consolidated Statements of Income

5. Functional Costs and Other Expenses

Selling, administrative and other expenses are comprised of the
following:

(in millions of €)

Selling expenses

Administration expenses

Other Expenses

Year ended December 31,
2003

2004

2005

11,960

11,403

11,763

6,092

932

6,008

561

5,351

658

18,984

17,972

17,772

In 2005, selling expenses include advertising costs of €2,512
million (2004: €2,748 million, 2003: €2,965 million).

Headcount reduction initiative at Mercedes Car Group.
In September 2005, DaimlerChrysler initiated a program to
enhance the competitiveness of the Mercedes Car Group. The
program is expected to reduce headcount by 8,500 employees
in Germany, primarily through voluntary termination contracts.
The initiative is expected to be finalized during the second half
of 2006. The individual benefits are based on age, salary levels
and past service.

As of December 31, 2005, approximately 5,000 employees
have signed severance contracts. For the contracts signed prior
to December 31, 2005, expenditures of €670 million will be
incurred; €570 million were recorded in income for 2005, primari-
ly within cost of sales. An amount of €100 million is available
under the terms of a deferred compensation fund set up under
the Compensation Framework Agreement (ERA), a collective
bargaining agreement in Germany. Under this agreement, Daimler-
Chrysler had to recognize a liability in prior years for ERA as a
portion of the compensation increase in these years was to be
unconditionally paid to employees at a later date. In an agree-
ment with the worker’s council of DaimlerChrysler, it was deter-
mined that the fund should be used for purposes such as ter-
mination and early retirement benefits with any unused balance
distributed to employees otherwise. In 2005, €70 million were
paid and €600 million remain within other liabilities at Decem-
ber 31, 2005.

smart realignment. Based on the unit sales development of
the smart roadster and the smart forfour and the downward
revisions to forecasted sales targets, DaimlerChrysler reduced
its production and notified suppliers about declining production
at the beginning of 2005. These developments resulted in
increased operating and cash flow losses and an expectation
that losses would continue in future periods. Therefore,
DaimlerChrysler evaluated the recoverability of the carrying
amount of the long-lived assets that generate cash flows
largely independent of other assets and liabilities of the Group.
The smart roadster had been assembled in a plant in France
until the decision to cease production, whereas the asset group
related to the smart forfour consists of owned real estate
and equipment of a Dutch plant as well as leased equipment
located with suppliers, but carried on DaimlerChrysler’s balance
sheet. As a result of the impairment tests, DaimlerChrysler
recognized charges of €444 million in 2005 in “cost of sales”
representing the excess of the carrying amount of these long-
lived assets over their fair value. After the impairment charge,
the remaining carrying amount of the assets represented the
estimated fair value of land and buildings and other assets.

151

As a result of the deterioration of operations in the first quarter
of 2005, DaimlerChrysler decided to cease production of the
smart roadster by the end of 2005 and provide incentives to
dealers related to those vehicles. Thus, also included as a
reduction of revenue or in “cost of sales” during 2005 were
€140 million, to recognize the effects of inventory write-downs,
higher incentives and lower residual values of vehicles.

Further costs related to the realignment of smart during 2005,
amounting to €301 million, arose primarily from supplier claims
which resulted from the discontinuation of the smart roadster
and the reduction of the production volume for the smart for-
four. Estimated payments to the dealer network are also includ-
ed. These charges were recognized in “cost of sales” and in
“selling expenses”.

In connection with the activities related to the smart business
unit, DaimlerChrysler also decided in 2005 not to proceed
with the development of the smart SUV that was scheduled to
be introduced in 2006. As a result of the decision to abandon
the smart SUV, tooling and equipment located in the designated
assembly plant in Brazil and equipment still under construction
with suppliers for which firm purchase orders were in place,
€61 million were written off in 2005 by a charge to “other ex-
penses” to the extent those assets could not be redeployed for
other purposes. Charges of €104 million were recognized dur-
ing 2005 related to the liabilities arising from the cancellation
of supply contracts and were recognized as “other expenses”.

In addition, plans to reduce workforce at the locations in Böblin-
gen (Germany) and Hambach (France) were approved in 2005.
According to those plans, by December 31, 2005, 185 employ-
ees have been transferred to other Group operations and con-
tinue to provide services there while 236 German employees
had accepted termination benefits in accordance with the terms
of a collective bargaining agreement consisting of cash sever-
ance, continued pay for a period after the end of service and job
placement assistance; the employee services ended with the
acceptance of the termination benefits. Therefore, charges for
employee termination benefits of €24 million are included
in 2005. In addition, charges for consulting services have been
recorded totaling to €7 million in 2005.

A goodwill impairment charge of €30 million was recognized in
2005 (see Note 12).

All charges related to the realignment of smart, amounting to
€1,111 million, relate to the Mercedes Car Group segment.
The development of balances accrued in 2005, which lead to
payments in subsequent periods, is summarized as follows:

(in millions of €)

Workforce
reduction Other costs

Balance at January 1, 2005

Net charges

Payments

Balance at December 31, 2005

–

(16)

–

552

(443)

109

Total

–

576

(459)

117

The Mercedes Car Group expects the remaining balance of
€117 million to be paid in 2006.

Others. In 2003, DaimlerChrysler recognized an impairment
charge amounting to €77 million related to certain long-lived
assets (primarily property, plant and equipment) at a production
facility in Brazil. The charge is included in cost of sales of the
Mercedes Car Group segment.

As discussed in Note 7, the DaimlerChrysler Supervisory Board
approved a multi-year turnaround plan for the Chrysler Group
in February 2001. The related charges are presented as a sepa-
rate line item on the accompanying consolidated statements of
income (loss) and are not reflected in cost of sales or selling,
administrative and other expenses.

152

Personnel expenses and number of employees. Personnel
expenses included in the statement of income are comprised of:

6. Other Income

Other income consists of the following:

(in millions of €)

2005

2004

2003

(in millions of €)

Year ended December 31,
2003

2004

2005

Year ended December 31,

Wages and salaries

19,750

18,750

18,897

Social security and payroll costs

Net pension cost (see Note 25a)

Net postretirement benefit cost
(see Note 25a)

Other expenses for pensions and
retirements

3,371

1,131

3,294

948

3,178

837

1,331

1,173

1,290

148

25,731

24,216

24,287

Number of employees (annual average):

Hourly employees

Salaried employees

Trainees/apprentices

2005

2004

2003

232,836

139,220

14,409

229,763

134,949

14,307

226,989

129,656

14,039

386,465

379,019

370,684

Information on the remuneration to the current and former
members of the Board of Management and to the current mem-
bers of the Supervisory Board is included in Note 38.

Gains on sales of property, plant and
equipment

Rental income, other than relating to
financial services

Gains on sales of companies

Reimbursement of contract costs

Government subsidies

Other miscellaneous items

351

101

–

417

966

100

128

–

543

895

110

430

689

Other miscellaneous items consist of reimbursements under
insurance policies, income from licenses, reimbursements of
certain non-income related taxes and customs duties, income
from various employee canteens and other miscellaneous
items.

Gains on sales of property, plant and equipment for the year
ended December 31, 2005, include a €240 million gain on the
sale of the Chrysler Group’s Arizona Proving Grounds vehicle
testing facility.

Due to the repurchase of a note by its issuer, a gain of €53 mil-
lion was realized in 2005 and is included in gains on sales of
property, plant and equipment. The note was issued by MTU
Aero Engines Holding AG to DaimlerChrysler in the context
of the sale of MTU Aero Engines GmbH in 2003.

As result of the settlement agreement in connection with the
sale of DaimlerChrysler Rail Systems GmbH (Adtranz) in 2004,
a gain of €120 million which had been deferred since 2001
was realized as other income.

153

7. Turnaround Plan for the Chrysler Group

In 2001, the Supervisory Board of DaimlerChrysler AG approved
a multi-year turnaround plan for the Chrysler Group. Key initia-
tives for the multi-year turnaround plan included a workforce
reduction and an elimination of excess capacity.

The net gains recorded for the plan in 2005 were €36 million
(€23 million net of taxes) and are presented as a separate line
item on the accompanying consolidated statements of income
(€34 million and €2 million would have otherwise been reflected
in cost of sales and selling, administrative and other expenses,
respectively). These adjustments were due to modifications of
estimates related to workforce reductions and facility closures
in 2005 and prior years.

The net charges recorded for the plan in 2004 were €145 mil-
lion (€89 million net of taxes) and are presented as a separate
line item on the accompanying consolidated statements of in-
come (€139 million and €6 million would have otherwise been
reflected in cost of sales and selling, administrative and other
expenses, respectively). These adjustments were due to modifi-
cations of estimates related to workforce reductions and facili-
ty closures in 2004 and prior years.

The net charges recorded for the plan in 2003 were €469 mil-
lion (€288 million net of taxes) and are presented as a separate
line item on the accompanying consolidated statements of
income (loss) (€462 million and €7 million would have other-
wise been reflected in cost of sales and selling, administrative
and other expenses, respectively). These adjustments were
associated with the planned closing, significant downsizing and
sale of certain manufacturing facilities between 2003 and
2005. The adjustments were also the result of modifications to
previous estimates due to actual settlements or additional
available information.

Workforce reduction charges in 2005, 2004 and 2003 were
€(15) million, €154 million and €209 million respectively. The
charges for the voluntary early retirement programs, accepted
by 223, 503 and 1,827 employees in 2005, 2004 and 2003,
respectively, were formula driven based on salary levels, age
and past service. Additionally, 618, 5,417 and 1,355 employees
were involuntarily affected by the plan in 2005, 2004 and
2003, respectively. The amount of involuntary severance bene-
fits paid and charged against the liability were €30 million, €51
million and €20 million in 2005, 2004 and 2003, respectively.

The Chrysler Group recorded impairment charges of €(3) mil-
lion, €43 million and €249 million in 2005, 2004 and 2003,
respectively. The 2005 impairment charges represent an adjust-
ment to prior estimates related to facility closures. The 2004
and 2003 impairment charges represent the amount by which
the carrying values of the property, plant, equipment and tool-
ing exceeded their respective fair market values.

In addition, accruals for other costs related to divestiture and
closure actions included net charges and adjustments of €(18)
million, €(52) million and €11 million during the years ended
December 31, 2005, 2004 and 2003, respectively.

During the years ended December 31, 2005, 2004 and 2003,
the Chrysler Group made cash payments of €92 million, €219
million and €279 million, respectively, for charges previously
recorded.

The Chrysler Group expects to make additional cash payments
of approximately $58 million in 2006 for the previously recorded
charges. The Chrysler Group may recognize additional adjust-
ments to the turnaround plan charges in 2006 primarily relating
to the closure or sale of selected operations.

As of December 31, 2005, 2004 and 2003, the Chrysler Group
had workforce reduction reserves of €102 million, €160 million
and €198 million, respectively. In addition, reserves for other
costs were €18 million, €60 million and €148 million as of
December 31, 2005, 2004 and 2003, respectively.

154

In 2003, MTU-F created a new company, MTU CFC Solutions
GmbH (“MTU CFC”), and contributed all of its fuel cell activities
into a new company for 100% ownership interest. Also in 2003,
MTU CFC issued new shares to RWE Fuel Cells GmbH for a
capital contribution. MTU-F did not participate in this increase
in share capital causing the ownership interest of MTU-F in
MTU CFC to dilute to 74.9%. As a result of this transaction,
DaimlerChrysler realized a gain of €24 million, which is included
in “gain (loss) from the dilution of shares in affiliated companies
and investments accounted for under the equity method”.

The Group capitalized interest expenses related to qualifying
construction projects of €73 million (2004: €70 million; 2003:
€100 million).

–

(1,960)

(50)

(44)

Income Taxes

(798)

(538)

(606)

(2,437)

Income before income taxes consists of the following:

539

490

521

(in millions of €)

Germany

Non-German countries

Year ended December 31,
2003

2004

2005

(103)

3,541

3,438

448

3,087

3,535

(736)

1,332

596

8. Financial Income (Expense), net

(in millions of €)

Year ended December 31,
2003

2004

2005

Income from investments

of which from affiliated companies
€ 28 (2004: € 36; 2003: € 37)

Gains, net from disposals of
investments and shares in affiliated
and associated companies

Gain (loss) from the dilution
of shares in affiliated companies and
investments accounted for under
the equity method

Impairment of investment in EADS
(Note 3)

Write-down of investments and
shares in affiliated companies

Gain (loss) from companies included
at equity

Income (loss) from investments,
net

Other interest and similar income

of which from affiliated companies
€ 33 (2004: € 5; 2003: € 20)

Interest and similar expenses

of which from affiliated companies
€ 26 (2004: € 32; 2003: € 16)

Interest expense, net

Income (loss) from securities and
long-term receivables of which
from affiliated companies
€ 2 (2004: € 2; 2003: € 1)

Write-down of securities and
long-term receivables

Other, net

Other financial income (loss), net

732

291

(135)

–

(31)

103

859

(1,112)

(573)

200

(5)

(264)

(69)

217

(790)

(300)

(122)

(67)

(171)

(911)

(390)

(15)

(19)

(1,077)

(2,792)

In 2005, DaimlerChrysler sold all of its MMC shares. The gain
on that sale amounted to €681 million and is included in “Gains,
net from disposals of investments and shares in affiliated and
associated companies”.

In 2004, the dilution of DaimlerChrysler’s interest in MMC
resulted in a loss of €135 million which is reflected in “Gain (loss)
from the dilution of shares in affiliated companies and invest-
ments accounted for under the equity method”. Realized gains
from DaimlerChrysler’s currency hedging of the net invest-
ment in MMC of €195 million are included in “Loss from compa-
nies included at equity”.

The income (loss) in Germany includes the income (loss) from
companies included at equity if the shares of those companies
are held by German companies. In 2003, the write-down of the
investment in EADS of €1,960 million is also included.

155

Income tax expense is comprised of the following components:

(in millions of €)

Current taxes

Germany

Non-German countries

Deferred taxes

Germany

Non-German countries

Year ended December 31,
2003

2004

2005

1,319

(309)

(500)

513

847

923

(502)

(91)

1,177

766

(432)

172

473

979

For German companies, the deferred taxes at December 31,
2005 were calculated using a federal corporate tax rate of 25%
(2004 and 2003: 25%). Deferred taxes were also calculated
with a solidarity surcharge of 5.5% for each year on federal cor-
porate taxes plus the after federal tax benefit rate for trade
tax of 12.125% for each year. Therefore, the tax rate applied to
German deferred taxes amounted to 38.5% (2004 and 2003:
38.5%). For non-German companies, the deferred taxes at
period-end were calculated using the enacted tax rates.

In 2004, the U.S. government enacted the American Jobs Cre-
ation Act of 2004 (“Act”), that provides for a special one-time
tax deduction of 85% of certain earnings of non-U.S. subsidia-
ries that are repatriated to the U.S., provided certain criteria are
met. DaimlerChrysler North America Holding Corporation,
a wholly-owned U.S. subsidiary of DaimlerChrysler, completed
in 2005 its evaluation of the Act. In 2005, DaimlerChrysler
repatriated $2.7 billion of dividends to the U.S., leading to an
income tax expense of €66 million. In the reconciliation of
expected income tax expense to actual income tax expense the
expense is included in the line “foreign tax rate differential”.

In 2003, the German government enacted new tax legislation
which, among other changes, provides that, beginning January 1,
2004, 5% of dividends received from German companies and
5% from certain gains from the sale of shares in affiliated and
unaffiliated companies are no longer tax-free while losses
from the sale of shares in affiliated and unaffiliated companies
continue to be non-deductible. The change in tax legislation
resulted in a deferred tax expense due to the deferred tax liabil-
ities on the unrealized gains. The effect of the increase in the
deferred tax liabilities of the Group’s German companies was
recognized in the year of enactment and as a result, a deferred
tax expense of €64 million was included in the consolidated
statement of income (loss) in 2003.

A reconciliation of expected income tax expense to actual
income tax expense determined using the applicable German
corporate tax rate for the calendar year of 25% (2004: 25%;
2003: 26.5%) plus a solidarity surcharge of 5.5% on federal cor-
porate taxes payable plus the after federal tax benefit rate for
trade taxes of 12.125% (2004: 12.125%; 2003: 11.842%) for a
combined statutory rate of 38.5% in 2005 (2004: 38.5%; 2003:
39.8%) is included in the following table. In 2003, for the pur-
pose of financing the flood disaster in Germany and effective
only for the calendar year 2003, the increased federal corporate
tax rate of 26.5% instead of 25% was used for calculating the
current taxes in Germany.

(in millions of €)

Year ended December 31,
2003

2004

2005

Expected expense for income taxes

Foreign tax rate differential

Trade tax rate differential

Non-deductible impairment
of investment in EADS

Tax effect of equity method
investments

Tax-free income and non-deductible
expenses

Effect of changes in German tax laws

Other

Actual expense for income taxes

1,324

(544)

(50)

–

(15)

(194)

–

(8)

513

1,361

(357)

(43)

–

291

(88)

–

1,177

237

(489)

(37)

780

159

269

(4)

979

156

In 2005, tax free income at foreign companies arose relating
to the compensation for MFTBC, the sale of other securities and
in connection with the net periodic postretirement benefit
costs. The reduction of the calculated expected tax expenses on
those issues is included in the line “foreign tax rate differential”.
Moreover, the line “foreign tax rate differential” includes all
other reconciling items between expected and actual expense
for income taxes at foreign companies.

In 2005, DaimlerChrysler sold all of its MMC shares. The real-
ized gain – with the exception of the net gains from hedging the
Group’s net investment in MMC – was tax-free. The expected
tax expense on the tax free gain was reversed in the line “tax free
income and non-deductible expenses” with an amount of
€82 million. In 2004, the non tax-deductible loss of MMC
resulting from accounting under the equity method and from
the dilution of DaimlerChrysler’s interest in MMC affected the
line “tax effect of equity method investments” negatively by
€298 million due to the missing tax benefit.

The Group has various open income tax years unresolved with
the taxing authorities in various jurisdictions. The open years
are either currently under review by certain taxing authorities
or not yet under examination. In 2003, the line “foreign tax rate
differential” above included a tax benefit and related interest
of €571 million which resulted in connection with agreements
reached with the U.S. tax authorities on a claim pertaining to
additional research and development credits for tax years 1986
through 1998. In 2003, the line “tax-free income and non-
deductible expenses” included a tax expense and related inter-
est of €318 million pertaining primarily to tax costs associated
with developments resulting from the examination by the Ger-
man tax authorities of the Group’s German tax returns for the
years 1994 to 1998.

Deferred income tax assets and liabilities are summarized as
follows:

In 2004, DaimlerChrysler sold its investment in HMC and real-
ized a tax-free gain of €252 million. This led to a positive recon-
ciling item of €97 million in the line “tax-free income and non-
deductible expenses”.

(in millions of €)

Intangible assets

Property, plant and equipment

At December 31,
2004

2005

401

520

699

Investments and long-term financial assets

3,135

2,678

Tax-free gains included in net periodic pension costs at the
German companies also reduced the expected tax expense.
Moreover, the line “tax-free income and non-deductible expens-
es” includes all other effects at German companies due to
tax-free income and non-deductible expenses.

Equipment on operating leases

Inventories

Receivables

Net operating loss and tax credit carryforwards

Pension plans and similar obligations

Other accrued liabilities

Liabilities

Deferred income

Other

Valuation allowances

Deferred tax assets

Intangible assets

Property, plant and equipment

Equipment on operating leases

Receivables

Prepaid expenses

Pension plans and similar obligations

Other accrued liabilities

Taxes on undistributed earnings of
non-German subsidiaries

Liabilities

Other

727

752

749

1,854

5,125

6,477

2,516

1,670

111

24,037

(640)

23,397

(932)

(3,987)

(7,125)

(3,482)

(360)

(2,479)

(311)

(261)

(1,010)

(404)

651

675

834

2,814

4,315

5,515

3,000

1,371

22,702

(573)

22,129

(852)

(3,798)

(6,699)

(4,540)

(370)

(2,096)

(148)

(307)

(1,012)

(406)

Deferred tax liabilities

Deferred tax assets (liabilities), net

(20,351)

(20,228)

3,046

1,901

157

At December 31, 2005, the Group had corporate tax net operat-
ing losses (“NOLs”) amounting to €1,528 million (2004: €1,705
million), trade tax NOLs amounting to €129 million (2004: €81
million) and tax credit carryforwards amounting to €868 million
(2004: €1,640 million). The corporate tax NOLs mainly relate
to losses of foreign companies and are partly limited in their use
to the Group. Of the total amount of corporate tax NOLs at
December 31, 2005, €25 million expire at various dates from
2006 through 2009, €704 million in 2010, €275 million expire
at various dates from 2018 through 2025 and €524 million can
be carried forward indefinitely. The tax credit carryforwards
mainly relate to U.S. companies and are partly limited in their
use to the Group. Of the total amount of credit carryforwards at
December 31, 2005, €107 million expire from 2010 through
2015, €181 million expire from 2023 through 2025 and €580
million can be carried forward indefinitely. The trade tax NOLs
are not limited in their use. The companies of the Off-Highway
Business unit, which are shown as held for sale, are included at
December 31, 2005 in the corporate and trade tax NOLs with
€21 million each.

The valuation allowances, which relate to deferred tax assets
of foreign companies that DaimlerChrysler believes will more
likely than not expire without benefit increased by €67 million
from December 31, 2004 to December 31, 2005. In future peri-
ods DaimlerChrysler’s estimate of the amount of the deferred
tax assets considered realizable may change, and hence the
valuation allowances may increase or decrease.

Net deferred income tax assets and liabilities in the consolidat-
ed balance sheets are as follows:

(in millions of €)

At December 31, 2005 At December 31, 2004
thereof
non-current

thereof
non-current

Total

Deferred tax assets

7,249

2,880

4,213

1,944

Deferred tax liabilities

(4,203)

(4,099)

(2,312)

(2,222)

Deferred tax assets
(liabilities), net

3,046

(1,219)

1,901

(278)

DaimlerChrysler recorded deferred tax liabilities for non-Ger-
man withholding taxes of €188 million (2004: €222 million) on
€3,764 million (2004: €4,434 million) in cumulative undistrib-
uted earnings of non-German subsidiaries and additional German
tax of €73 million (2004: €85 million) on the future payout
of these foreign dividends to Germany because as of today,
the earnings are not intended to be permanently reinvested
in those operations.

158

The Group did not provide income taxes or non-German with-
holding taxes on €13,831 million (2004: €9,626 million) in
cumulative earnings of non-German subsidiaries because the
earnings are intended to be indefinitely reinvested in those
operations. It is not practicable to estimate the amount of unrec-
ognized deferred tax liabilities for these undistributed foreign
earnings.

Including the items charged or credited directly to related com-
ponents of stockholders’ equity and the expense (benefit) of
discontinued operations and from changes in accounting princi-
ples, the expense (benefit) for income taxes consists of the
following:

(in millions of €)

Year ended Deczember 31,
2003

2004

2005

Expense for income taxes of continuing
operations

Expense for income taxes of discontinued
operations

Income tax benefit from changes in
accounting principles

Stockholders’ equity for items in
accumulated other comprehensive loss

Stockholders’ equity for U.S. employee
stock option expense in excess of amounts
recognized for financial purposes

513

1,177

–

(3)

–

979

202

(35)

(1,065)

(754)

1,055

–

(555)

(9)

414

–

2,201

In 2004 and 2003, tax benefits of €2 million and €105 million
from the reversal of deferred tax asset valuation allowances at
subsidiaries of MMC were recorded as a reduction of the in-
vestor level goodwill relating to the Group’s investment in MMC.

10. Disposal Group Off-Highway, Assets and Liabilities
Held for Sale and Discontinued Operations

Disposal Group Off-Highway, Assets and Liabilities Held
for Sale. On December 27, 2005, DaimlerChrysler entered into
a share sale and purchase agreement regarding the sale of a
major portion of its Off-Highway Business Unit. The closing is
expected to occur in the first quarter of 2006 (see Note 4).

As a result of DaimlerChrysler’s significant anticipated continu-
ing sales of products to the Off-Highway business which are
expected to continue beyond one year after disposal, the opera-
tions of the Off-Highway business have not been presented
as discontinued operations in DaimlerChrysler’s consolidated
income statements.

However, the assets and the liabilities of the Off-Highway busi-
ness that are part of the transaction have each been aggregated
and presented in separate lines on the consolidated balance
sheet.

The assets held for sale and liabilities held for sale are shown
on a consolidated basis and are comprised of the following:

11. Cumulative Effects of Changes in Accounting Princi-
ples

Conditional Asset Retirement Obligation. As of December
31, 2005, DaimlerChrysler adopted the provisions of FIN 47,
“Accounting for Conditional Asset Retirement Obligations – an
interpretation of FASB Statement No. 143” pertaining to the
accounting for legal asset retirement obligations whose timing
or method of settlement is conditional on a future event. For
existing conditional asset retirement obligations whose fair value
could be reasonably determined, DaimlerChrysler recognized
the liability and related additional long-lived asset and adjusted
the liability and the asset, respectively, for cumulative accre-
tion and accumulated depreciation to the date of adoption. The
cumulative effect of adopting FIN 47 was a reduction of net
income of €5 million, net of taxes of €3 million (€0.00 per share),
recognized separately in the consolidated statement of income
in 2005.

Variable Interest Entities. DaimlerChrysler adopted the provi-
sions of FIN 46R pertaining to the consolidation of variable
interest entities that are special purpose entities as of Decem-
ber 31, 2003, and to all other entities as of March 31, 2004
(see Note 2). The cumulative effect of adopting FIN 46R was a
reduction of net income of €30 million, net of taxes of €35 mil-
lion (€0.03 per share), recognized in the consolidated state-
ment of income in 2003.

(in millions of €)

Assets held for sale

Intangible assets

Goodwill

Property, plant and equipment

Investments and long-term financial assets

Inventories

Receivables and other assets

Other

Liabilities held for sale

Minority interests

Accrued liabilities

Liabilities

Other

At December 31,

2005

309

212

395

316

1,374

603

157

771

Discontinued Operations. The results of MTU Aero Engines
and the gain on sale are reported as discontinued operations.
However, for segment reporting purposes, the revenues and
operating profit of MTU Aero Engines are included in the Other
Activities segment revenues and operating profit in 2003
(see Notes 4 and 35).

The operating results of the discontinued operations were as
follows in 2003:

(in millions of €)

Revenues

Income before income taxes

Income taxes

Earnings from discontinued operations

Year ended December 31,
2003

1,933

(53)

159

Notes to Consolidated Balance Sheets

will impairment test is performed to measure the amount of
goodwill impairment loss. As a result of the 2005 goodwill
impairment test, a goodwill impairment charge at smart of €30
million was recognized.

13. Other Intangible Assets

Information with respect to changes in the Group’s other intan-
gible assets is presented in the Consolidated Fixed Asset
Schedule included herein.

Other intangible assets comprise:

(in millions of €)

Other intangible assets subject to amortization

Gross carrying amount

Accumulated amortization

Net carrying amount

Other intangible assets not subject to amortization

At December 31,
2004

2005

1,628

(941)

687

2,504

3,191

1,309

(806)

503

2,168

2,671

DaimlerChrysler’s other intangible assets subject to amortiza-
tion represent concessions, industrial property rights and
similar rights (€298 million) as well as software developed or
obtained for internal use (€342 million). The additions in 2005
of €244 million (2004: €215 million) with a weighted aver-
age useful life of 6 years primarily include software developed
or obtained for internal use. The aggregate amortization expense
for the years ended December 2005, 2004 and 2003, was
€201 million, €169 million and €178 million, respectively.

12. Goodwill

Information with respect to changes in the Group’s goodwill is
presented in the Consolidated Fixed Asset Schedule included
herein.

The carrying amount of goodwill as of December 31, 2005,
compared to the previous year, decreased by €122 million. This
decrease relates to goodwill of €309 million attributable to the
business unit Off-Highway and is included in the separate line
item “assets held for sale” as of December 31, 2005 (see
Note 10). Additions to goodwill of €134 million from the acqui-
sition of the minority interests in MTU-F in 2005 form part of
that goodwill (see Note 4). Furthermore, the goodwill of MFTBC
was reduced by €200 million (see Note 4). Currency translation
effects of €232 million led to an increase of goodwill.

At December 31, 2005 and 2004, the carrying value of goodwill
allocated to the Group’s reporting segments are (excluding
investor level goodwill of €55 million and €51 million, respec-
tively):

Mercedes
Car Group

Chrysler Commerc.
Vehicles

Group

Financial
Services

Other
Activities

total

(in millions of €)

2005

2004

199

177

1,035

898

547

670

196

1,881

2,003

The company conducts a goodwill impairment test at least annu-
ally to identify potential goodwill impairment. In this regard,
the company compares the fair value of a reporting unit with its
carrying amount, including goodwill allocated to the respective
reporting unit. The fair values of the reporting units are calculat-
ed using discounted future cash flows. If the carrying amount of
a reporting unit exceeds its fair value, a second step of the good-

160

Estimated aggregate amortization expense for other intangible
assets for the next five years is:

15. Equipment on Operating Leases, net

(in millions of €)

2006

2007

2008

2009

2010

Amortization expense

213

136

109

Other intangible assets not subject to amortization represent
primarily intangible pension assets.

14. Property, Plant and Equipment, net

Information with respect to changes in the Group’s property,
plant and equipment is presented in the Consolidated Fixed
Assets Schedule included herein.

Property, plant and equipment includes buildings, technical
equipment and other equipment capitalized under capital lease
agreements of €262 million (2004: €245 million). Deprecia-
tion expense and impairment charges on assets under capital
lease arrangements were €47 million (2004: €34 million;
2003: €19 million).

Future minimum lease payments due for property, plant and
equipment under capital leases at December 31, 2005 amount-
ed to €472 million and are due as follows:

(in millions of €)

Future minimum
lease payments

2006

2007

2008

2009

2010

there-
after

209

The reconciliation of future minimum lease payments from
capital lease agreements to the corresponding liabilities is as
follows:

(in millions of €)

December 31, 2005

Amount of future minimum lease payments

Less interest included

Liabilities from capital lease agreements

472

133

339

Information with respect to changes in the Group’s equipment
on operating leases is presented in the Consolidated Fixed
Assets Schedule included herein. Of the total equipment on
operating leases, €33,644 million represent automobiles and
commercial vehicles (2004: €26,017 million).

Noncancellable future lease payments due from customers for
equipment on operating leases at December 31, 2005 amount-
ed to €15,500 million and are due as follows:

2006

2007

2008

2009

2010

there-
after

7,918

4,350

2,225

738

149

120

(in millions of €)

Future lease
payments

16. Inventories

(in millions of €)

At December 31,
2004

2005

1,906

2,924

1,746

2,545

Raw materials and manufacturing supplies

Work-in-process

Finished goods, parts and products held for resale

14,414

12,805

Advance payments to suppliers

Less: Advance payments received

19,291

(152)

19,139

17,171

(366)

16,805

Certain of the Group’s U.S. inventories are valued using the
LIFO method. If the FIFO method had been used instead of the
LIFO method, inventories would have been higher by €753 mil-
lion (2004: €601 million).

At December 31, 2005, inventories include €322 million of
company cars of DaimlerChrysler pledged as collateral to the
DaimlerChrysler Pension Trust e.V. The pledge was made in
2004 due to the requirement to provide collateral for certain
vested employee benefits in Germany.

161

17. Trade Receivables

Receivables from financial services are comprised of the fol-
lowing:

(in millions of €)

Receivables from sales of goods and services

Allowance for doubtful accounts

At December 31,
2004

2005

8,135

(540)

7,595

7,592

(591)

7,001

(in millions of €)

Receivables from:

Retail

Wholesale

Other

As of December 31, 2005, €115 million of the trade receivables
mature after more than one year (2004: €283 million).

Allowance for doubtful accounts

At December 31,
2004

2005

46,947

11,961

3,367

62,275

(1,174)

61,101

44,202

10,670

3,020

57,892

(1,107)

56,785

Changes in the allowance for doubtful accounts for trade receiv-
ables were as follows:

(in millions of €)

Year ended December 31,
2003

2004

2005

Balance at beginning of year

Charged to costs and expenses

Amounts written off

Currency translation and
other changes

Balance at end of year

591

(75)

(17)

540

587

(160)

115

591

629

(48)

(17)

587

As of December 31, 2005, receivables from financial services
with a carrying amount of €37,896 million mature after more
than one year (2004: €35,598 million). Receivables from finan-
cial services are generally secured by vehicles or other assets.

Maturities. Contractual payments from the receivables from
financial services at December 31, 2005 amounted to €66,235
million and are as follows:

(in millions of €)

2006

2007

2008

2009

2010

there-
after

18. Receivables from Financial Services

Maturities

25,600

13,338

11,014

6,701

3,533

6,049

Types of receivables. Retail receivables include loans and
finance leases to end users of the Group’s products who
purchased their vehicle either from a dealer or directly from
DaimlerChrysler.

Wholesale receivables represent loans for floor financing pro-
grams for vehicles sold by the Group’s automotive businesses to
the dealer or loans for assets purchased by the dealer from
third parties, primarily used vehicles traded in by the dealer’s
customer or real estate such as dealer showrooms.

Other receivables mainly represent investments in leases in-
volving the purchase of non-automotive assets by parties other
than retail customers or the Group’s dealers.

Actual cash flows will vary from contractual maturities due to
future sales of finance receivables, prepayments and write-offs.

Allowances. Changes in the allowance for doubtful accounts
for receivables from financial services were as follows:

(in millions of €)

Year ended December 31,
2003

2004

2005

Balance at beginning of year

Charged to costs and expenses

Amounts written off

Reversals

Currency translation and
other changes

Balance at end of year

1,107

559

(420)

(137)

1,174

1,265

467

(413)

(84)

(128)

1,107

1,559

553

(492)

(63)

(292)

1,265

162

Sales-type and direct-financing contracts. Finance leases
consist of sales-type leases of vehicles to the Group’s direct
retail customers and direct-financing leases of vehicles to cus-
tomers of the Group’s independent dealers. Included in retail
and other receivables are investments in finance leases involv-
ing minimum lease payments of €15,309 million and €14,072
million, unearned income of €2,496 million and €2,602 million,
initial direct costs of €43 million and €47 million and estimated
unguaranteed residual values of €623 million and €660 million
at December 31, 2005 and 2004, respectively.

Leveraged lease contracts. Investments in leveraged leases
are included in the line “other”. Leveraged leases are comprised
of the following:

(in millions of €)

Rentals receivable (net of principal and interest
on nonrecourse debt)

Deferred investment tax credits

Unguaranteed residual values

Unearned income

At December 31,
2004

2005

4,586

(41)

4,545

588

(1,780)

3,353

4,039

(40)

3,999

617

(1,638)

2,978

As of December 31, 2005, an amount of €2,775 million (2004:
€ 2,421 million) of deferred income tax liabilities was related to
leveraged leases.

Presentation in Consolidated Statements of Cash Flows.
Wholesale receivables from the sale of vehicles from the
Group’s inventory to independent dealers as well as retail
receivables from the sale of DaimlerChrysler’s vehicles directly
to retail customers relate to the sale of the Group’s inventory.
The cash flow effects of such receivables are presented as “net
changes in inventory-related receivables from financial servic-
es” within the consolidated cash flows from operating activi-
ties. All cash flow effects attributable to receivables from finan-
cial services that are not related to the sale of inventory to
DaimlerChrysler’s independent dealers or direct customers are
classified as investing activities within the consolidated state-
ments of cash flows.

Sale of receivables. Based on market conditions and liquidity
needs, DaimlerChrysler may sell portfolios of retail and whole-
sale receivables to third parties, which typically results in the
derecognition of the transferred receivables from the balance
sheet. Retained interests in securitized sold receivables are
classified as other assets in the Group’s consolidated balance
sheets (see Note 19). For additional information on retained
interests in sold receivables and the sale of finance receivables,
see Note 34.

19. Other Assets

(in millions of €)

Receivables from affiliated companies

Receivables from related companies 1

Retained interests in sold receivables

Other receivables and other assets

Allowance for doubtful accounts

At December 31,
2004

2005

696

324

2,215

5,664

8,899

(168)

8,731

1,174

588

2,202

9,228

13,192

(261)

12,931

1 Related companies include entities which have a significant ownership in DaimlerChrysler or

entities in which the Group holds a significant investment.

As of December 31, 2005, €2,618 million of the other assets
mature after more than one year (2004: €3,494 million).

Changes in the allowance for doubtful accounts related to
receivables included in other assets were as follows:

(in millions of €)

Year ended December 31,
2003

2004

2005

Balance at beginning of year

Charges (releases) to costs
and expenses

Amounts written off

Currency translation and
other changes

Balance at end of year

261

(18)

(90)

168

888

(702)

261

723

134

(2)

888

163

20. Securities, Investments and Long-Term Financial
Assets

Information with respect to the Group’s total investments and
long-term financial assets is presented in the Consolidated
Fixed Assets Schedule included herein. The carrying amounts of
participations (investments that are not accounted for under
the equity method) and long-term (marketable) securities which
are shown among “Investments and long-term financial assets”
in the Consolidated Balance Sheets are comprised of the follow-
ing:

(in millions of €)

Participations with a quoted market price

Participations without a quoted market price

Total participations

Long-term securities

At December 31,
2004

2005

332

256

588

606

503

277

780

599

The main changes in investments in participations were caused
by the sale of the stake in MMC (see Note 3).

Investments without a quoted market price were tested for im-
pairment when an impairment indicator occurred. In 2005 and
2004, investments without a quoted market price with carrying
amounts of €20 million were tested for impairment. In 2005
and 2004, no impairments were recognized.

The disclosure of short-term securities is made in the Consoli-
dated Balance Sheets among “Securities” and is recorded sepa-
rately in available-for-sale and trading:

(in millions of €)

Available-for-sale

Trading

Short-term securities

At December 31,
2004

2005

4,773

163

4,936

3,725

159

3,884

As of December 31, 2005, the table below shows the (amor-
tized) costs, fair values, gross unrealized holding gains and loss-
es per security class of investments with a quoted market
price, long-term and short-term available-for-sale securities. The
aggregate amounts of unrealized losses on investments which
are in a continuous unrealized loss position for less than 12
months and the aggregate amounts of unrealized losses on in-
vestments which are in a continuous unrealized loss position for
12 months or longer are shown separately together with their
appropriate fair values.

(in millions of €)

Equity securities

Equity-based funds

Debt securities issued by the
German government and other
political subdivisions

Debt securities issued by
non-German governments

Corporate debt securities

Mortgage-backed securities

Securities backed by other assets

Other debt securities

Debt-based funds

Cost

Fair value

Unrealized
gain

Unrealized Loss
less1 year
Unrealized
loss

Fair value

Unrealized Loss
1 year or more
Unrealized
loss

Fair value

Unrealized Loss
total
Unrealized
loss

Fair value

279

272

664

273

205

778

2,796

318

190

260

228

777

2,796

317

190

260

229

388

–

547

–

5,326

5,711

400

661

–

573

103

–

722

164

As of December 31, 2004, these values were as follows:

(in millions of €)

Equity securities

Equity-based funds

Debt securities issued by the
German government and other
political subdivisions

Debt securities issued by
non-German governments

Corporate debt securities

Mortgage-backed securities

Securities backed by other assets

Other debt securities

Debt-based funds

Cost

Fair value

Unrealized
gain

Unrealized Loss
less1 year
Unrealized
loss

Fair value

Unrealized Loss
1 year or more
Unrealized
loss

Fair value

Unrealized Loss
total
Unrealized
loss

Fair value

560

175

948

175

360

128

1,718

361

170

819

135

132

1,726

361

170

820

135

394

–

4,426

4,827

413

137

–

134

–

135

–

134

–

272

The estimated fair values of investments in debt securities
(excluding debt-based funds), by contractual maturity, are shown
below. Expected maturities may differ from contractual matu-
rities because borrowers may have the right to call or prepay
obligations with or without penalty.

(in millions of €)

Due within one year

Due after one year through five years

Due after five years through ten years

Due after more than ten years

At December 31,
2004

2005

1,164

1,703

508

1,170

4,545

1,157

1,624

330

458

3,569

Proceeds from disposals of long-term and short-term available-
for-sale securities were €10,336 million (2004: €3,702 million;
2003: €2,743 million). Gross realized gains from sales of these
securities were €847 million (2004: €254 million; 2003: €8
million), while gross realized losses were €8 million (2004: €3
million; 2003: €15 million). The proceeds and realized gains
from the sale of the stake in MMC in 2005 (see Note 3) and HMC
in 2004 (see Note 4) are included in these figures. The pro-
ceeds from the sale of the stake in HMC are shown in the Con-
solidated Statements of Cash Flows among the line item “Pro-
ceeds from disposals of businesses”, the remaining proceeds
are disclosed in the line item “Proceeds from sales of securities
(other than trading)”.

The unrealized losses included in the 2005 statement of income
related to trading securities were €6 million (2004 and 2003: -).
There are no unrealized gains in these securities (2004: €2 mil-
lion; 2003: €10 million).

DaimlerChrysler uses the weighted average cost method as
a basis for determining cost and calculating realized gains and
losses.

165

21. Liquid Assets

23. Stockholders’ Equity

Liquid assets recorded under various balance sheet captions
are as follows:

(in millions of €)

Cash and cash equivalents 1

originally maturing within 3 months

originally maturing after 3 months

Total cash and cash equivalents

Securities

At December 31,
2004

2005

7,619

7,711

4,936

7,381

401

7,782

3,884

12,647

11,666

1 Cash equivalents originally maturing within 3 months include commercial papers, certificates of
deposit of €5.5 billion and €3.6 billion at December 31, 2005 and 2004, cash at banks, cash on
hand and checks in transit.

22. Prepaid Expenses

Prepaid expenses are comprised of the following:

(in millions of €)

Prepaid pension cost

Other prepaid expenses

At December 31,
2004

2005

595

796

246

784

1,391

1,030

As of December 31, 2005, €809 million of the total prepaid ex-
penses mature after more than one year (2004: €435 million).

As a result of the overfunded status of the accumulated pension
benefit obligations of one pension plan, the prepaid pension
cost increased in 2005 by €0.3 billion.

Number of Shares Issued and Outstanding as well as Trea-
sury Stock. DaimlerChrysler had issued and outstanding
1,018,172,696 registered Ordinary Shares of no par value at
December 31, 2005 (2004: 1,012,824,191). This increase
relates to the issuance of new Ordinary Shares upon exercises
in connection with the Stock Option Plan 2000 (tranche 2003).
Each share represents a nominal value of €2.60 of capital
stock.

In 2005, DaimlerChrysler purchased approximately 0.7 million
(2004: 0.8 million; 2003: 1.3 million) Ordinary Shares in con-
nection with an employee share purchase plan, of which 0.7
million (2004: 0.8 million; 2003: 1.3 million) were re-issued to
employees.

Authorized and Conditional Capital. On April 6, 2005, the
annual meeting authorized DaimlerChrysler through October 6,
2006, to acquire treasury stocks for certain defined purposes
up to a maximum nominal amount of €263 million of capital
stock, representing nearly 10% of the issued and outstanding
capital stock.

On April 9, 2003, the annual meeting authorized the Board of
Management through April 8, 2008, upon approval of the Super-
visory Board, to increase capital stock by issuing new, no par
value registered shares in exchange for cash contributions total-
ing €500 million as well as by issuing new, no par value regis-
tered shares in exchange for non-cash contributions totaling
€500 million and to increase capital stock by issuing Ordinary
Shares to employees totaling €26 million.

Furthermore, the Board of Management, with the consent of the
Supervisory Board, was authorized to issue convertible bonds
and/or notes with warrants with a total face value up to €15 bil-
lion and with a maturity of no more than twenty years prior to
April 5, 2010, and to grant conversion or option rights for new
shares in DaimlerChrysler with an allocable portion of the capi-
tal stock of up to €300 million as more closely defined in the
fixed terms and conditions.

From the Stock Option Plan 1996 on December 31, 2005, out-
standing rights in a nominal volume of €0.1 million could result
in 22,110 new shares of DaimlerChrysler AG. In 2005, 2004
and 2003, no options were exercised from this Plan.

166

Comprehensive Income/(Loss). The changes in the compo-
nents of accumulated other comprehensive loss are as follows:

(in millions of €)

Unrealized gains (losses) on
securities (incl. retained interests):

Year ended December 31, 2005
Net

Tax effect

Pretax

Year ended December 31, 2004
Net

Tax effect

Pretax

Year ended December 31, 2003
Net

Tax effect

Pretax

Unrealized holding gains (losses)

511

(136)

375

277

(10)

267

731

(146)

585

Reclassification adjustments
for (gains) losses included in
net income

Unrealized gains (losses)
on securities

Unrealized gains (losses) on
derivatives hedging variability
of cash flows:

(512)

(1)

119

(17)

(393)

(592)

(18)

(315)

119

109

(473)

(255)

(206)

476

(69)

(178)

407

Unrealized derivative gains (losses)

(3,552)

1,270

(2,282)

2,339

(900)

1,439

4,406

(1,682)

2,724

Reclassification adjustments
for (gains) losses included in
net income

Unrealized derivative gains (losses)

Minimum pension liability
adjustments

Foreign currency translation
adjustments

Changes in other comprehensive
income/(loss)

1,517

(2,035)

(458)

812

1,059

(1,223)

(2,957)

(618)

1,149

249

(1,808)

(369)

(2,506)

1,900

944

(738)

(1,562)

1,162

(170)

(79)

(1,224)

2,548

179

2,727

(635)

342

1,065

1,407

(2,792)

476

(80)

754

(748)

662

(218)

444

(715)

(1,598)

(30)

(1,628)

(2,038)

1,440

(1,055)

385

Exchange rate effects on the components of other comprehen-
sive loss principally are shown within changes of the cumulative
translation adjustment.

Effective October 1, 2004, the Chrysler Group prospectively
changed the functional currency of DaimlerChrysler Canada Inc.
(“DCCI”), its Canadian subsidiary, from the U.S. dollar to the
Canadian dollar. This change resulted from several significant
economic and operational changes within DCCI, including a
reduction of U.S. sourced components. The initial implementa-
tion of this change in functional currency had the effect of
increasing the value of the net assets of the Group and the
accumulated other comprehensive loss by €179 million in 2004.

Miscellaneous. Under the German corporation law (Aktienge-
setz), the amount of dividends available for distribution to
shareholders is based upon the unappropriated accumulated
earnings of DaimlerChrysler AG (parent company only) as re-
ported in its statutory financial statements determined in accor-
dance with the German commercial code (Handelsgesetzbuch).
For the year ended December 31, 2005, DaimlerChrysler man-
agement has proposed a distribution of €1,527 million (€1.50
per share) of the 2005 earnings of DaimlerChrysler AG as a divi-
dend to the stockholders.

24. Stock-Based Compensation

As of December 31, 2005, the Group has awards outstanding
that were issued under a variety of plans including (1) the 2005
Performance Phantom Share Plan, (2) the 2000 and 1996
stock option plans, (3) various stock appreciation rights (“SARs”)
plans and (4) the medium term incentive awards.

As discussed in Note 1, DaimlerChrysler adopted the provisions
of SFAS 123 prospectively for all awards granted after De-
cember 31, 2002. Awards granted in previous periods will con-
tinue to be accounted for using the provisions of APB 25 and
related interpretations.

Performance Phantom Share Plan. In 2005 the Group
adopted the “Performance Phantom Share Plan” under which
virtual shares (phantom shares) are granted to eligible employ-
ees entitling them to receive cash paid out after four years.
The amount of cash paid to eligible employees is based on the
number of phantom shares that vest (determined over a three
year performance period) times the quoted price of Daimler-
Chrysler’s Ordinary Shares (determined as an average price
over a specified period at the end of the four-year service). The
number of phantom shares that vest will depend on the achie-
vement of Group performance goals as compared with competi-
tive and internal benchmarks (return on net assets and return
on sales). The Group will not issue any common shares in con-
nection with the Performance Phantom Share Plan.

167

Analysis of the phantom shares issued is as follows:

(in millions)

Outstanding at the beginning of the year

Granted phantom shares

Forfeitures/Disposals

Outstanding at year end

Number of
phantom shares

–

3.6

–

3.6

In 2005 the group recognized €30 million of compensation
expenses related to the Performance Phantom Share Plan. The
Group considers the Performance Phantom Share Plan in the
accrued liabilities. Because the payment per vested phantom
share depends on the quoted price of one DaimlerChrysler Ordi-
nary Share, the quoted price represents the fair value of each
phantom share. The proportionate compensation expense for
2005 is determined based on the year-end quoted price of
DaimlerChrysler Ordinary Shares as well as the estimated target
achievement grades as of December 31, 2005.

Stock Option Plans. In April 2000, the Group’s shareholders
approved the DaimlerChrysler Stock Option Plan 2000 which
provides for the granting of stock options for the purchase of
DaimlerChrysler Ordinary Shares to eligible employees. Options
granted under the Stock Option Plan 2000 are exercisable at
a reference price per DaimlerChrysler Ordinary Share determin-
ed in advance plus a 20% premium. The options become exer-
cisable in equal installments on the second and third anni-
versaries from the date of grant. All unexercised options expire
ten years from the date of grant. If the market price per
DaimlerChrysler Ordinary Share on the date of exercise is at
least 20% higher than the reference price, the holder is entitled
to receive a cash payment equal to the original exercise pre-
mium of 20%.

In 2005, no options were granted under the Stock Option Plan
2000.

DaimlerChrysler established, based on shareholder approvals,
the 1998, 1997 and 1996 Stock Option Plans (former Daimler-
Benz plans), which provided for the granting of options for
the purchase of DaimlerChrysler Ordinary Shares to certain
members of management. The options granted under the plans
1997 and 1998 were evidenced by non-transferable converti-
ble bonds with a principal amount of €511 per bond due
ten years after issuance. During certain specified periods each
year, each convertible bond could have been converted
into 201 DaimlerChrysler Ordinary Shares, if the market price
per share on the day of conversion was at least 15% higher
than the predetermined conversion price and the options had
been held for a 24 month waiting period.

In the second quarter of 1999, DaimlerChrysler converted all
options granted under the 1998 and 1997 Stock Option Plans
into SARs. All terms and conditions of the new SARs are
identical to the stock options which were replaced, except that
the holder of a SAR has the right to receive cash equal to the
difference between the exercise price of the original option and
the fair value of the Group’s stock at the exercise date rather
than receiving DaimlerChrysler Ordinary Shares.

All terms and conditions of the options granted under the plan
1996 are identical to the stock options which were granted
under the plans 1997 and 1998, except that the plan 1996 in-
cludes no waiting period. The options granted under the plan
1996 were not converted into SARs.

The basic terms of the bonds and the related stock options /
SARs issued (in millions) under these plans are as follows:

Related
stock
options
granted

Stock options/SARs
At December 31, 2005
exercisable

outstanding

The table below shows the basic terms of options issued (in
millions):

Stated
interest rate

Conversion
price

Bonds granted in

Reference
price

Exercise
price

Options
granted

Options
outstanding

Options
exercisable
At December 31, 2005

Year of grant

2000

2001

2002

2003

2004

€62.30

€55.80

€42.93

€28.67

€36.31

€74.76

€66.96

€51.52

€34.40

€43.57

15.2

18.7

20.0

20.5

18.0

13.3

16.7

18.5

13.8

17.3

13.3

16.7

18.5

4.3

–

1996

1997

1998

5.9%

5.3%

4.4%

€42.62

€65.90

€92.30

0.9

7.4

8.2

4.6

5.3

4.6

5.3

The Group will not issue any common shares in connection with
the plans 1997 and 1998.

168

Analysis of the stock options issued is as follows:

(options in millions; per share amounts in €)

Balance at beginning of year

Options granted

Exercised

Forfeited

Expired

Outstanding at year-end

Exercisable at year-end

2005
Average
exercise
price
per share

Number of
stock
options

2004
Average
exercise
price
per share

Number of
stock
options

2003
Average
exercise
price
per share

Number of
stock
options

86.5

–

(5.3)

(0.3)

(1.3)

79.6

52.8

52.78

–

34.40

41.42

60.13

53.92

60.82

71.6

18.0

–

(1.4)

(1.7)

86.5

40.2

55.18

43.57

–

40.79

65.92

52.78

65.92

53.1

20.5

–

(1.2)

(0.8)

71.6

23.1

63.40

34.40

–

51.83

74.76

55.18

71.71

For the year ended December 31, 2005, the Group recognized
compensation expense on stock options (before taxes) of €87
million (2004: €119 million; 2003: €95 million).

The fair values of the DaimlerChrysler stock options issued in
2004 and 2003 were measured at the grant date (beginning
of April) based on a modified Black-Scholes option-pricing mod-
el, which considers the specific terms of issuance. For options
granted to the Board of Management in 2004 and for which
– according to the recommendations of the German Corporate
Governance Code – the Presidential Committee can impose a
limit or reserve the right to impose such a limit in the case of
exceptional and unpredictable developments, are calculated
with the intrinsic value at December 31. The table below pres-
ents the underlying assumptions as well as the resulting fair val-
ues and total values (in millions of €):

Expected dividend yield

Expected volatility

Risk-free interest rate

Expected lives (in years)

Fair value per option

Total value by award

2004

2003

4.4%

33%

2.6%

€7.85

131.9

5.6%

35%

2.9%

€6.00

123.0

Unearned compensation expense (before taxes) of all outstand-
ing and unvested stock options as of December 31, 2005, that
are not subject to a possible limitation according the recom-
mendation of the German Corporate Governance Code, totals
€35 million (2004: €125 million; 2003: €122 million).

Stock Appreciation Rights Plans. In 1999, DaimlerChrysler
established a stock appreciation rights plan (the “SAR Plan
1999”) which provides eligible employees of the Group with the
right to receive cash equal to the appreciation of Daimler-
Chrysler Ordinary Shares subsequent to the date of grant. The
stock appreciation rights granted under the SAR Plan 1999
vest in equal installments on the second and third anniversaries
from the date of grant. All unexercised SARs expire ten years
from the grant date. The exercise price of a SAR is equal to the
fair market value of DaimlerChrysler’s Ordinary Shares on the
date of grant. On February 24, 1999, the Group issued 11.4 mil-
lion SARs at an exercise price of €89.70 each ($98.76 for
Chrysler employees), of which 8.2 million SARs are outstanding
and exercisable at December 31, 2005.

As discussed above (see “Stock Option Plans”), in the second
quarter of 1999 DaimlerChrysler converted all options granted
under its existing stock option plans from 1997 and 1998 into
SARs.

In conjunction with the consummation of the merger between
Daimler-Benz and Chrysler in 1998, the Group implemented a
SAR plan through which 22.3 million SARs were issued at an
exercise price of $75.56 each, of which 10.0 million SARs are
outstanding and exercisable at December 31, 2005. The initial
grant of SARs replaced Chrysler fixed stock options that were
converted to DaimlerChrysler Ordinary Shares as of the con-
summation of the merger. SARs which replaced stock options
that were exercisable at the time of the consummation of the
merger were immediately exercisable at the date of grant. SARs
related to stock options that were not exercisable at the date
of consummation of the merger became exercisable in two
installments; 50% on the six-month and one-year anniversaries
of the consummation date.

169

A summary of the activity related to the Group’s SAR plans as
of and for the years ended December 31, 2005, 2004 and 2003
is presented below:

(SARs in millions; per share amounts in €)

2005
Weighted-
average
exercise
price

Number
of SARs

2004
Weighted
average
exercise
price

2003
Weighted
average
exercise
price

Number
of SARs

Outstanding at beginning of year

32.5

71.37

36.3

74.24

40.3

79.13

Granted

Exercised

Forfeited

Outstanding at year-end

SARs exercisable at year-end

Compensation expense or benefit (representing the reversal
of previously recognized expense) on SARs is recorded based
on changes in the market price of DaimlerChrysler Ordinary
Shares. For the years ended December 31, 2005, 2004 and
2003, the Group recognized no compensation expense in con-
nection with SARs, because the options underlying exercise
prices were greater than the market price for DaimlerChrysler
Ordinary Shares at December 31, 2005.

Medium Term Incentive Awards. The Group granted medium
term incentives to certain eligible employees with three year
performance periods. The amount ultimately earned in cash at
the end of a performance period is primarily based on the de-
gree of achievement of corporate goals derived from competitive
and internal planning benchmarks and the value of Daimler-
Chrysler Ordinary Shares at the end of three year performance
periods. The benchmarks are return on net assets and return
on sales. In 2005 no medium term incentive awards (2004: 0.7
million awards; 2003: 1.3 million awards) were issued.

The Group considers the medium term incentive awards with
their fair value in the accrued liabilities and recognized €25
million gains (2004: €12 million expenses; 2003: €35 million
expenses) from the valuation of this accrued liability.

–

(4.5)

28.0

–

67.16

76.65

–

(3.8)

32.5

–

72.54

71.37

–

(4.0)

36.3

–

75.00

74.24

25. Accrued Liabilities

Accrued liabilities are comprised of the following:

(in millions of €)

Total

2005
Due after
one year

At December 31,
2004
Due after
one year

Total

Pension plans and
similar obligations
(see Note 25a)

Income and other
taxes

Other accrued
liabilities
(see Note 25b)

15,482

12,845

13,923

12,634

3,396

1,166

3,344

1,884

27,804

46,682

11,839

25,850

24,671

41,938

8,771

23,289

a) Pension Plans and Similar Obligations
Pension plans and similar obligations are comprised of the fol-
lowing components:

(in millions of €)

Pension liabilities (pension plans)

Other postretirement benefits

Other benefit liabilities

At December 31,
2004

2005

5,275

9,825

382

5,606

8,021

296

15,482

13,923

The decrease of the pension liabilities of €0.3 billion resulted
primarily from the transfer of the Group’s Off-Highway pension
liabilities to “Disposal Group Off-Highway, Liabilities Held for
Sale” (see Note 10).

170

The increase in accrued other postretirement benefits of €1.8
billion resulted mainly from currency exchange rate effects
and from the annual increase of the accruals less payments to
beneficiaries.

Pension Plans
The Group provides pension benefits to substantially all of its
hourly and salaried employees. Plan benefits are principally
based upon years of service. Certain pension plans are based
on salary earned in the last year or last five years of employ-
ment while others are fixed plans depending on ranking (both
wage level and position).

Funded Status. The following information with respect to the
Group’s pension plans is presented by German Plans and
non-German Plans (principally comprised of plans in the U.S.)
The funded status of the projected benefit obligations is as
follows:

(in millions of €)

Projected benefit obligations

Less fair value of plan assets

Funded status

At December 31, 2005
German Non-German
Plans

Plans

Total

At December 31, 2004
German Non-German
Plans

Plans

Total

41,514

15,163

26,351

34,448

(34,348)

(10,590)

(23,758)

(27,804)

7,166

4,573

2,593

6,644

12,628

(9,019)

3,609

21,820

(18,785)

3,035

A reconciliation of the funded status to the amounts recognized
in the consolidated balance sheets is as follows:

(in millions of €)

Funded status

Amounts not recognized:

Unrecognized actuarial net losses

Unrecognized prior service cost

Net assets recognized

Amounts recognized in the consolidated balance sheets consist of:

Prepaid pension cost

Accrued pension liability

Disposal group off-highway, liabilities held for sale

Intangible assets

Accumulated other comprehensive loss

Net assets recognized

At December 31, 2005
German Non-German
Plans

Plans

Total

At December 31, 2004
German Non-German
Plans

Plans

Total

7,166

4,573

2,593

6,644

3,609

3,035

(13,270)

(5,299)

(2,470)

(8,574)

(2)

(728)

(7,971)

(2,468)

(7,846)

(11,356)

(4,166)

(2,143)

(6,855)

(2)

(559)

(595)

5,275

321

(2,375)

–

3,141

321

–

(11,200)

(4,190)

(8,574)

(728)

(595)

2,134

–

(2,375)

(7,010)

(7,846)

(246)

5,606

–

(2,074)

(10,141)

(6,855)

–

2,927

–

(3,486)

(559)

(7,190)

(2,141)

(6,296)

(246)

2,679

–

(2,074)

(6,655)

(6,296)

In 2005 DaimlerChrysler used the rates from the 2005 Heubeck
mortality tables G for the valuation of the German pension obli-
gations. Previously, DaimlerChrysler used the rates from 1998
Heubeck mortalitiy tables. The new mortality tables reflect

longer living expectation for current employees and lower living
expectation for retirees, which resulted in a minor increase of
projected benefit obligations for 2005.

171

The development of the projected benefit obligation and the
plan assets in 2005 and 2004 is as follows:

(in millions of €)

Change in projected benefit obligations:

At December 31, 2005
German Non-German
Plans

Plans

Total

At December 31, 2004
German Non-German
Plans

Plans

Total

Projected benefit obligations at beginning of year

34,448

12,628

21,820

Foreign currency exchange rate changes

Service cost

Interest cost

Plan amendments

Actuarial losses

Acquisitions and other

Settlement/curtailment loss

Benefits paid

Projected benefit obligations at end of year

Change in plan assets:

Fair value of plan assets at beginning of year

Foreign currency exchange rate changes

Actual return on plan assets

Employer contributions

Plan participant contributions

Acquisitions and other

Benefits paid

Fair value of plan assets at end of year

3,391

739

1,874

233

2,923

(2,196)

41,514

–

296

588

–

2,163

–

(565)

15,163

3,391

443

1,286

233

760

–

(1,631)

26,351

27,804

9,019

18,785

3,038

3,951

1,661

–

(2,124)

34,348

–

1,518

534

–

(481)

10,590

3,038

2,433

1,127

(1,643)

23,758

32,132

(1,351)

681

1,878

2,146

852

134

(2,091)

34,448

26,328

(1,252)

2,854

1,649

188

(1,982)

27,804

11,165

–

256

586

–

1,110

(550)

12,628

8,183

–

664

638

–

(466)

9,019

20,967

(1,351)

425

1,292

1,036

794

131

(1,541)

21,820

18,145

(1,252)

2,190

1,011

188

(1,516)

18,785

Plan Assets. At December 31, 2005, plan assets were invest-
ed in diversified portfolios that consisted primarily of debt
and equity securities. Assets and income accruing on all pension
trust and relief funds are used solely to pay pension benefits
and administer the plans. The Group’s pension asset allocation
at December 31, 2005 and 2004, and target allocation for the
year 2006, are presented in the following table:

2006
planned

Plan Assets
German Plans
2004

2005

2006
planned

Plan Assets
Non-German Plans
2004
2005

(in % of plan assets)

Equity securities

Debt securities

Alternative investments

Real estate

Other

172

Alternative investments consist of private equity and debt
investments and, beginning in 2005 investments in commodi-
ties and hedge funds.

Every 3–5 years, or more frequently if appropriate, Daimler-
Chrysler conducts asset-liability studies for its major pension
funds. DaimlerChrysler uses the expertise of external invest-
ment and actuarial advisors. These studies are intended to de-
termine the optimal long-term asset allocation with regard
to the liability structure. The resulting Model Portfolio allocation
is intended to minimize the economic cost of defined benefit
schemes and to limit the risks to an appropriate level.

The Model Portfolio is then expanded to a medium term Bench-
mark Portfolio. The Benchmark Portfolio matches the asset
class weights in the Model Portfolio, but expands the asset class-
es by adding of sub-asset-classes with corresponding weights
and assigning specific capital market indices to each sub-asset-
class.

Modern Portfolio Theory is then applied to determine an optimal
one-year target allocation, the performance of which is tracked
against the Benchmark Portfolio.

(in %)

Average assumptions:

Discount rate

Rate of long-term compensation increase

The following weighted average assumptions were used to
determine net periodic pension cost:

The entire process is overseen by investment committees which
consist of senior financial management from treasury and cer-
tain appropriate executives. The investment committees meet
regularly to approve the asset allocations, review the risks
and results of the major pension funds and approve the selec-
tion and retention of external managers of specific portfolios.

The majority of investments are in international blue chip equi-
ties and high quality government and corporate bonds. To main-
tain a wide range of diversification and to improve return oppor-
tunities, up to approximately 20% of assets are allocated to
private equity, high yield debt, convertible instruments, emerg-
ing markets, commodities and hedge funds. Internal controlling
units monitor all investments regularly. External depositary
banks provide safekeeping of securities and reporting of trans-
actions and assets.

Assumptions. The measurement date for the Group’s pension
obligations and plan assets is generally December 31. The
measurement date for the Group’s net periodic pension cost is
principally January 1. Assumed discount rates and rates of
increase in remuneration used in calculating the projected ben-
efit obligations together with long-term rates of return on plan
assets vary according to the economic conditions of the country
in which the pension plans are situated.

The following weighted average assumptions were used to
determine benefit obligations:

2005

German Plans
2003

2004

2005

Non-German Plans
2003
2004

4.0

3.0

4.8

3.0

5.3

3.0

5.4

4.4

5.8

4.5

6.2

4.5

(in %)

Average assumptions:

Discount rate

Expected return on plan assets (at the beginning of the year)

Rate of long-term compensation increase

2005

German Plans
2003

2004

2005

Non-German Plans
2003
2004

4.8

7.5

3.0

5.3

7.5

3.0

5.8

7.5

3.0

5.8

8.5

4.5

6.2

8.5

4.5

6.7

8.5

5.4

173

Expected Return on Plan Assets. The expected rate of return
for German and non-German plan assets is primarily derived
from asset allocation of pension funds and expected future re-
turns for the various asset classes in portfolios. The invest-
ment committees survey banks and large asset portfolio man-
agers about their expectations of future returns of the relevant
market indices. The allocation weighted average return expecta-
tions serves an initial indicator for the expected rate of return
on plan assets for each pension fund.

In addition, we consider long-term actual portfolios results and
historical market returns in evaluation in order to reflect the
long-term character of the expected rate.

From January 1, 2003 to December 31, 2005, the expected rate
of return was 7.5% and 8.5% for German and non-German
plans, respectively. For 2006, the expected rates of return on
plan assets for German and non-German plans are the same as
the respective rates used in 2005.

Net Pension Cost. The components of net pension cost were
for the years ended December 31, 2005, 2004 and 2003 as
follows:

(in millions of €)

Service cost

Interest cost

Expected return
on plan assets

Amortization of:

Unrecognized net
actuarial (gains) losses

Unrecognized prior
service cost

Net periodic pension cost

Settlement/curtailment loss

Net pension cost

2005
Non-
German
Plans

German
Plans

296

588

443

1,286

Total

739

1,874

2004
Non-
German
Plans

German
Plans

256

586

425

1,292

Total

681

1,878

2003
Non-
German
Plans

German
Plans

256

632

344

1,397

Total

600

2,029

(2,377)

(673)

(1,704)

(2,339)

(614)

(1,725)

(2,379)

(509)

(1,870)

600

279

1,115

1,131

183

–

394

–

394

417

279

721

737

372

292

884

948

141

–

369

–

369

231

292

515

579

226

287

763

837

173

–

552

602

287

211

235

174

Contributions. Employer contributions to the Group’s defined
benefit pension plans were €1,661 million and €1,649 million
for the years ended December 31, 2005 and 2004, respectively.
Employer cash contributions to the Group’s defined benefit pen-
sion plans are expected to approximate €1.9 billion in 2006, of
which €0.5 billion is estimated to be needed to satisfy minimum
funding and contractual requirements and an additional €1.4
billion is expected to be contributed at the Group’s discretion.

Estimated Future Pension Benefit Payments. Pension bene-
fits pertaining to the Group’s German and non-German plans
were €565 million and €1,631 million, respectively during 2005,
and €550 million and €1,541 million, respectively during
2004. The total estimated future pension benefits to be paid by
the Group’s pension plans for the next 10 years approximates
€25.4 billion and are expected to be paid as follows:

Other Postretirement Benefits
Certain DaimlerChrysler operations in the U.S. and Canada pro-
vide postretirement health and life insurance benefits to their
employees. Upon retirement from DaimlerChrysler, the employ-
ees may become eligible for continuation of these benefits.
The benefits and eligibility rules may be modified.

Funded Status. The funded status of the accumulated postre-
tirement benefit obligations is as follows:

(in millions of €)

Accumulated postretirement benefit obligations

Less fair value of plan assets

Funded status

At December 31,
2004

2005

17,711

(1,912)

15,799

14,355

(1,547)

12,808

(in billions of €)

2006

2007

2008

2009

2010

German Plans

Non-German Plans

Total

0.6

1.7

2.3

0.6

1.8

2.4

0.6

1.8

2.4

0.7

1.8

2.5

0.7

1.9

2.6

2011-
2015

3.9

9.3

13.2

Accumulated Benefit Obligation. For all pension plans that
have an accumulated benefit obligation in excess of plan assets,
information pertaining to the accumulated benefit obligation
and plan assets are presented as follows:

A reconciliation of the funded status to the liability recognized
for accrued postretirement health and life insurance benefits in
pension plans and similar obligations is as follows:

(in millions of €)

Funded status

Amounts not recognized:

At December 31,
2004

2005

15,799

12,808

Unrecognized actuarial net losses

(6,189)

(4,721)

Unrecognized prior service cost

Net liability recognized

215

9,825

(66)

8,021

(in millions of €)

At
December 31, December 31, December 31,
2003

2004

2005

Projected benefit obligation

Accumulated benefit obligation

Plan Assets

41,099

39,379

33,953

33,749

32,627

27,141

31,487

30,547

25,660

The pretax increase of the minimum pension liability in 2005
resulted in a reduction of stockholder’s equity by €170 million
(2004: €1,224 million) and is included in other comprehensive
loss.

175

Asset allocation is based on a Benchmark Portfolio designed to
diversify investments among the following primary asset classes:
U.S. Equity, International Equity and U.S. Fixed Income. The
objective of the Benchmark Portfolio is to achieve a reasonable
balance between risk and return.

The investment process is overseen by Investment Committees
which consist of senior financial management and other appro-
priate executives. The Investment Committees meet regularly to
approve the asset allocations and review the risks and results
of the funds and approve the selection and retention of external
managers of specific portfolios.

The majority of investments reflect the asset classes designat-
ed by the Benchmark Portfolio. To maintain a wide range of
diversification and improve return possibilities, a small percent-
age of assets (approximately 5%) is allocated to highly promis-
ing markets such as High Yield Debt and Emerging Markets.
Internal controlling units monitor all investments regularly.
External depositary banks provide safekeeping of securities as
well as reporting of transactions and assets.

Estimated Future Subsidies due to Medicare Act. The total
estimated future subsidies due to Medicare Act for the next
10 years approximate €717 million and are expected to be re-
ceived as follows:

(in millions of €)

2006

2007

2008

2009

2010

2011-
2015

Medicare Act

412

The development of the accumulated postretirement benefit
obligations and the plan assets in 2005 and 2004 is as follows:

(in millions of €)

At December 31,
2004

2005

Change in accumulated postretirement
benefit obligations:

Accumulated postretirement benefit obligations
at beginning of year

Foreign currency exchange rate changes

Service cost

Interest cost

Plan amendments

Actuarial losses

Settlement/curtailment loss

Benefits paid

14,355

2,280

273

917

(289)

1,004

(844)

14,910

(1,053)

255

863

127

(797)

Accumulated postretirement benefit obligations
at end of year

17,711

14,355

Change in plan assets:

Fair value of plan assets at beginning of year

Foreign currency exchange rate changes

Actual gains (losses) on plan assets

Plan participant contributions

Benefits paid

1,547

241

134

(11)

1,531

(132)

160

–

(12)

Fair value of plan assets at end of year

1,912

1,547

Plan Assets. At December 31, 2005, plan assets were invested
in diversified portfolios that consisted primarily of debt and
equity securities. Assets and income accruing on all pension
trust and relief funds are used solely to pay benefits and admin-
ister the plans. The Group’s other benefit plan asset allocation
at December 31, 2005 and 2004, and target allocations for 2006
are as follows:

(in % of plan assets)

Equity securities

Debt securities

Real estate

2006
planned

2005

2004

–

176

Contributions. DaimlerChrysler did not make any contributions
to its other postretirement plans in 2005 or 2004 and does not
expect to make any contributions in 2006.

Assumptions. The measurement date for the Group’s accumu-
lated other postretirement benefit obligations and plan assets is
generally December 31. The measurement date for the Group’s
net periodic postretirement benefit cost is principally January 1.
Assumed discount rates and rates of increase in remuneration
used in calculating the accumulated postretirement benefit
obligations together with long-term rates of return on plan assets
vary according to the economic conditions of the country in
which the plans are situated.

U.S. postretirement benefit plan assets utilize an asset alloca-
tion substantially similar to that of the pension assets so
the expected rate of return is the same for both pension and
postretirement benefit plan asset portfolios. Accordingly,
the information about the expected rate of return on pension
plan assets described above also applies to postretirement
plan assets. For 2006 the expected rate of return on plan assets
is the same as the rate applied in 2005.

The assumptions have a significant effect on the amounts
reported for the Group’s health care plans. The following sched-
ule presents the effects of a one-percentage-point change in
assumed ultimate health care cost inflation rates as from 2011:

The weighted average assumptions used to determine the bene-
fit obligations of the Group’s postretirement benefit plans at
December 31 were as follows (in %):

(in millions of €)

1-Percentage- 1-Percentage-
Point
Decrease

Point
Increase

2005

2004

2003

Average assumptions:

Discount rate

Health care inflation rate in following
(or “base”) year

Ultimate health care inflation rate
(2011/2011/2008)

5.7

7.4

5.0

6.0

8.0

5.0

6.3

8.0

5.0

The weighted average assumptions used to determine the net
periodic postretirement benefit cost of the Group’s postretire-
ment benefit plans were as follows (in %):

Effect on total of service and interest
cost components

Effect on accumulated postretirement benefit
obligations

191

(129)

2,223

(1,805)

Net Postretirement Benefit Cost. The components of net
periodic postretirement benefit cost for the years ended De-
cember 31, 2005, 2004 and 2003 were as follows:

(in millions of €)

2005

2004

2003

Service cost

Interest cost

Expected return on plan assets

2005

2004

2003

Amortization of:

Average assumptions:

Discount rate

Expected return on plan assets
(at the beginning of the year)

Health care inflation rate in
following (or “base”) year

Ultimate health care inflation rate
(2011)

6.0

8.5

8.0

5.0

6.3

8.5

8.0

5.0

6.8

8.5

10.0

5.0

Unrecognized net actuarial (gains)
losses

Unrecognized prior service cost

Net periodic postretirement benefit
cost

Settlement/curtailment loss

Net postretirement benefit cost

273

917

(155)

301

(8)

1,328

1,331

255

863

(159)

208

1,170

1,173

278

983

(217)

220

1,288

1,290

177

Estimated Future Postretirement Benefit Payments.
Postretirement benefits paid pertaining to the Group’s plans
were €844 million and €797 million during 2005 and 2004,
respectively. The total estimated future postretirement benefits
to be paid by the Group’s plans for the next 10 years approxi-
mate €11.6 billion and are expected to be paid as follows:

(in billions of €)

2006

2007

2008

2009

2010

2011-
2015

Expected payments

1.0

1.1

1.2

6.2

Prepaid Employee Benefits. In 1996 DaimlerChrysler estab-
lished a Voluntary Employees’ Beneficiary Association (“VEBA”)
trust for payment of non-pension employee benefits. At De-
cember 31, 2005 and 2004, the VEBA trust had a balance of
€2,392 million and €2,023 million, respectively, of which the
long-term assets in the VEBA trust of €1,835 million and €1,474
million, respectively, are reported as plan assets for the accumu-
lated postretirement benefit obligations and not reported in
DaimlerChrysler’s Consolidated Balance Sheets. The short-term
assets in the VEBA trust are classified as cash and marketable
securities in DaimlerChrysler’s Consolidated Balance Sheets.
No contributions to the VEBA trust were made in 2005, 2004 and
2003. DaimlerChrysler does not expect to make any contribu-
tions to the VEBA trust in 2006.

b) Other Accrued Liabilities
Other accrued liabilities consisted of the following:

(in millions of €)

Product guarantees

Accrued sales incentives

Accrued personnel and social costs

Derivative financial instruments

Other

At December 31,
2004

2005

11,632

10,877

5,381

3,219

1,706

5,866

4,680

2,938

326

5,850

27,804

24,671

The Group issues various types of product guarantees under
which it generally guarantees the performance of products
delivered and services rendered for a certain period or term
(see Note 32). The accrued liability for these product guarantees
covers expected costs for legally and contractually obligated
warranties as well as expected costs for policy coverage, recall
campaigns and buyback commitments. The liability for buy-
back commitments represents the expected costs related to the
Group’s obligation, under certain conditions, to repurchase a
vehicle from a customer. Buybacks may occur for a number of
reasons including litigation, compliance with laws and regulations
in a particular region and customer satisfaction issues.

The changes in provisions for those product guarantees are
summarized as follows:

(in millions of €)

2005

2004

Balance at January 1

10,877

9,230

Currency change and change in consolidated
companies

Utilizations and transfers

Product guarantees issued in respective year

Changes from prior period product guarantees issued

Balance at December 31

767

334

(5,587)

(4,712)

5,012

563

4,807

1,218

11,632

10,877

The amount included in the line item “Product guarantees issued
in respective year” represents the additions to the accruals
for product guarantees recognized in the corresponding year for
products sold in this year.

In 2005, “Changes from prior period product guarantees issued”
are partly offset by payments received from suppliers in settle-
ment of claims for recovery of the costs for recall campaigns.

178

The Group also offers customers the opportunity to purchase
separately priced extended warranty and maintenance contracts.
The revenue from these contracts is deferred at the inception
of the contract and recognized into income over the contract
period in proportion to the costs expected to be incurred based
on historical information. Included in “Deferred income” on
the Consolidated Balance Sheets, the deferred revenue from
these contracts is summarized as follows:

26. Financial Liabilities

(in millions of €)

Short-term:

Notes/Bonds

Commercial paper

(in millions of €)

2005

2004

Balance at January 1

Currency change and transfers

Deferred revenue current period

Earned revenue current period

Balance at December 31

1,115

226

694

(487)

1,548

1,129

(147)

611

(478)

1,115

The provisions for derivative financial instruments are mainly
due to exchange rate risks from financial liabilities and future
sales revenues. The deviation from previous year is especially
attributable to the changed currency relation of the Euro in rela-
tion to the U.S. dollar.

At December 31,
2004

2005

12,530

9,104

9,860

417

3,045

1,500

36,483

10,760

6,824

10,309

438

2,945

608

1,422

33,306

Liabilities to financial institutions

Liabilities to affiliated companies

Deposits from direct banking business

Loans, other financial liabilities

Liabilities from capital lease and residual value
guarantees

Short-term financial liabilities (due within one year)

Long-term:

Notes/Bonds

of which due in more than five
years €10,939 (2004: €10,492)

Liabilities to financial institutions
of which due in more than five
years €1,469 (2004: €1,265)

Liabilities to affiliated companies
of which due in more than five
years €– (2004: €–)

Deposits from direct banking business
of which due in more than five years
€9 (2004: €9)

Loans, other financial liabilities

of which due in more than five years
€– (2004: €–)

Liabilities from capital lease and
residual value guarantees

of which due in more than five years
€210 (2004: €210)

Long-term financial liabilities

Maturities

2007-2097

34,902

33,919

2007-2019

7,612

7,355

–

160

179

–

1,699

44,449

80,932

1,442

42,964

76,270

Weighted average interest rates for notes/bonds, commercial
paper, liabilities to financial institutions and deposits from
direct banking business are 5.70 %, 4.08 %, 4.54 % and 2.24 %,
respectively, at December 31, 2005.

Commercial papers are primarily denominated in euros and U.S.
dollars and include accrued interest. Liabilities to financial in-
stitutions are partly secured by mortgage conveyance, liens
and assignment of receivables of approximately €2,219 million
(2004: €2,232 million).

179

Aggregate nominal amounts of financial liabilities maturing dur-
ing the next five years and thereafter are as follows:

(in millions of €)

2006

2007

2008

2009

2010

there-
after

Financial liabilities

36,601

13,474

11,760

4,169

2,370

12,482

At December 31, 2005, the Group had unused short-term credit
lines of €7,099 million (2004: €9,278 million) and unused
long-term credit lines of €10,806 million (2004: €8,981 million).
The credit lines include an $18 billion revolving credit facility
with a syndicate of international banks. The credit agreement is
comprised of a multi-currency revolving credit facility which
allows DaimlerChrysler AG to borrow up to $5 billion until De-
cember 2009 and $4.8 billion until December 2010, respective-
ly, an U.S. dollar revolving credit facility which allows Daimler-
Chrysler North America Holding Corporation, a wholly-owned
subsidiary of DaimlerChrysler AG, to borrow up to $6 billion
available until May 2006, and a multi-currency revolving credit
facility for working capital purposes which allows Daimler-
Chrysler AG and several subsidiaries to borrow up to $7 billion
until May 2008. A part of the $18 billion facility serves as back-
up for commercial paper drawings.

27. Trade Liabilities

(in millions of €)

Trade liabilities

28. Other Liabilities

(in millions of €)

Liabilities to affiliated companies

Liabilities to related companies

Other liabilities

180

At December 31, 2005

At December 31, 2004

Due after one
and before
five years

Total

Due after
five years

Due after one
and before
five years

Total

Due after
five years

14,591

–

12,920

–

At December 31, 2005

At December 31, 2004

Due after one
and before
five years

Due after
five years

–

260

265

224

–

139

363

Total

334

8,623

9,053

Due after one
and before
five years

Due after
five years

–

542

552

–

166

Total

354

8,314

8,745

As of December 31, 2005, other liabilities include tax liabilities
of €1,147 million (2004: €803 million) and social benefits due
of €808 million (2004: €774 million).

29. Deferred Income

As of December 31, 2005, €3,105 million of the total deferred
income is to be recognized after more than one year (2004:
€2,088 million).

181

Notes to Consolidated
Statements of Cash Flows

Other Notes

30. Consolidated Statements of Cash Flows

31. Legal Proceedings

The following cash flows represent supplemental information
with respect to net cash provided by operating activities:

(in millions of €)

Interest paid

Income taxes paid

Year ended December 31,
2003

2004

2005

3,652

700

3,092

1,373

3,207

937

For the year ended December 31, 2005, net cash provided by
financing activities included payments/(proceeds) of early ter-
minated cross currency hedges, related to financial liabilities, of
€72 million (2004: €(1,304) million; 2003: €(556) million).

Various legal proceedings are pending against the Group. We
believe that such proceedings in the main constitute ordinary
routine litigation incidental to its business.

The official receiver of Garage Bernard Tutrice S.A., France, a
former customer of DaimlerChrysler France S.A.S., filed a
lawsuit against DaimlerChrysler France in the commercial court
of Versailles in November 2003. The complaint seeks damages
of €455 million alleged to have resulted from tax fraud committed
by the former Chairman of Tutrice S.A. who was convicted of
tax fraud in April, 2001. In January 2006, the court ordered
DaimlerChrysler France to pay €30 million in compensatory
damages, and rejected the rest of the claim.

In October 2005, DaimlerChrysler Australia/Pacific Pty. Ltd.
(“DCAuP”) settled the previously reported actions filed in the
Supreme Court of New South Wales by National Australia
Bank Limited and the liquidator in connection with the financial
failure of a customer. The settlement agreement provides
for payment by DCAuP of AUD 55 million and a release from
all further claims.

182

DaimlerChrysler AG in its capacity as successor of Daimler-
Benz AG is a party to a valuation proceeding (Spruchstellen-
verfahren) relating to a subordination and profit transfer agree-
ment that existed between Daimler-Benz AG and the former
AEG AG (“AEG”). In 1988, former AEG shareholders filed a peti-
tion to the regional court in Frankfurt claiming that the con-
sideration and compensation stipulated in the agreement was
inadequate. In 1994, a court-appointed valuation expert con-
cluded that the consideration provided for in the agreement
was adequate. Following a Federal Constitutional Court decision
in an unrelated case, the Frankfurt court in 1999 instructed
the expert to employ a market value approach in its valuation
analysis rather than the capitalized earnings value approach
previously used. The court also instructed the expert in 2004 to
take into account additional findings of the Federal Supreme
Court elaborating further on the valuation issue addressed by
the Federal Constitutional Court. In September 2004, the
expert delivered the requested valuation opinion. If the new
opinion were to be followed by the Frankfurt court, the valuation
ratio would increase significantly in favour of the AEG share-
holders. DaimlerChrysler believes the original consideration
and compensation to be adequate and the second valuation
opinion to be unwarranted. DaimlerChrysler intends to defend
itself vigorously against the claims in this proceeding.

In 1999, former shareholders of Daimler-Benz AG instituted a
valuation proceeding (Spruchstellenverfahren) against Daimler-
Chrysler AG at Stuttgart district court. These proceedings relate
to the merger of Daimler-Benz AG and DaimlerChrysler AG in
connection with the business combination of Daimler-Benz and
Chrysler Corporation in 1998. In the course of the merger, 1.8%
of all shares in Daimler-Benz AG were involuntarily exchanged
for DaimlerChrysler shares. Some shareholders claim that the
ratio used in the course of the merger did not correspond to
the actual value of the Daimler-Benz shares. An expert commis-
sioned by the court presented his report in December 2005.
In it, he has calculated various alternative values for payments
to be made. These alternatives range from confirming the
appropriateness of the ratio used to considerable payments to
be made to the former Daimler-Benz shareholders with respect
to the involuntarily exchanged shares. DaimlerChrysler contin-
ues to view the exchange ratio set by the company at the time
as appropriate, and the alternative values calculated by the
court expert as unfounded. We intend to continue defending
ourselves vigorously against these claims.

Various legal proceedings are pending against DaimlerChrysler AG
or its subsidiaries alleging defects in various components
(including occupant restraint systems, seats, brake systems,
tires, ball joints, engines and fuel systems) in several different
vehicle models or allege design defects relating to vehicle stabil-
ity (rollover propensity), pedal misapplication (sudden acce-
leration), brakes (vibration and brake transmission shift inter-
lock), or crashworthiness. Some of these proceedings are filed
as class action lawsuits that seek repair or replacement of
the vehicles or compensation for their alleged reduction in value,
while others seek recovery for damage to property, personal

injuries or wrongful death. Adverse decisions in one or more
proceedings could require DaimlerChrysler or its subsidiaries to
pay partially substantial compensatory and punitive damages,
or undertake service actions, recall campaigns or other costly
actions.

Seven purported class action lawsuits are pending in various
U.S. courts regarding alleged front disc brake judder in
1999–2004 model year Jeep® Grand Cherokee vehicles and
the treatment of related warranty claims. Plaintiffs seek
compensatory and punitive damages, costs of repair or replace-
ment, attorneys’ fees and costs.

Three purported class action lawsuits are pending in various U.S.
courts that allege that the paint applied to 1982–1997 model
year Chrysler, Plymouth, Jeep® and Dodge vehicles delaminates,
peels or chips as the result of defective paint, paint primer, or
application processes. Plaintiffs seek compensatory and puni-
tive damages, costs of repair or replacement, attorneys’ fees
and costs. Seven other previously reported class action lawsuits
regarding paint delamination have been dismissed.

In November 2004, a jury awarded $3.75 million in compensatory
damages and $98 million in punitive damages against Daimler-
Chrysler Corporation in Flax v. DaimlerChrysler Corporation, a
case filed in Davidson County Circuit Court in the state of
Tennessee. The complaint alleged that the seat back in a 1998
Dodge Grand Caravan was defective and collapsed when the
Caravan was struck by another vehicle resulting in the death of
an occupant. In June 2005 the trial court reduced the punitive
damage award to $20 million in response to motions filed by
DaimlerChrysler Corporation challenging the verdict and the
damage awards. DaimlerChrysler Corporation is appealing the
verdict and the damage awards.

In October 2005, the Arizona Court of Appeals reversed the $50
million punitive damages award and affirmed the $3.75 million
compensatory damages award in Douglas v. DaimlerChrysler Cor-
poration, a case involving the front seat back strength of a1996
Dodge Ram club cab pickup. DaimlerChrysler Corporation is
defending approximately 25 other complaints involving vehicle
seat back strength.

183

The U.S. Environmental Protection Agency filed a complaint in
the U.S. District Court for the District of Columbia against
DaimlerChrysler Corporation in December 2005 alleging defects
in catalytic converters and on-board diagnostic systems in
certain Chrysler Group vehicles, and failure to properly disclose
defects in such converters. The parties have agreed to the
terms of a consent decree in settlement of the complaint. The
settlement requires DaimlerChrysler Corporation to, among
other things, extend the warranties on catalytic converters in
certain 1996 – 2000 vehicles, and reprogram the powertrain
control modules in certain 1996 – 1998 vehicles with updated
on-board diagnostic systems calibrations. DaimlerChrysler Cor-
poration also settled a related parallel administrative proceed-
ing with the California Air Resources Board. The estimated
cost of such remedial actions and related settlement payments
is approximately $95 million.

Like other companies in the automotive industry, Daimler-
Chrysler (primarily DaimlerChrysler Corporation) have experi-
enced a growing number of lawsuits which seek compensatory
and punitive damages for illnesses alleged to have resulted
from direct and indirect exposure to asbestos used in some ve-
hicle components (principally brake pads). Typically, these suits
name many other corporate defendants and may also include
claims of exposure to a variety of non-automotive asbestos pro-
ducts. A single lawsuit may include claims by multiple plain-
tiffs alleging illness in the form of asbestosis, mesothelioma or
other cancer or illness. The number of claims in these law-
suits increased from approximately 14,000 at the end of 2001
to approximately 28,000 at the end of 2005. In the majority
of these cases, plaintiffs do not specify their alleged illness and
provide little detail about their alleged exposure to compo-
nents in DaimlerChrysler’s vehicles. Some plaintiffs do not exhib-
it current illness, but seek recovery based on potential future
illness. DaimlerChrysler believes that many of these lawsuits in-
volve unsubstantiated illnesses or assert only tenuous connec-
tions with components in its vehicles, and that there is credible
scientific evidence to support the dismissal of many of these
claims. Although DaimlerChrysler’s expenditures to date in con-
nection with such claims have not been material to its financial
condition, it is possible that the number of these lawsuits
will continue to grow, especially those alleging life-threatening
illness, and that the company could incur significant costs in
the future in resolving these lawsuits.

A class action lawsuit was filed in 2002 against Mercedes-Benz
USA, LLC (“MBUSA”), and its wholly-owned subsidiary Mercedes-
Benz Manhattan, Inc., and is pending in the United States Dis-
trict Court for the District of New Jersey. The lawsuit alleges
that those companies participated in a price fixing conspiracy
among Mercedes-Benz dealers. MBUSA and Mercedes-Benz
Manhattan continue to defend themselves vigorously.

DaimlerChrysler received a “statement of objections” from the
European Commission on April 1,1999, which alleged that the
Group violated EU competition rules by impeding cross-border
sales of Mercedes-Benz passenger cars to final customers in
the European Economic Area. In October 2001, the European
Commission found that DaimlerChrysler infringed EU compe-
tition rules and imposed a fine of approximately €72 million. On
September 15, 2005, the Court of First Instance of the Euro-
pean Court of Justice annulled the decision in part and reduced
the fine to an amount of €9.8 million. Neither party appealed
the judgment, which is now final.

More than 80 purported class action lawsuits alleging viola-
tions of antitrust law are pending against DaimlerChrysler and
several of its U.S. subsidiaries, six other motor vehicle manu-
facturers, operating subsidiaries of those companies in both the
United States and Canada, the National Automobile Dealers
Association and the Canadian Automobile Dealers Association.
Some complaints were filed in federal courts in various states
and others were filed in state courts. The complaints allege that
the defendants conspired to prevent the sale to U.S. consumers
of vehicles sold by dealers in Canada in order to maintain new
car prices at artificially high levels in the U.S. They seek treble
damages on behalf of everyone who bought or leased a new
vehicle in the U.S. since January 1, 2001. DaimlerChrysler believ-
es the complaints against it are without merit and plans to
defend itself against them vigorously.

DaimlerChrysler Services North America LLC (“DCSNA”) settled
the two previously reported class action lawsuits alleging
racially discriminatory credit practices. The court approved set-
tlements require, among other things, training programs for
employees, consumer financial literacy programs, and commu-
nity outreach for African-Americans and Hispanics.

The Federal Republic of Germany has initiated arbitration pro-
ceedings against DaimlerChrysler Financial Services AG,
Deutsche Telekom AG and Toll Collect GbR. The statement of
claims of the Federal Republic of Germany was received in
August 2005. The Federal Republic of Germany is mainly seek-
ing damages, contractual penalties and the transfer of intellec-
tual property rights to Toll Collect GmbH. In particular, the
Federal Republic of Germany is claiming lost revenues of €3.51
billion plus interest (€236 million through July 31, 2005) for
the period September 1, 2003, through December 31, 2004, and
contractual penalties of approximately €1.65 billion through
July 31, 2005 plus interest (€107 million through July 31, 2005).
Since some of the contractual penalties, among other things, are
dependent on time and further claims for contractual penalties
have been asserted by the Federal Republic of Germany, the
amount claimed as contractual penalties may increase. Daimler-
Chrysler believes the claims of the Federal Republic of Ger-
many are without merit and intends to defend itself vigorously
against these claims.

184

Freightliner LLC acquired in September 2000 Western Star Trucks
Holdings Ltd. Prior to its acquisition by Freightliner, Western
Star had completed the sale of a truck manufacturer, ERF (Hold-
ings) plc, to MAN AG for CAD195 million. In September 2002,
MAN filed a claim against Freightliner Ltd. (formerly Western
Star) with the London Commercial Court for fraud and breach of
representations and warranties in the share purchase agree-
ment, alleging that ERF’s accounts and financial statements
were misstated and seeking damages in excess of GBP300 mil-
lion. Freightliner Ltd. subsequently filed a contribution claim
with that court against Ernst & Young, ERF’s and Western Star’s
auditors. In October 2005, the court ruled that Freightliner
Ltd. was vicariously liable for fraud by an employee of ERF in
connection with the preparation of ERF’s financial accounts, and
also found in favor of Ernst & Young on the contribution claim.
Freightliner Ltd. has appealed both decisions on liability. In
December 2005, the court awarded MAN an interim payment of
GBP250 million, based on a minimum estimate of the parties,
which amount significantly exceeds Freightliner Ltd.’s net
assets. A hearing to determine final damages may be deferred
until resolution of the appeals. In a related matter, MAN sued
Freightliner LLC in February 2005 alleging that assets were
fraudulently transferred from Freightliner Ltd. while the above
described proceeding was pending, and seeking payment from
Freightliner LLC of the damages awarded against Freightliner
Ltd. in that proceeding. The complaint, which was amended in
December 2005, is pending in Multnomah County Circuit
Court in the state of Oregon. Freightliner LLC intends to defend
itself vigorously in this matter.

Tracinda Corporation filed a lawsuit in 2000 against Daimler-
Chrysler AG and some of the members of its Supervisory Board
and Board of Management alleging that the defendants violated
U.S. securities law and committed fraud in obtaining approval
from Chrysler stockholders of the business combination be-
tween Chrysler and Daimler-Benz in 1998. On April 7, 2005, the
United States District Court for the District of Delaware ren-
dered a judgment in favor of the defendants and against Tracin-
da Corporation on all claims finding that there had been no
fraud and no violation of U.S. securities laws. Tracinda is appea-
ling the decision and filed its opening brief with the United
States Court of Appeals for the Third Circuit in January 2006.

A purported class action was filed against DaimlerChrysler AG
and some members of its Board of Management in 2004 in
the United States District Court for the District of Delaware on
behalf of current or former DaimlerChrysler shareholders
who are neither citizens nor residents of the United States and
who acquired their DaimlerChrysler shares on or through a
foreign stock exchange. On January 24, 2006, the Court granted
DaimlerChrysler’s motion to dismiss the complaint, declining
to exercise jurisdiction over the case. The complaint, which had
not yet been served on any member of DaimlerChrysler’s Board
of Management, contained allegations similar to those in the
Tracinda complaint and the prior class action complaint. On
February 17, 2006, the plaintiffs filed a notice of appeal of this
decision to the United States Court of Appeals for the Third Cir-
cuit.

Several lawsuits, including putative class action lawsuits, were
filed in 2002 against a large number of companies from a wide
variety of industries and nationalities asserting claims relating
to the practice of apartheid in South Africa. One of the lawsuits
names DaimlerChrysler AG as a defendant and another one names
a U.S. subsidiary of DaimlerChrysler AG as a defendant. The
lawsuits were consolidated in the United States District Court
for the Southern District of New York for pretrial purposes.
On November 29, 2004, the Court granted a motion to dismiss
filed by a group of defendants, including DaimlerChrysler.
Plaintiffs filed notices of appeal of the Court’s decision. The
appeal has now been fully briefed. Oral argument was held
in January 2006.

In August 2004, the U.S. Securities and Exchange Commission
(“SEC”) opened a formal investigation into possible violations by
DaimlerChrysler of the anti bribery, record keeping and internal
control provisions of the U.S. Foreign Corrupt Practices Act
(FCPA). The U.S. Department of Justice (“DOJ”) has also request-
ed information in this regard. DaimlerChrysler is voluntarily
sharing with the DOJ and the SEC information from its own inter-
nal investigation of certain accounts, transactions and pay-
ments, primarily relating to transactions involving government
entities, and is providing the agencies with information pursuant
to outstanding subpoenas and other requests. Following is a
summary of information DaimlerChrysler uncovered to date in
connection with its internal investigation. Further issues may
arise as the company completes its investigation.

– DaimlerChrysler determined that improper payments were

made in a number of jurisdictions, primarily in Africa, Asia and
Eastern Europe. These payments raise concerns under the
U.S. FCPA, German law, and the laws of other jurisdictions.

– In connection with its internal investigation, DaimlerChrysler
has identified and selfreported potential tax liabilities to tax
authorities in several jurisdictions. These tax liabilities of
DaimlerChrysler AG and certain foreign affiliates result from
misclassifications of, or the failure to record, commissions
and other payments and expenses.

– DaimlerChrysler determined that certain payable accounts

related to consolidated subsidiaries were not eliminated dur-
ing consolidation.

– DaimlerChrysler is taking action to address and resolve the
issues identified in the course of our investigation to safe-
guard against the recurrence of improper conduct. This
includes evaluating and revising its governance policies
and internal control procedures.

185

DaimlerChrysler is responding to the SEC’s request. The DOJ has
also requested information in this regard. In addition, the
United Nations Independent Inquiry Committee (“IIC”) that
investigated the administration and management of the United
Nations Oil-for-Food Program asked DaimlerChrysler to provide
assistance in the IIC’s evaluation of certain transactions under
that Program. On October 27, 2005, the IIC issued its final report
on the United Nations Oil-for-Food Program, which includes
a narrative describing DaimlerChrysler’s alleged conduct during
the Program. In its report, the IIC concludes that Daimler-
Chrysler knowingly made or caused to be made a kickback pay-
ment of approximately €6,950 to the former Government of
Iraq, that a DaimlerChrysler employee signed two side agree-
ments to make additional payments, and that this conduct
was in contravention of Program rules and the United Nations
sanctions against Iraq. It is possible that additional payments
may be identified as a result of the ongoing SEC and DOJ inves-
tigations. If the DOJ or the SEC determines that violations of
U.S. law have occurred, it could seek criminal or civil sanctions,
including monetary penalties, against DaimlerChrysler and
certain of its employees.

The BaFin (German Federal Financial Supervisory Authority) is
investigating whether DaimlerChrysler AG’s public ad hoc dis-
closure on July 28, 2005 that Professor Schrempp will leave the
company at the end of 2005 was timely. If the BaFin determines
that the company improperly filed such disclosure, it could fine
DaimlerChrysler up to €1 million. In a related matter, the Dis-
trict Attorney’s Office in Stuttgart closed the previously report-
ed investigation of alleged insider trading in DaimlerChrysler
shares by two DaimlerChrysler senior executives prior to the ad
hoc disclosure. In January 2006 the District Attorney’s Office
also opened an investigation of alleged insider tipping by the
Chairman of our Supervisory Board in advance of such disclosure.
In February 2006, shareholders of DaimlerChrysler who claim
damages based on the alleged unduly delayed ad hoc disclosure
filed an application for a model case pursuant to German law
(KapMuG).

Litigation is subject to many uncertainties and DaimlerChrysler
cannot predict the outcome of individual matters with assur-
ance. It is reasonably possible that the final resolution of some
of these matters could require the Group to make expendi-
tures, in excess of established reserves, over an extended peri-
od of time and in a range of amounts that DaimlerChrysler
cannot reasonably estimate. Although the final resolution of any
such matters could have a material effect on the Group’s
consolidated operating results for a particular reporting period,
DaimlerChrysler believes that it should not materially affect
its consolidated financial position.

In connection with these issues, DaimlerChrysler recognized
charges in its 2005 consolidated statement of income to correct
misstatements relating to the years 2003 and 2004 which had
the effect of reducing 2005 operating profit by €16 million and
reducing 2005 net income by €64 million. In addition, Daimler-
Chrysler adjusted stockholders’ equity as at January 1, 2003
to correct accumulated misstatements in the periods 1994
through 2002 which had the effect of reducing the January 1,
2003 balance of stockholders’ equity by €222 million.
DaimlerChrysler recognized a charge of €125 million in the third
quarter of 2005 with respect to tax liabilities that had been
identified in the course of the internal investigation by the date
the unaudited interim financial statements for the third quarter
2005 were issued. Following its continued investigation of
the misstatements discussed above, DaimlerChrysler subsequent-
ly determined that any adjustments for pre-2003 periods should
be reflected in the January 1, 2003 balance of stockholders’
equity. Accordingly, DaimlerChrysler reversed €100 million of
the €125 million charge originally recognized in the third quarter
2005. This amount is reflected in the €222 million reduction
of the January 1, 2003 balance of stockholders’ equity.

DaimlerChrysler’s internal investigation into possible violations
of law is ongoing. If the DOJ or the SEC determines that viola-
tions of U.S. law have occurred, it could seek criminal or
civil sanctions, including monetary penalties, against Daimler-
Chrysler and certain of its employees, as well as additional
changes to its business practices and compliance programs.

DaimlerChrysler also determined that for a number of years a
portion of the taxes related to compensation paid to expatriate
employees was not properly reported. In connection with this
underpayment of taxes, DaimlerChrysler recognized charges in
its 2005 consolidated statement of income to correct corre-
sponding overstatements relating to the years 2003 and 2004
which had the effect of reducing 2005 operating profit by €34
million and reducing 2005 net income by €25 million. In addition,
DaimlerChrysler adjusted stockholders’ equity as at January 1,
2003 to correct accumulated overstatements of net income in
the periods 1994 through 2002 which had the effect of reduc-
ing the January 1, 2003 balance of stockholders’ equity by
€84 million. DaimlerChrysler voluntarily reported potential tax
liabilities resulting from these issues to the tax authorities in
several jurisdictions.

In November 2004, the SEC issued a formal order of investiga-
tion concerning 13 named participants in the United Nations
Oil-for-Food Program seeking to determine whether there had
been acts in violation of the provisions of the Securities Ex-
change Act of 1934 requiring the maintenance of books, records
and accounts, the maintenance of internal accounting controls
and prohibiting specified payments to foreign officials for improp-
er purposes. In July 2005, the SEC supplemented the formal
order of investigation to add DaimlerChrysler to the list of named
companies. In that regard, DaimlerChrysler received an order
from the SEC to provide a written statement and to produce
certain documents regarding transactions in that Program.

186

32. Contingent Obligations and Commercial Commitments

Contingent Obligations. Obligations from issuing guarantees
as a guarantor (excluding product warranties) are as follows:

(in millions of €)

Guarantees for third party
liabilities

Guarantees under buy-back
commitments

Other contingent obligations

At December 31,
Maximum potential
future obligations
2004
2005

At December 31,
Amount recognized
as a liability
2004

2005

1,819

2,653

1,499

249

3,567

1,646

273

4,572

412

406

125

943

486

536

178

1,200

Guarantees for third party liabilities principally represent guar-
antees of indebtedness of non-consolidated affiliated compa-
nies and third parties and commitments by Group companies as
to contractual performance by joint venture companies and
certain non-incorporated companies, partnerships, and project
groups. The terms under these arrangements generally cover
the range of the related indebtedness of the non-consolidated
affiliated companies and third parties or the contractual per-
formance period of joint venture companies, non-incorporated
companies, partnerships, and project groups. The parent
company of the Group (DaimlerChrysler AG) provides guaran-
tees for certain obligations of its consolidated subsidiaries
towards third parties. At December 31, 2005, these guarantees
amounted to €54.0 billion. To a lesser extent, consolidated
subsidiaries provide guarantees to third parties of obligations of
other consolidated subsidiaries. All intercompany guarantees
are eliminated in consolidation and therefore are not reflected
in the above table.

DaimlerChrysler AG provides a guarantee to Deutsche Bank AG
to cover the obligations of employees that are participating in
its corporate credit card program for corporate travel expenses
which is operated by Deutsche Bank AG. To date, Daimler-
Chrysler has not incurred any significant payments from that
guarantee which amounted to €651 million as of December 31,
2004. In March 2005, DaimlerChrysler AG and Deutsche
Bank AG concluded an additional agreement that supplements
the existing framework agreement, limiting the guarantee for
current and future credit card obligations arising from that pro-
gram to €20 million.

Guarantees under buy-back commitments principally represent
arrangements whereby the Group guarantees specified trade-in
or resale values for assets or products sold to non-consolidated
affiliated companies and third parties. Such guarantees pro-
vide the holder with the right to return purchased assets or prod-
ucts back to the Group, partially also in connection with a
future purchase of products or services. The table above excludes
residual value guarantees related to arrangements for which
revenue recognition is precluded due to the Group’s obligation
to repurchase assets sold to unrelated guaranteed parties.

Other contingent obligations principally include pledges or
indemnifications related to the quality or timing of performance
by third parties or participations in performance guarantees of
consortiums. Performance guarantees typically provide the pur-
chaser of goods or services with the right to be reimbursed
for losses incurred or other penalties if the third party or the con-
sortium fails to perform. Amounts accrued under performance
guarantees reflect estimates of probable losses resulting from a
third party’s failure to perform under obligating agreements.

DaimlerChrysler AG and its wholly owned subsidiary Daimler-
Chrysler Financial Services AG have provided various guarantees
towards third parties with respect to the investment in Toll
Collect. See Note 3 for detailed information regarding Toll Col-
lect including the guarantees issued. Of the guarantees men-
tioned in Note 3, only the €600 million guarantee for the bank
loan is reflected in the above table in the line “Guarantees
for third party liabilities”. The other guarantees are not reflected
in the above table since the maximum potential future obliga-
tion resulting from the remaining guarantees cannot be accurate-
ly estimated. Accruals established in this regard are also not
included in the above table.

When circumstances indicate that payment is probable and
the amount is reasonably estimable, guarantees made by the
Group are recognized as a liability in the consolidated balance
sheet in accordance with SFAS 5 “Accounting for Contingencies”,
with an offsetting amount recorded as an expense (contin-
gent obligation). For guarantees issued or modified after Decem-
ber 31, 2002, the Group records guarantees at fair value,
unless a higher amount must be accrued for in accordance with
SFAS 5 (non-contingent obligations). Both contingent obliga-
tions and non-contingent obligations are included in the column
“Amount recognized as a liability” in the table above.

In accordance with FIN 45, the obligations associated with pro-
duct warranties are not reflected in the above table. See Note
25b for accruals relating to such obligations.

187

Commercial Commitments. In addition to the above guaran-
tees and warranties, in connection with certain production
programs, the Group has committed to purchase various levels
of outsourced manufactured parts and components over ex-
tended periods at market prices. The Group has also committed
to purchase or invest in the construction and maintenance of
various production facilities. Amounts under these guarantees
represent commitments to purchase plant or equipment at
market prices in the future. As of December 31, 2005, commit-
ments to purchase outsourced manufactured parts and compo-
nents or to invest in plant and equipment are approximately
€10.1 billion. These amounts are not reflected in the above table.

Collins & Aikman Corporation (“C&A”), a major tier one supplier
to the automotive industry, initiated bankruptcy reorganization
proceedings in the U.S. and similar proceedings in England.
During 2005, DaimlerChrysler Corporation, along with other
major customers of C&A, agreed to provide price increases and
financing to C&A. DaimlerChrysler’s portion of the 2005 price
increases and funding commitment was $120 million and is
included in cost of sales on the accompanying consolidated
statements of income (loss). DaimlerChrysler agreed to provide
an additional $70 million of price increases for calendar year
2006. DaimlerChrysler also agreed to accelerate payments for
tooling and to fund other DaimlerChrysler program specific
capital expenditures in 2005 and 2006, as well as to fund launch
costs as needed throughout 2005. In addition, DaimlerChrysler
also provided financial support of €13 million in Europe in 2005
to support the continuation of component deliveries, to finance
specific investments and to secure launch costs.

DaimlerChrysler would be significantly adversely affected in
the near term by a sudden and prolonged interruption in the sup-
ply of components from C&A. Such an interruption would affect
production of nearly all Chrysler Group vehicles as well as the
Mercedes Car Group’s M-Class and R-Class vehicles in Alaba-
ma, and all Commercial Vehicle Division vans in Europe. It would
also delay the launch of future vehicle projects in our Vans
business unit.

The Group also enters into noncancellable operating leases for
facilities, plant and equipment. Total rentals under operating
leases charged to expense in 2005 in the statement of income
amounted to €946 million (2004: €902 million; 2003: €747
million). Future minimum lease payments under noncancellable
lease agreements as of December 31, 2005 are as follows:

(in millions of €)

2006

2007

2008

2009

2010

there-
after

Operating leases

805

588

401

344

304

1,134

Future payments to be received from the subleasing of these
facilities, plant and equipment to third parties total €297 million.

In 2003, DaimlerChrysler signed an agreement with the City
of Hamburg, Germany, a holder of approximately 6% of the com-
mon shares of DaimlerChrysler Luft- und Raumfahrt Holding
Aktiengesellschaft (“DCLRH”), a majority-owned subsidiary of
the Group. Pursuant to the terms of the agreement and upon
execution of the agreement, DaimlerChrysler holds a call option
for the City’s interest in DCLRH, exercisable on or after January 1,
2005, and the City of Hamburg holds a put option exercisable
at the earlier of October 1, 2007, or upon the occurrence of
certain events which are solely within the control of Daimler-
Chrysler. DaimlerChrysler believes the likelihood that these
certain events will occur is remote. Upon exercise of either option,
the City of Hamburg would have received a minimum considera-
tion of its interest in DCLRH of €450 million in cash or shares of
EADS or a combination of both. The agreement was amended
in July 2004 with respect to the exercise price of the put option,
so that the City of Hamburg may only put its interest in DCLRH
to the Group for €450 million in cash. As a consideration for the
amendment, the City of Hamburg is entitled to receive an addi-
tional payment upon execution of the option equal to 10% of the
appreciation of EADS shares in excess of a share price of €21
up to a share price of €26.

33. Information about Financial Instruments and Deriva-
tives

a) Use of Financial Instruments
The Group conducts business on a global basis in numerous
international currencies and is therefore exposed to fluctuations
in foreign currency exchange rates. The Group uses, among
others, bonds, medium-term-notes, commercial paper and bank
loans in various currencies. As a consequence of using these
types of financial instruments, the Group is exposed to risks from
changes in interest and foreign currency exchange rates.
DaimlerChrysler holds financial instruments, such as money mar-
ket investments, variable- and fixed-interest bearing securities,
and to a lesser extent, equity securities for managing excess liq-
uidity that subject the Group to risks from changes in interest
rates and market prices. DaimlerChrysler manages the various
types of market risks by using, among others, derivative financial
instruments. In addition, equity investments in publicly traded
companies also expose the Group to equity price risk, which, if
deemed appropriate, DaimlerChrysler hedges through the use
of derivative financial instruments. Without these derivative finan-
cial instruments the Group’s exposure to these market risks
would be higher. DaimlerChrysler does not use derivative finan-
cial instruments for purposes other than risk management.

188

Based on regulations issued by regulatory authorities for finan-
cial institutions, the Group has established guidelines for risk
controlling procedures and for the use of financial instruments,
including a clear segregation of duties with regard to operat-
ing financial activities, settlement, accounting and controlling of
financial instruments.

Market risks are quantified according to the “value-at-risk”
method which is commonly used among banks. Using historical
variability of market data, potential changes in value result-
ing from changes of market prices are calculated on the basis
of statistical methods.

DaimlerChrysler is also exposed to market price risks associated
with the purchase of commodities. To a minor degree, Daimler-
Chrysler uses derivative instruments to reduce market price
risks, primarily with respect to precious metals. The risk result-
ing from derivative commodity instruments is not significant
to the Group and thus not included in the following discussion.

The contract volumes at December 31 of derivative financial
instruments used for hedging currency- and interest-rate risks
are shown in the table below. The contract or notional amounts
shown do not always represent amounts exchanged by the
parties and are not necessarily a measure for the exposure of
DaimlerChrysler through its use of derivatives.

(in millions of €)

Currency contracts

Interest rate contracts

At December 31,
2004

2005

25,082

42,407

20,226

38,313

b) Fair Value of Financial Instruments
The fair value of a financial instrument is the price at which
one party would assume the rights and/or duties of another par-
ty pertaining to such instrument. The fair values of financial
instruments have been determined with reference to market
information available at the balance sheet date and the valua-
tion methodologies discussed below. Considering the variability
of their value-determining factors, the fair values presented
herein are only an indication of the amounts that the Group could
realize under current market conditions.

The carrying amounts and fair values of the Group’s financial
instruments are as follows:

At December 31,
2005
Fair
value

Carrying
amount

At December 31,
2004
Fair
value

Carrying
amount

1,361

1,610

61,101

61,246

56,785

57,558

4,936

3,884

7,711

7,782

(in millions of €)

Financial instruments
(other than derivative
instruments):

Assets:

Financial assets

Receivables from
financial services

Securities

Cash and cash
equivalents

Liabilities:

Financial liabilities

80,932

82,129

76,270

78,244

Derivative instruments:

Assets:

Currency contracts

Interest rate contracts

Equity contracts

Liabilities:

Currency contracts

Interest rate contracts

Equity contracts

181

546

646

867

209

181

546

646

867

209

1,287

2,667

152

196

1,287

2,667

152

196

Derivative instruments representing assets are included in
other assets (see Note 19) at fair value, while derivative instru-
ments representing liabilities are included in other accrued lia-
bilities (see Note 25b) at fair value.

The methods and assumptions used to determine the fair values
of financial instruments are summarized below:

Financial Assets and Securities. The fair values of securities
are determined using quoted market prices. The Group has
certain equity investments in related and affiliated companies
which are not presented in the table since they are not public-
ly traded and determination of fair values is impracticable.
In addition, equity investments in associated companies are also
not considered in this presentation. For a presentation of the
carrying amount and fair value of EADS, the most significant
investment of DaimlerChrysler in associated companies, please
refer to Note 3.

189

Receivables from Financial Services. The carrying amounts
of variable rate finance receivables approximate their fair values
since the contract rates of those receivables approximate
current market rates. The fair values of fixed rate finance receiv-
ables were determined by discounting expected cash flows,
using the current interest rates at which comparable loans with
identical maturity could be borrowed as of December 31, 2005
and 2004.

Cash and Other assets. The carrying amounts of Cash and
ther assets approximate fair values due to the short-term matu-
rities of these instruments.

Financial Liabilities. The fair value of publicly traded debt
was determined using quoted market prices. The fair values of
other long-term bonds were determined by discounting future
cash flows, using market interest rates over the remaining term.
The carrying amounts of commercial paper and borrowings
under revolving credit facilities were assumed to approximate
fair value due to their short maturities.

Currency Contracts. The fair values of forward foreign exchange
contracts were based on European Central Bank reference ex-
change rates adjusted for the respective interest rate differentials
(premiums or discounts). Currency options were valued based
on quoted market prices or option pricing models.

Interest Rate Contracts. The fair values of instruments to hedge
interest rate risks (e. g. interest rate swap agreements, cross
currency interest rate swap agreements) were determined by
discounting expected cash flows, using market interest rates
over the remaining term of the instrument. Interest rate options
are valued based on quoted market prices or option pricing
models.

Equity Contracts. The fair values of instruments to hedge equity
price risk were determined on the basis of quoted market prices
or option pricing models.

c) Credit Risk
The Group is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments.
DaimlerChrysler manages the credit risk exposure to financial
institutions through diversification of counterparties and
review of each counterparty’s financial strength. Based on the
rating of the counterparties performed by established rating
agencies, DaimlerChrysler does not have a significant exposure
to any individual counterparty. DaimlerChrysler Financial
Services has established detailed guidelines for the risk manage-
ment process related to the exposure to financial services
customers. Additional information with respect to receivables
from financial services and allowance for doubtful accounts
is included in Note 18.

d) Accounting for and Reporting of Financial Instruments
(Other than Derivative Instruments)
The income or expense arising from the Group’s financial instru-
ments (other than derivative instruments), is recognized in
financial income, net, with the exception of receivables from finan-
cial services and financial liabilities related to leasing and
sales financing activities. Interest income on receivables from
financial services and gains and losses from sales of receiv-
ables are recognized as revenues. Interest expense on financial
liabilities related to leasing and sales financing activities are
recognized as cost of sales. The carrying amounts of the financial
instruments (other than derivative instruments) are included
in the consolidated balance sheets under their corresponding
captions.

e) Accounting for and Reporting of Derivative Instruments
and Hedging Activities
Foreign Currency Risk Management. As a consequence
of the global nature of DaimlerChrysler’s businesses, its opera-
tions and its reported financial results and cash flows are ex-
posed to the risks associated with fluctuations in the exchange
rates of the U.S. dollar and other world currencies against
the euro. The Group’s businesses are exposed to transaction
risk whenever revenues of a business are denominated in a
currency other than the currency in which the business incurs
the costs relating to those revenues. The Mercedes Car
Group segment is primarily exposed to such risk. The Mercedes
Car Group generates its revenues mainly in the currencies of
the countries in which cars are sold, but it incurs manufacturing
costs primarily in euros. The Commercial Vehicles segment
is subject to transaction risk to a lesser extent because of its
global production network. At Chrysler Group, revenues and
costs are principally generated in U.S. dollars, resulting in a rel-
atively low transaction risk for this segment. The Other Activi-
ties segment is indirectly exposed to transaction risk though its
equity investment in EADS, which is accounted for using the
equity method.

To mitigate the impact of currency exchange rate fluctuations,
DaimlerChrysler continually assesses its exposure to currency
risks and hedges a portion of those risks through the use of
derivative financial instruments. Responsibility for managing
DaimlerChrysler’s currency exposures and use of currency
derivatives is centralized within the Group’s Currency Commit-
tee. The Currency Committee consists of members of senior
management from Corporate Treasury, each of the operating
businesses as well as from Risk Controlling. Corporate Treasury
implements the decisions concerning foreign currency hedg-
ing taken by the Currency Committee. Risk Controlling regularly
informs the Board of Management of the actions of Corporate
Treasury based on the decisions of the Currency Committee.

190

Interest Rate and Equity Price Risk Management. Daimler-
Chrysler holds a variety of interest rate sensitive assets and lia-
bilities to manage the liquidity and cash needs of its day-to-day
operations. In addition a substantial volume of interest rate sen-
sitive assets and liabilities is related to the leasing and sales
financing business which is operated by DaimlerChrysler Finan-
cial Services. In particular, the Group’s leasing and sales financ-
ing business enters into transactions with customers, primarily
resulting in fixed rate receivables. DaimlerChrysler’s general
policy is to match funding in terms of maturities and interest
rates. However, for a limited portion of the receivables portfolio,
funding does not match in terms of maturities and interest
rates. As a result, DaimlerChrysler is exposed to risks due to
changes in interest rates. DaimlerChrysler coordinates funding
activities of the industrial business and financial services on
the Group level. The Group uses interest rate derivative instru-
ments such as interest rate swaps, forward rate agreements,
swaptions, caps and floors to achieve the desired interest rate
maturities and asset/liability structures.

The Group assesses interest rate risk by continually identifying
and monitoring changes in interest rate exposures that may
adversely impact expected future cash flows and by evaluating
hedging opportunities. The Group maintains risk management
control systems independent of Corporate Treasury to monitor
interest rate risk attributable to DaimlerChrysler’s outstanding
interest rate exposures as well as its offsetting hedge positions.
The risk management control systems involve the use of ana-
lytical techniques, including value-at-risk analyses, to estimate
the expected impact of changes in interest rates on the Group’s
future cash flows.

Excess liquidity invested in equity securities and the correspon-
ding risks of derivative financial hedging instruments for
equities were not material to the Group in the reporting periods
presented. To a certain extent, the equity price risk from in-
vestments in publicly traded companies is hedged through deriv-
ative financial instruments.

Fair Value Hedges. Gains and losses from fluctuations in the
fair value of recognized assets and liabilities and firm commit-
ments of operating transactions as well as gains and losses
arising from derivative financial instruments designated as fair
value hedges of these recognized assets and liabilities and firm
commitments are recognized currently in revenues or cost of
sales, if the transactions being hedged involve sales (including
the leasing and sales financing business) or production of the
Group’s products. When the hedged items are recognized in
financial income, net, net gains and losses from fluctuations in
the fair value of both recognized financial assets and liabilities
and derivative financial instruments designated as fair value
hedges of these financial assets and liabilities are also recognized
in financial income, net.

For the year ended December 31, 2005, net losses of €58
million (2004: net losses of €49 million) were recognized in
operating and financial income, net, representing principally
the component of the derivative instruments’ gain or loss exclud-
ed from the assessment of hedge effectiveness and the amount
of hedging ineffectiveness.

Cash Flow Hedges. Changes in the value of forward foreign
currency exchange contracts and currency options designated
and qualifying as cash flow hedges are reported in accumulated
other comprehensive loss. These amounts are subsequently
reclassified into operating income in the same period the under-
lying transactions affect operating income. Changes in the fair
value of derivative hedging instruments designated as hedges of
variability of cash flows associated with variable-rate long-
term debt are also reported in accumulated other comprehen-
sive loss. These amounts are subsequently reclassified into the
income statement as a yield adjustment in the same period in
which the related interest on the floating-rate debt obligations
affect earnings. If the interest sensitive hedged items affect
operating income (including the leasing and sales financing busi-
ness), the effects from the hedging instruments are also recog-
nized in operating income. If the interest sensitive hedged items
affect financial income, net, the corresponding effects from
the hedging instruments are likewise classified in financial in-
come, net.

For the year ended December 31, 2005, €41 million losses
(2004: losses of €6 million), representing principally the compo-
nent of the derivative instruments’ gain/loss excluded from
the assessment of the hedge effectiveness and the amount of
hedge ineffectiveness, were recognized in operating and finan-
cial income, net.

During 2005, DaimlerChrysler recorded expenses of €1 million
as a result of the discontinuance of cash flow hedges (2004: no
gains and losses were recorded).

It is anticipated that €90 million of net gains included in accu-
mulated other comprehensive loss at December 31, 2005, will
be reclassified into earnings during the next year.

As of December 31, 2005, DaimlerChrysler held derivative
financial instruments with a maximum maturity of 27 months to
hedge its exposure to the variability in future cash flows from
foreign currency forecasted transactions.

191

The Group also transfers automotive finance receivables to third-
party trusts in transactions wherein it does not retain a beneficial
interest in the transferred receivables (whole loan sales). In
whole loan sales, all risk of loss related to the sold receivables
is transferred from DaimlerChrysler to the purchaser.

The Group generally remains as servicer for the sold receivables.

Trusts and Third-Party Entities. Trusts sponsored by Daimler-
Chrysler are considered Qualifying Special Purpose Entities
(“QSPEs”) under SFAS 140 and are not consolidated by the
Group. The third-party entities are multi-seller and multi-col-
lateralized bank conduits. These trusts are considered to be vari-
able interest entities (“VIEs”) under FIN 46R. A bank conduit
generally receives substantially all of its funding from issuing
asset-backed securities that are cross-collateralized by the
assets held by the entity. Although its interest in these VIEs is
significant, DaimlerChrysler has concluded that it is not the
primary beneficiary of these bank conduits and therefore is not
required to consolidate them under FIN 46R.

Assumptions in Measuring the Retained Interests and Sen-
sitivity Analysis. At December 31, 2005 and 2004, significant
assumptions used in measuring the residual interest resulting
from the sale of retail and wholesale receivables were as
follows (weighted average rates for securitizations completed
during the respective year):

Prepayment speed assumption
(monthly rate)

Lifetime (in months)

Estimated lifetime net credit
losses (an average percentage
of sold receivables)

Residual cash flows discount
rate (annual rate)

2005

1.25%-
1.5%

Retail
2004

Wholesale
2004

2005

1.5%

1.9%

2.3%

0.0%

12.0%

1 For the calculation of wholesale gains, the Group estimated that all sold wholesale loans would be

liquidated within 210 days.

Hedges of the Net Investment in a Foreign Operation. In
specific circumstances, DaimlerChrysler hedges the currency risk
inherent in certain of its long-term investments where the
functional currency is other than the euro, through the use of
derivative and non-derivative financial instruments. For the year
ended December 31, 2005, net gains of €213 million (2004:
€120 million) from hedging the Group’s net investment in MMC
were reclassified into the income statement. For further infor-
mation, also see the discussion in Note 3. In addition, net loss-
es of €8 million from hedging the Group’s net investments in
foreign operations were included in the cumulative transition
adjustment without affecting DaimlerChrysler’s net income in
2004.

34. Retained Interests in Securitized Sold Receivables and
Sale of Finance Receivables

DaimlerChrysler uses securitization transactions to improve
shareholder returns and diversify its funding sources. In the ordi-
nary course of the business the Group sells significant portions
of its automotive finance receivables to trusts and third-par-
ties entities in “asset-backed securitizations” and “whole loan
sales”. The information given below relates only to transfers
of finance receivables which qualified for de-recognition accord-
ing to the criteria in SFAS 140.

Description of Securitization Transactions. Asset-backed
securitizations (“ABS”) involve the sale of financial assets by
DaimlerChrysler to trusts that are Special Purpose Entities
(“SPE”). The SPEs purchase the assets with cash raised through
the issuance of beneficial interests (usually debt instruments)
to third-party investors. The sold financial assets consist of retail
receivables with an expected average lifetime of several months
at the time of the securitization and short-term wholesale receiv-
ables which are securitized using a revolving-period structure.
The investors in the beneficial interests have recourse to the
assets in the trusts and benefit from credit enhancements,
such as overcollateralization. In a subordinated capacity, the
Group retains residual beneficial interests in the sold receiv-
ables designed to absorb substantially all credit, prepayment,
and interest-rate risk of the receivables transferred to the trusts.
The retained interest balance represents DaimlerChrysler’s right
to receive collections on the transferred receivables in excess
of amounts required by the trust to pay interest and principal to
investors, servicing fees, and other required payments. To sup-
port the European ABS-program DaimlerChrysler also provided
a subordinated loan to one trust. The Group’s maximum expo-
sure to loss as a result of its involvement with these entities is
limited to the amount of the carrying value of retained interests
and the provided subordinated loan.

192

Actual and projected net lifetime credit losses for retail receiv-
ables securitized were as follows:

Actual and projected credit losses
Perccentages as of

December 31, 2005

December 31, 2004

December 31, 2003

December 31, 2002

2002

1.8%

1.9%

2.4%

2.6%

Receivables securitized in
2005

2004

2003

1.6%

2.0%

2.5%

1.8%

2.3%

1.9%

Static pool losses are calculated by summing the actual and
projected future credit losses and dividing them by the original
balance of each pool of assets. The amount shown above for
each year is a weighted average for all securitizations during that
year and outstanding at December 31, 2005.

At December 31, 2005, the significant assumptions used in esti-
mating the residual cash flows from sold receivables and the
sensitivity of the current fair value to immediate 10% and 20%
adverse changes are as follows:

(in millions of €)

Assumption
percentage

Impact on fair value
based on adverse
20%
10%
change
change

Prepayment speed, monthly

1.5%

(8)

(14)

Expected remaining net credit
losses as a percentage of
receivables sold

Residual cash flow discount rate,
annualized

0.9%

12.0%

(23)

(16)

(45)

(32)

The effect of a 10% and 20% adverse change in the discount
rate used to compute the fair value of the retained subordinated
securities would be a decrease of €2 million and €3 million,
respectively. Similar changes to the monthly prepayment speed
and the expected remaining net credit losses as a percentage
of receivables sold for the retained subordinated securities would
have no adverse effect on the fair value of the retained subor-
dinated securities.

These sensitivities are hypothetical and should be used with cau-
tion. The effect of a variation in a particular assumption on the
fair value of the retained interests is calculated without changing
any other assumption; in reality, changes in one assumption
may result in changes in another, which might magnify or coun-
teract the sensitivities.

Retained Beneficial Interests in Securitized Sold Receiv-
ables. As there is no active market for retained interests,
the Group determines the value of its retained interests using
discounted cash flow modeling upon the sale of receivables.
The valuation methodology considers historical and projected
principal and interest collections on the sold receivables,
expected future credit losses arising from the collection of the
sold receivables, and estimated repayment of principal and
interest.

For more details on the valuation of retained interests in securi-
tized sold receivables please see Note 1.

The fair value of retained interests in securitized sold receivables
was as follows:

(in millions of €)

Fair value of estimated residual cash flows,
net of prepayments, from sold receivables, before
expected future net credit losses

Expected future net credit losses on sold
receivables

Fair value of net residual cash flows from sold
receivables

Retained subordinated securities

Other retained interests

At December 31,
2004

2005

2,266

2,190

(286)

(369)

1,980

1,821

233

379

Retained interests in sold receivables

2,215

2,202

At December 31, 2005, the Group also recognized a subordinat-
ed loan with a carrying value of €25 million to a trust related to
the European ABS-platform.

193

The fair value of Retained Interests in sold receivables and the
subordinated loan are included in other assets (see Note 19).

Sale of Finance Receivables. During the year ended Decem-
ber 31, 2005, DaimlerChrysler sold in asset-backed securitization
transactions €10,059 million (2004: €9,329 million) and
€33,922 million (2004: €35,414 million) of retail and wholesale
receivables, respectively. From these transactions, the Group
recognized gains of €11 million (2004: €79 million) and €169
million (2004: €157 million). During the year ended December
31, 2005, the Group sold €1,516 million (2004: €965 million) of
retail receivables in whole loan sales and recognized gains of
€2 million (2004: €14 million). As of December 31, 2005, the
outstanding balance of receivables serviced in connection with
whole loan sales was €1,931 million (2004: €1,361 million).

The cash flows in connection with the mentioned transactions
between DaimlerChrysler and the securitization trusts were as
follows:

(in millions of €)

2005

2004

Proceeds from new securitizations

15,093

11,360

Proceeds from collections reinvested in
previous wholesale securitizations

Amounts reinvested in previous
wholesale securitizations

Servicing fees received

Receipt of cash flow on retained interest in
sold receivables

33,892

35,393

(33,922)

(35,414)

214

998

183

686

The outstanding balance, delinquencies and net credit losses
of sold receivables and other receivables, of those companies
that sell receivables, as of and for the years ended December
31, 2005 and 2004, respectively, were as follows:

(in millions of €)

Managed retail receivables

Managed wholesale receivables

Total receivables managed

Less: Retail receivables sold

Less: Wholesale receivables sold

Total receivables sold

Retail receivables recognized in balance sheets

Wholesale receivables recognized in balance sheets

Receivables recognized in balance sheets

Outstanding
balance at
2004

Delinquencies
> 60 days at
2004

2005

Net credit losses
for the year ended
2004

2005

38,963

15,142

54,105

(14,287)

(5,880)

(20,167)

24,676

9,262

33,938

111

119

(32)

–

(32)

116

122

(24)

–

(24)

428

434

(155)

(3)

(158)

273

276

390

393

(144)

–

(144)

246

249

2005

48,216

18,979

67,195

(14,677)

(8,703)

(23,380)

33,539

10,276

43,815

194

The following summarizes the outstanding balance of the re-
ceivables sold to the QSPEs and VIEs and the corresponding
retained interest balances as of December 31, 2005:

(in millions of €)

Variable interest entities

Qualifying special purpose entities

Retained
Receivables interest in sold
receivables

sold

3,815

19,565

23,380

367

1,848

2,215

Servicing Assets and Servicing Liabilities. Servicing assets
(Servicing liabilities) represent the present value derived from
retaining the right (obligation) to service securitized receivables
compared to adequate servicer compensation. During the year
ended December 31, 2005, the Group recognized servicing
assets of €7 million (2004: €1 million) and related amortization
of €2 million (2004: €2 million). The Group also recognized
servicing liabilities of €10 million (2004: €8 million) and related
amortization of €13 million (2004: €11 million). At December
31, 2005, the fair value of servicing assets on sold receivables
was €6 million (2004: €1 million), and the fair value of servicing
liabilities was €15 million (2004: €15 million). These values
were determined by discounting expected cash flows at current
market rates.

Liquidity Facilities of Special Purpose Entities. To support
the Group’s asset-backed commercial paper program in North
America, a group of financial institutions has provided con-
tractually committed liquidity facilities aggregating $6.2 billion
which expire in September 2006, and are subject to annual
renewal. These liquidity facilities can only be drawn upon by the
special purpose entity to which the Group’s North American
financial services companies will sell receivables under this pro-
gram. As of December 31, 2005, none of the liquidity facilities
have been utilized.

35. Segment Reporting

Information with respect to the Group’s reportable segments
follows:

Mercedes Car Group. This segment includes activities related
mainly to the development, design, manufacture, assembly and
sale of passenger cars and off-road vehicles under the brand
names Mercedes-Benz, smart and Maybach as well as related
parts and accessories.

Chrysler Group. This segment includes the development, design,
manufacture, assembly and sale of cars and trucks under the
brand names Chrysler, Jeep® and Dodge and related automotive
parts and accessories.

Commercial Vehicles. This segment is involved in the devel-
opment, design, manufacture, assembly and sale of vans,
trucks, buses and Unimogs as well as related parts and acces-
sories. The products are sold mainly under the brand names
Mercedes-Benz, Setra, Freightliner, and Mitsubishi and Fuso.

Financial Services. The activities in this segment primarily
extend to the marketing of services related to financial services
(principally retail and lease financing for vehicles and dealer
financing) and insurance brokerage. This Segment is also engaged
in toll collection. In 2005, DaimlerChrysler renamed its Services
segment to Financial Services, to emphasize its focus on the
financial services business.

Other Activities. This segment comprises businesses, opera-
tions and investments not allocated to one of DaimlerChrysler’s
other business segments. It includes the Group’s equity me-
thod investment EADS, the business unit DC Off-Highway which
is primarily comprised of the MTU-F Group and the Off-Highway
activities of Detroit Diesel Corporation, the real estate and
corporate research activities, the holding companies and financ-
ing subsidiaries through which the Group refinances the capital
needs of the operating businesses in the capital markets.
The Group’s equity investment in MMC is included in this segment
using the equity method of accounting through June 29, 2004,
and thereafter as an investment in related companies, accounted
for at fair value. In November 2005, DaimlerChrysler sold all of
its MMC shares (see also Note 3). Through December 31, 2003,
this segment includes the MTU Aero Engines business unit. On
December 27, 2005, DaimlerChrysler entered into a share sale
and purchase agreement with the Swedish investor group EQT
regarding the sale of a major portion of its Off-Highway Business
Unit. The closing is expected to occur in the first quarter of
2006 (see also Note 4).

On January 24, 2006, DaimlerChrysler presented a new manage-
ment model. As part of the new management model, Daimler-
Chrysler intends to change the composition of its business seg-
ments by reporting the van and bus business units with its
Other Activities. As a result of these changes, the Commercial
Vehicles segment will be renamed the Truck Group.

195

Management Reporting and Controlling Systems. The Group’s
management reporting and controlling systems use accounting
policies that are substantially the same as those described in
Note 1 in the summary of significant accounting policies (U.S.
GAAP), except for revenue recognition between the automotive
business segments and the Services segment in certain mar-
kets.

The Group measures the performance of its operating segments
through “operating profit”. DaimlerChrysler’s consolidated oper-
ating profit (loss) is the sum of the operating profits and losses
of its reportable segments adjusted for consolidation and
elimination entries. Segment operating profit (loss) is computed
starting with income (loss) before income taxes, minority in-
terests, discontinued operations, and the cumulative effect of
changes in accounting principles, and then adjusting that amount
to 1) exclude pension and postretirement benefit income or
expenses, other than current and prior year service costs and
settlement/curtailment losses, 2) exclude gains from the sale
of the 12.4% stake in MMC in 2005 and the 10.5% stake in HMC
in 2004, impairment of investment in EADS in 2003, 3) exclude
interest and similar income and interest and similar expenses,

4) exclude other financial income (loss), net and 5) include or
exclude certain miscellaneous items. In addition, this result is
further adjusted to a) include pre-tax income (loss) from dis-
continued operations, adjusted to exclude or include the recon-
ciling items 1 to 5 described above, b) include pre-tax gain
(loss) on the disposal of discontinued operations, and c) include
the Group’s share of all of the above reconciling items included
in the net earnings (losses) of investments accounted for at
equity.

Intersegment sales and revenues are generally recorded at val-
ues that approximate third-party selling prices.

Revenues are allocated to countries based on the location of
the customer. Long-lived assets are disclosed according to the
physical location of these assets.

Capital expenditures represent the purchase of property, plant
and equipment.

Segment information as of and for the years ended December
31, 2005, 2004 and 2003 follows:

Mercedes
Car Group

Chrysler Commercial
Vehicles

Group

Financial
Services

Other
Activities

Discontinued
Total Operations/

Segments Eliminations Consolidated

46,429

3,586

50,015

(505)

27,081

1,629

2,418

46,082

3,548

49,630

1,666

26,945

2,343

1,854

48,025

3,421

51,446

3,126

24,199

2,939

1,789

50,086

50,118

1,534

55,372

3,083

3,336

49,485

49,498

1,427

45,869

2,647

3,368

49,321

–

49,321

(506)

47,147

2,487

3,927

38,356

2,278

40,634

2,093

21,712

1,743

1,313

32,940

1,824

34,764

1,332

20,156

1,184

1,058

25,304

1,502

26,806

811

14,713

958

890

12,798

2,641

15,439

1,468

99,635

5,757

11,646

2,293

13,939

1,250

88,036

4,976

11,997

2,040

14,037

1,240

83,239

5,087

2,107

149,776

–

149,776

289

8,826

2,396

158,602

(8,826)

–

149,776

591

5,181

5,185

29,251

233,051

(31,419)

201,632

109

168

6,609

12,992

(29)

(381)

6,580

12,611

1,906

294

2,200

456

142,059

7,972

150,031

6,131

–

142,059

(7,972)

(377)

–

142,059

5,754

26,526

207,532

(24,660)

182,872

134

164

6,399

11,420

(13)

(308)

6,386

11,112

3,723

361

4,084

1,329

138,370

7,324

145,694

6,000

(1,933)

(7,324)

(9,257)

(314)

136,437

–

136,437

5,686

31,227

200,525

(22,075)

178,450

169

196

6,629

11,889

(15)

(290)

6,614

11,599

(in millions of €)

2005

Revenues

Intersegment sales

Total revenues

Operating Profit (Loss)

Identifiable segment assets

Capital expenditures

Depreciation and amortization

2004

Revenues

Intersegment sales

Total revenues

Operating Profit (Loss)

Identifiable segment assets

Capital expenditures

Depreciation and amortization

2003

Revenues

Intersegment sales

Total revenues

Operating Profit (Loss)

Identifiable segment assets

Capital expenditures

Depreciation and amortization

196

Mercedes Car Group. In 2005, the operating profit (loss) of
the Mercedes Car Group segment includes charges of €570 mil-
lion for the headcount reduction initiative at Mercedes Car
Group. Of this amount, €70 million were already cash effective
in 2005 (see Note 5).

An accrual established in connection with a case alleging infringe-
ment of EU competition law was reduced by €60 million as a
result of a favorable decision by the Court of First Instance of
the European Court of Justice. This amount is included in selling
expenses in the consolidated statement of income and in the
operating results of the Mercedes Car Group segment in 2005.

The operating profit (loss) of the Mercedes Car Group segment
for 2005 includes charges of €1,111 million associated with the
realignment of the business model for smart. Thereof €535 mil-
lion are attributable to impairment charges and write-downs and
€576 million are attributable to expected payments in the cur-
rent or future periods (see Note 5).

In 2003, operating profit of the Mercedes Car Group includes a
non-cash impairment charge amounting to €77 million related to
certain long-lived assets (primarily property, plant and equip-
ment) at a production facility in Brazil.

Chrysler Group. In 2005, the Chrysler Group recorded a €240
million gain on the sale of its Arizona Proving Grounds vehicle
testing facility and a €36 million benefit as a result of adjustments
to prior estimates associated with the Chrysler Group turnaround
plan (see also Note 7), which were partially offset by charges of
€99 million related to the financial support provided to supplier
Collins & Aikman (see Note 32).

In 2004, the Chrysler Group’s operating results were negatively
impacted by a €145 million charge related to the turnaround
plan, a €138 million charge for early retirement incentives and
other workforce reductions, partially offset by an adjustment of
€95 million to correct the calculation of an advertising accrual
to more accurately reflect expected payments.

In 2003, the Chrysler Group’s operating results were negatively
impacted by a €469 million charge related to the turnaround
plan. Also during 2003, the Chrysler Group and Financial Ser-
vices segments agreed to an arrangement regarding the sharing
of risks associated with the residual values of certain leased
vehicles. In addition, the Chrysler Group and Financial Services
segments negotiated reduced pricing on certain retail financing
programs offered by the Chrysler Group as sales incentives in
2003. The adjusted pricing reflected the then current favorable
funding environment as well as Financial Services becoming
the exclusive provider of selected discount consumer financing
for the Chrysler Group. Both arrangements resulted in a favor-
able impact of €244 million on the 2003 operating profit of the
Chrysler Group, and a corresponding decrease of €244 million
on the 2003 operating profit of Financial Services. Neither
arrangement had any effect on the Group's consolidated operat-
ing results.

Commercial Vehicles. As discussed in Note 4, on March 18,
2004, DaimlerChrysler acquired an additional 22% interest in
MFTBC from MMC for €394 million in cash, thereby increasing
the Group’s ownership interest in MFTBC to a controlling 65%.
As a result of the acquisition and first time consolidation of
MFTBC in March 2004, the identifiable segment assets of the
Commercial Vehicles segment increased by €4.3 billion.

Subsequent to the acquisition of the controlling interest in MFTBC,
a number of quality problems of MFTBC vehicles that were pro-
duced before DaimlerChrysler first acquired a stake in MFTBC
were identified (see Note 4 for additional information). As of
December 31, 2004, DaimlerChrysler made a true-up based on
the preliminary evaluation of the probable costs associated with
the quality measures and recall campaigns at MFTBC which
substantially confirmed the estimates made in the third quarter
2004. Total expenses arising from the recall issues reduced
2004 operating profit of the Commercial Vehicle segment by
€475 million. The reduction in operating profit consisted of €70
million classified as financial income (expense), net, in the
Group’s 2004 statement of operations and €735 million classi-
fied as cost of sales, net of €330 million attributed to the minor-
ity interests’ share in those costs. As expenses attributed to
minority interests are not allocated to operating profit, they are
included in the line “Miscellaneous items, net” in the reconcili-
ation of total segment operating profit to consolidated income
before income taxes, minority interests, and discontinued
operations. The following settlement with MMC associated with
the quality issues and recall campaigns at MFTBC resulted
in a favorable impact of €276 million, which is included in the
operating profit of the Commercial Vehicles segment in 2005.

197

Financial Services. In 2005, 2004 and 2003, the Financial
Services segment recorded charges of €54 million, €472 million
and €241 million related to the participation in Toll Collect.
The charges in 2004 were mainly the result of revaluing the
system’s total costs and extra operating expenses required to
guarantee the start of the system on January 1, 2005.

In 2004, the operating profit of the Financial Services segment
includes non-cash impairment charges of €102 million associat-
ed with the investment made in dAF.

Capital expenditures for equipment on operating leases for 2005,
2004 and 2003 for the Financial Services segment amounted
to €16,055 million, €13,850 million and €11,631 million, respec-
tively.

With respect to two agreements entered into in 2003 with the
Chrysler Group segment, the 2003 operating profit of Financial
Services were unfavorably impacted by €244 million. See dis-
cussion at Chrysler Group above.

Other Activities. In 2005, operating profit of the Other Activi-
ties segment includes primarily the Group’s share in the gains
of EADS of €757 million (see Note 3). In 2004 and 2003, the
proportionate results of the investments in EADS and MMC
together amounted to €548 million and €278 million, respec-
tively. The 2004 amount also included the results from the dilu-
tion of the Group’s interest in MMC (loss of €135 million) and
related currency hedging effects (gain of €195 million). Due to
the loss of significant influence on MMC at June 29, 2004,
the Group’s share in the losses of MMC is only included for the
corresponding period (see Note 3 for additional information).

As a result of the repurchase of a note by MTU Aero Engines
Holding AG, a gain of €53 million is included in the operating
profit of the Other Activities segment for 2005 (see Note 6).

At December 31, 2005, the identifiable assets of the Other
Activities segment include €3,564 million related to the carry-
ing values of the investment in EADS. In 2004 and 2003, the
carrying values of the investments in EADS and MMC together
amounted to €4,313 million and €4,542 million, respectively.

In connection with the sale of Adtranz in 2001, a settlement
agreement with Bombardier was reached in 2004 with respect
to all claims asserted. This settlement resulted in a favorable
impact of €120 million on the 2004 operating profit of the Other
Activities segment.

In addition, the operating profit of 2004 of the Other Activities
segment includes non-cash impairment charges of €70 million
associated with the investment made in dAF.

The 2003 operating profit of Other Activities includes a gain of
€1,031 million from the sale of MTU Aero Engines. Following
the sale transaction, effective December 31, 2003, MTU Aero
Engines’ assets and liabilities were deconsolidated. Revenues,
operating profit, capital expenditures, and depreciation and
amortization of the Other Activities segment include MTU Aero
Engines through December 31, 2003 (see also Notes 4 and 10).

The reconciliation of total segment operating profit (loss) to
consolidated income (loss) before income taxes, minority inter-
ests, discontinued operations and cumulative effects of changes
in accounting principles is as follows:

(in millions of €)

2005

2004

2003

Total segment operating profit

5,181

6,131

6,000

Elimination and consolidation
amounts

Total Group operating profit

Pension and postretirement benefit
expenses, other than current and
prior service costs and settlement/
curtailment losses

Gain from the sale of the 12.4%
stake in MMC

Gain from the sale of the 10.5%
stake in HMC

Impairment of investment in EADS

Interest and similar income

Interest and similar expenses

Other financial income (loss), net

Miscellaneous items, net

Pre-tax income from discontinued
operations, adjusted to exclude or
include the above reconciling items

Pre-tax income on disposal
of discontinued operations

The Group’s share of the above
reconciling items included
in the net losses of investments
accounted for at equity

Consolidated income before income
taxes, minority interests, cumulative
effects of changes in accounting
principles and discontinued
operations

5,185

(377)

5,754

(314)

5,686

(1,175)

(845)

(870)

681

–

539

(1,112)

(69)

(149)

–

252

–

490

(790)

(171)

(384)

–

(1,960)

521

(911)

(308)

(84)

(1,031)

(462)

(771)

(482)

3,438

3,535

596

198

Revenues from external customers presented by geographic
region are as follows:

(in millions of €)

2005

2004

2003

1 Excluding Germany

Germany

Western
Europe 1

United
States

Other
American
countries

Other Discontinued

Asia

countries

operations Consolidated

20,948

22,315

24,182

26,389

26,530

26,975

67,015

64,232

64,757

13,919

11,295

10,399

12,525

10,093

6,786

8,980

7,594

5,271

–

(1,933)

149,776

142,059

136,437

Germany accounts for €20,682 million of long-lived assets
(2004: €21,209 million; 2003: €21,164 million), the United
States for €44,007 million (2004: €35,250 million; 2003:
€36,430 million) and other countries for €17,716 million
(2004: €15,982 million; 2003: €13,102 million).

36. Earnings (Loss) per Share

The computation of basic and diluted earnings (loss) per share
for “Income (loss) from continuing operations” is as follows:

(in millions of € or millions of shares,
except earnings (loss) per share)

Year ended December 31,
2003

2004

2005

Income (loss) from continuing
operations – basic

Interest expense on convertible
bonds and notes (net of tax)

Income (loss) from continuing
operations – diluted

2,851

2,466

(418)

–

2,851

2,466

(418)

Weighted average number of shares
outstanding – basic

Dilutive effect of stock options in
2005 and 2004

Weighted average number of shares
outstanding – diluted

1,014.7

1,012.8

1,012.7

3.0

1.7

–

1,017.7

1,014.5

1,012.7

Earnings (loss) per share from
continuing operations

Basic

Diluted

2,80

2.43

(0.41)

Because the Group reported a loss from continuing operations
for the year ended December 31, 2003 the diluted loss per
share does not include the antidilutive effects of convertible
bonds and notes. Had the Group reported income from con-
tinuing operations for the year ended December 31, 2003 the
weighted average number of shares outstanding would have
potentially been diluted by 0.5 million shares resulting from the
conversion of bonds and notes.

199

Stock options to acquire 65.7 million, 67.1 million and 71.6 mil-
lion DaimlerChrysler Ordinary Shares that were issued in con-
nection with the 2000 Stock Option Plan were not included in
the computation of diluted earnings (loss) per share for 2005,
2004 and 2003, respectively, because the options’ underlying
exercise prices were higher than the average market prices of
DaimlerChrysler Ordinary Shares in these periods.

37. Related Party Transactions

The Group purchases materials, supplies and services from
numerous suppliers throughout the world in the ordinary course
of its business. These suppliers include companies in which
the Group holds an ownership interest and companies that are
affiliated with some members of DaimlerChrysler AG’s Super-
visory Board or Board of Management.

In recent years, DaimlerChrysler initiated several cooperation
projects with MMC. In November 2005, DaimlerChrysler sold
its remaining 12.4% interest in MMC. Current cooperation proj-
ects will not be affected by the sale, and will continue as
previously agreed. Examples of such projects are the joint devel-
opment and production of engines, the shared use of vehicle
architecture and the joint production of passenger cars, sports
utility vehicles and pickup trucks in Europe, North America,
China and South Africa.

DaimlerChrysler has an agreement with McLaren Cars Ltd.,
a wholly owned subsidiary of McLaren Group Ltd., for the pro-
duction of the Mercedes McLaren super sports car, which
DaimlerChrysler launched into the markets in 2004. The Group
owns a 40% equity interest in McLaren Group Ltd.

As described in more detail in Note 3, DaimlerChrysler provides
a number of guarantees with respect to Toll Collect, a joint
venture in which DaimlerChrysler holds an equity interest of
45%. Mr. Bernhard Walter, a member of the Supervisory Board
of DaimlerChrysler AG, is also a member of the Supervisory
Board of Deutsche Telekom AG, one of the other investors in
Toll Collect.

In 2003, DaimlerChrysler sold 60% of its equity interest in
Mercedes-Benz Lenkungen GmbH to ThyssenKrupp Automotive
AG. Since then, DaimlerChrysler accounted for its remaining
40% equity interest in the company using the equity method
of accounting. Mr. Bernhard Walter, a member of Daimler-
Chrysler’s Supervisory Board, abstained from the voting for
the approval of the sale since he is also a member of the Super-
visory Board of ThyssenKrupp AG, the parent company of
ThyssenKrupp Automotive AG. As described in Note 4, Daimler-
Chrysler sold its remaining 40% equity interest in the company
to ThyssenKrupp Automotive AG. The Group continues to pur-
chase products from this company.

In May 2002, our wholly owned subsidiary DaimlerChrysler
Corporation (“DCC”) sold its Dayton Thermal Products Plant to
Behr Dayton, a joint venture company with Behr America Inc.
As of May 1, 2004, DCC sold its remaining minority interest in
the joint venture to Behr America Inc. DCC is required to pur-
chase products from the former joint venture at competitively-
based prices under a supply agreement entered into in connec-
tion with the sale. The supply agreement is valid from April
2002 through April 2008. Product pricing was based on the
existing cost structure of the Dayton Thermal Products Plant and
was comparable to pricing in effect prior to the transaction.

In 2004, Dr. Mark Wössner, a member of DaimlerChrysler’s
Supervisory Board, received payments for the rental of premis-
es to Westfalia Van Conversion GmbH, a wholly owned sub-
sidiary of DaimlerChrysler AG, in the amount of €1 million.

DaimlerChrysler engages in commercial transactions negotiated
at arms length with its equity investee EADS. DaimlerChrysler
does not consider these transactions to be material to us either
individually or in the aggregate. Mr. Lagardère, a member of
the Supervisory Board of DaimlerChrysler AG, is also one of two
chairmen of the board of directors of EADS.

From time to time, DaimlerChrysler Group companies may pur-
chase goods and services (primarily advertising) from, and
sell or lease vehicles or provide financial services to, Lagardère
Group companies in the ordinary course. Mr. Lagardère is
the general partner and chief executive officer of their ultimate
parent company, Lagardère SCA, a publicly traded company.

200

The following represent transactions with shareholders:
DaimlerChrysler incurred expenses of approximately $800,000
in 2005 for advertising and related marketing activities with
a U.S. magazine. Earl G. Graves, member of DaimlerChrysler’s
Supervisory Board and shareholder of DaimlerChrysler AG, is
the Chairman, Chief Executive Officer and sole stockholder of
the magazine’s ultimate parent company.

38. Compensation of the Members of the Board of Manage-
ment and the Supervisory Board and Further Additional
Information Concerning German Corporate Governance
Code Compensation. The total compensation paid by Group
related companies to the members of the Board of Management
of DaimlerChrysler AG is calculated from the amount of com-
pensation paid in cash and from benefits in kind.

Thereof €9.3 million account for fixed, €24.6 million for short-
term and mid-term and €1.0 million for long-term incentive
compensation components. This is correspondent to a sum of
€34.9 million in 2005.

In 2005, 454,914 phantom shares were granted to the mem-
bers of the Board of Management from the long-term share-
based compensation component. The cash pay-out for these
shares will be effective in 2009 in the event of continuous
service on the Board of Management and dependent on the
achievement of internal and external goals. The information on
the pay-out will be part of the performance-oriented compensa-
tion disclosure for the business year 2009. For detailed infor-
mation on stock-based compensation programs, see Note 24.

In 2005, stock options granted in 2003 were exercisable. In
this context, Members of the Board of Management exercised
167,500 stock options.

Board of Management Members, whose term of office expired
in 2005, were entitled to receive compensation earned before
the respective retirement date from current mid-term and the
new 2005 long-term share-based remuneration components
calculated on a pro-rata basis. We also had expenditures in con-
nection with certain previously accrued retirement benefit obli-
gations of other Board of Management Members. The aggregate
amount of both items is €23.8 million.

In July 2005, DCC and Haden Prism LLC (“Haden”) entered into
an agreement under which Haden will construct and operate a
vehicle paint facility within the Chrysler Group’s manufacturing
complex in Toledo, Ohio, as part of a supplier colocation project
scheduled to begin operation in 2006. Haden is an indirect sub-
sidiary of Haden International Group, Inc., which is 75% owned
by Palladium Equity Partners (“Palladium”), a private investment
firm with investments in several other companies. Robert J.
Lanigan, a member of the Supervisory Board of DaimlerChrysler
AG, is a partner and an investor in Palladium.

DaimlerChrysler Canada Inc. paid CAD1.2 million to a subsidiary
of Mosaic Sales Solutions Holding Company for field market-
ing services pursuant to a competitively bid contract awarded
in April 2005. The chief executive officer of the subsidiary,
Tony LaSorda, is the brother of Thomas LaSorda, a member of
the Board of Management of DaimlerChrysler AG who assumed
responsibility for the Chrysler Group in September 2005.

During 2005, Deutsche Bank AG reduced its 11.8% share own-
ership as of December 31, 2004, and now holds less than
5% of our outstanding shares. Deutsche Bank AG and its sub-
sidiaries provided the Group with various financial and other
services for which they were paid reasonable and customary
fees. DaimlerChrysler also guarantees the obligations of its
employees under the company’s corporate credit card program
for corporate travel expenses with Deutsche Bank AG in the
event the employees default on their obligations to Deutsche
Bank AG. This guarantee, which amounted to €651 million
as of December 31, 2004, was reduced to €20 million during
2005. DaimlerChrysler so far has not incurred any major pay-
ments to Deutsche Bank AG from that guarantee.

On July 7, 2004, DaimlerChrysler entered into a securities lend-
ing agreement with Deutsche Bank AG concerning 22,227,478
of its shares in EADS (approximately 3% of the voting stock).
As collateral, DaimlerChrysler received a lien on a securities
account of equivalent value as the shares loaned by Daimler-
Chrysler.

201

39. Principal Accountant Fees and Services

The fees, billed by the independent auditors KPMG for profes-
sional services in 2005, 2004 and 2003 are comprised of:

(in millions of €)

Audit fees

Audit-related fees

Tax fees

All other fees

Year ended December 31,
2003

2004

2005

The aggregate amount of expenditures paid by DaimlerChrysler
for the year ended December 31, 2005, to provide pension,
retirement and similar benefits for former members of the board
of management and their survivors was €16.9 million. An
amount of €292.9 million has been accrued for pension obliga-
tions to former members of the Board of Management and
their survivors.

The compensation paid in 2005 to the members of the Supervi-
sory Board of DaimlerChrysler AG for services in all capacities
to the Group amounted to €2.0 million. The individual compen-
sation paid to the members of the Supervisory Board is dis-
closed as part of the compensation report in accordance with a
recommendation of the German corporate governance code.
Except for the compensation paid to employee representatives
within the Supervisory Board in accordance with their con-
tracts of employment, no compensation was paid for services
provided personally beyond the aforementioned Board activi-
ties, in particular for advisory or agency services.

As of December 31, 2005, no advances or loans existed to
members of the Board of Management or Supervisory Board of
DaimlerChrysler AG.

Transactions with Related Parties. For transactions with
related parties, which are shareholders of DaimlerChrysler AG,
see the last section of Note 37.

Third Party Companies. At December 31, 2005, Daimler-
Chrysler was shareholder of a significant company, that meet
the criteria of a third party company according German Cor-
porate Governance Codex:

Name of the company

Headquarters

Stake in % 1

Equity in millions of € 2

Net income in millions of € 2

Tata Motors Limited

Mumbai, India

6.8

828

253

1 As of December 31, 2005
2 Based on national consolidated financial statements for the year ended March 31, 2005

202

Transition to International Financial Reporting
Standards (IFRS)

EU directive on the application of IFRS. In July 2002, the
European Parliament and the European Council passed a direc-
tive on the application of IFRS. All companies oriented towards
the capital market that are domiciled in an EU country are obliged
to prepare their consolidated financial statements in accordance
with IFRS for financial years beginning on or after January 1,
2005. The member states are allowed, however, to postpone the
mandatory application of IFRS until 2007 for companies that
are only listed with debt certificates or that already apply inter-
nationally recognized standards for purposes of stock-exchange
listings outside the European Union. The latter is applicable in
particular for companies, such as DaimlerChrysler, which are
listed on the New York Stock Exchange and therefore prepare
their consolidated financial statements in accordance with US
GAAP. In Germany, this postponement option was implemented
in December 2004 within the context of the Financial State-
ments Law Reform Act (BilReG). On the basis of current planning,
at the beginning of 2007, we will probably prepare and publish
our first consolidated financial statements according to IFRS as
additional information on the 2006 financial year (including
2005 as a comparative period).

Effects of the differences between IFRS and US GAAP. In
September 2002, the International Accounting Standards Board
(IASB) and the US Financial Accounting Standards Board (FASB)
included a “Short-term Convergence” project in their project plan
with the goal of quickly eliminating a number of existing diver-
gences. In the long term, IASB and FASB continue to pursue the
goal of reducing or eliminating any remaining differences through
joint projects and by coordinating future work programs. In
addition, it was agreed that the respective interpretation com-
mittees would collaborate on convergence in terms of inter-
pretation and application. DaimlerChrysler supports the ongoing
convergence between IFRS and US GAAP. Although progress
has already been made on the way to achieving a substantial
reduction in the differences between the two systems, signifi-
cant differences still exist. DaimlerChrysler expects the applica-
tion of IFRS to have only limited effects on the comparability
and continuity of financial reporting. On the basis of the present

regulations, we assume that the number of differences between
US GAAP and IFRS with a significant impact on our consolida-
ted financial statements is low, and that primarily the following
areas will be affected.

Research and development expenditure. According to US
GAAP, research and development costs are generally to be
recorded as an expense immediately. According to IFRS, a dif-
ference is to be made between research and development.
Research costs are to be entered immediately as an expense,
whereas development costs that fulfill specific criteria are to
be capitalized and amortized.

Qualifying special-purpose entities (QSPE). Qualifying speci-
al-purpose entities are established to achieve a defined goal
such as conducting a leasing transaction or selling receivables.
According to US GAAP, QSPEs are exempt from the obligation
to consolidate. But according to IFRS, the general consolidation
regulations apply. For DaimlerChrysler, this regulation means
that additional special-purpose companies will be consolidated
compared with US GAAP, particularly relating to the sale of re-
ceivables.

Pension obligations. In conformance with IFRS 1, First-time
Adoption of International Financial Reporting Standards, Daimler-
Chrysler will not apply the provisions of IAS 19, Employee Be-
nefits, retroactively to the period since its performance-related
pension plans were created. Accordingly, the net pension obli-
gation or the net pension-plan assets for performance-related
pension plans as of January 1, 2005 is based on the actuarially
calculated projected benefit obligation, taking future salary
increases into consideration (defined-benefit obligation – DBO),
less the market value of the plan assets. Differences to the
values entered according to US GAAP will be netted off with
reserves in the IFRS opening balance sheet. Due to the signi-
ficance of acturial losses not yet recognized, which have accu-
mulated at DaimlerChrysler in recent years, this effect resulting
from the introduction of IFRS is likely to have the greatest impact
on shareholders’ equity.

203

Ten-Year Summary

Amounts in millions of €

1996

1997

1998

1999

2000

2001 1

2002 1

2003 1

2004 1

2005

From the statements of income:

Revenues

Personnel expenses

of which: Wages and salaries

Research and development expenditure

Operating profit (loss)

Operating margin

Financial income

Income (loss) before income taxes
and extraordinary items

Net operating income

Net operating income as %
of net assets (RONA)

Net income (loss)

Net income (loss) per share (€)

Diluted net income (loss) per share (€)

Total dividend

Dividend per share (€)

Dividend including tax credit 3
per share (€)

From the balance sheets:

Property, plant and equipment

Leased equipment

Current assets

of which: Liquid assets

Total assets

Stockholders’ equity

of which: Capital stock

Accrued liabilities

Liabilities

of which: Financial liabilities

Debt-to-equity ratio

Mid- and long-term provisions
and liabilities

Short-term provisions and liabilities

Current ratio

Net assets (annual average)

204

100,233

116,057

130,122

148,243

160,278

150,422

147,408

136,437

142,059

149,776

23,370

18,656

25,033

19,982

21,648

17,143

5,616

6,212

6.2%

120

5,406

–

4,022

4.09

4.05

–

6,364

6,230

5.4%

594

5,995

4,946

10.9%

6,547

4.28 2

4.21 2

–

26,158

21,044

7,438

11,012

7.4%

278

9,473

6,552

12.3%

5,746

5.73

5.69

2,358

2.35

26,500

21,836

7,241

9,752

6.1%

110

4,280

8,796

14.8%

7,894

7.87

7.80

2,358

2.35

25,095

20,073

5,848

(1,346)

(0.9%)

131

(1,703)

332

0.5%

(593)

(0.59)

1,003

1.00

24,163

19,701

5,942

6,827

4.6%

2,746

6,439

6,116

9.4%

5,098

5.06

5.03

1,519

1.50

24,287

18,897

5,571

5,686

4.2%

24,216

18,750

5,658

5,754

4.1%

(2,792)

(1,077)

596

1,467

2.5%

448

0.44

1,519

1.50

3,535

3,165

5.7%

2,466

2.43

1,519

1.50

25,731

19,750

5,649

5,185

3.5%

217

3,438

3,635

6.6%

2,846

2.80

1,527

1.50

6,540

8,593

6.6%

493

7,697

5,829

11.6%

4,820

5.03

4.91

2,356

2.35

3.36

–

23,111

7,905

54,888

12,851

28,558

11,092

68,244

17,325

29,532

14,662

75,393

19,073

36,434

27,249

93,199

18,201

40,145

33,714

41,180

36,002

36,285

28,243

32,933

24,385

34,017

26,711

36,739

34,238

99,852

103,414

104,104

103,881

105,188

109,213

12,510

14,536

12,439

14,296

11,666

12,647

101,294

124,831

136,149

174,667

199,274

207,616

187,527

178,450

182,872

201,632

22,355

2,444

32,135

41,672

25,496

114%

36,989

41,950

–

27,960

2,391

36,007

54,313

34,375

123%

45,953

50,918

85%

30,367

2,561

35,057

62,527

40,430

133%

47,601

58,181

79%

36,060

2,565

38,211

90,560

64,488

179%

55,291

83,315

66%

42,422

2,609

36,972

38,928

2,609

42,476

109,661

115,337

84,783

200%

75,336

81,516

67%

91,395

235%

87,814

80,874

64%

35,076

2,633

43,995

99,883

78,824

225%

79,778

72,673

72%

34,486

2,633

39,544

95,745

75,311

218%

73,422

70,542

74%

33,522

36,449

2,633

41,938

97,935

76,270

228%

72,192

77,158

67%

2,647

46,682

104,576

80,932

222%

78,784

86,399

65%

45,252

50,062

53,174

59,496

66,094

65,128

59,572

55,885

55,301

Amounts in millions of €

1996

1997

1998

1999

2000

2001 1

2002 1

2003 1

2004 1

2005

From the statements of cash flows:

Investments in property,
plant and equipment

Investments in leased equipment

Depreciation of property,
plant and equipment

Depreciation of leased equipment

Cash provided by operating activities 4

6,721

4,891

4,427

1,159

9,956

8,051

7,225

5,683

1,456

8,155

10,245

4,937

1,972

9,470

19,336

5,655

3,315

12,337

16,681

18,023

10,392

19,117

6,645

6,487

16,017

8,896

17,951

7,580

7,254

7,145

17,704

6,385

7,244

6,614

15,604

5,841

5,579

6,386

17,678

5,498

5,445

6,580

20,236

6,039

6,341

15,944

15,909

13,826

11,060

12,353

Cash used for investing activities 4

(8,745)

(14,530)

(23,445)

(32,110)

(32,709)

(13,287)

(10,839)

(13,608)

(16,682)

(11,222)

From the stock exchanges:

Share price at year-end Frankfurt (€)

New York (US $)

–
–

83.60
96.06

77.00
78.25

44.74
41.20

48.35
41.67

29.35
30.65

37.00
46.22

35.26
48.05

43.14
51.03

Average shares outstanding
(in millions)

Average diluted shares outstanding
(in millions)

981.6

949.3

959.3

1,002.9

1,003.2

1,008.3

1,012.7

1,012.8

1,014.7

994.0

968.2

987.1

1,013.6

1,013.9

1,003.2

1,013.9

1,012.7

1,014.5

1,017.7

Rating:

Credit rating, long-term

Standard & Poor’s

Moody’s

Fitch

Dominion Bond

–

A +

A 1

–

A +

A 1

–

A 2

–

BBB+

A 3

–

BBB+

A 3

–

BBB

BBB+

A-

BBB

BBB+

A-

BBB

BBB+

A-

Average annual number of employees

419,758

421,661

433,939

463,561

449,594

379,544

370,677

370,684

379,019

386,465

1 Some amounts and ratios have been adjusted compared with our reporting in previous years. See also Note 1 of the Notes to the Consolidated Financial Statements.
2 Excluding one-time positive tax effects, especially due to extra distribution of 10.23 € per share.
3 For our stockholders who are taxable in Germany. There is no tax credit from 2001 due to a change in the corporate income tax system.
4 Periods before 2002 not adjusted for the effects of inventory-related receivables from Financial Services.

205

Glossary

Code of Ethics. The DaimlerChrysler Code of Ethics applies to
the members of the Board of Management and senior executives
who have a significant influence on planning and reporting in
connection with the year-end and quarterly financial statements.
The regulations contained in the Code are designed to avoid
misconduct and to ensure ethical behavior and the correct dis-
closure of information on the Group.

Consolidated Group. The consolidated Group is the total of all
those companies that are consolidated, i.e. fully consolidated
companies and companies consolidated using the equity method.

Corporate governance. The term corporate governance applies
to the proper management and monitoring of a company. The
structure of corporate governance at DaimlerChrysler AG is deter-
mined by Germany’s Stock Corporation Act, Codetermination
Act and capital-market legislation, as well as international capital-
market laws and stock-exchange listing regulations.

Cost of capital. The cost of capital is a product of the average
capital invested and the cost-of-capital rate. The cost-of-capital
rate is derived from the investors’ required rate of return (see
page 44).

CSR – corporate social responsibility. A collective term for
the social responsibility assumed by companies, including eco-
nomical, ecological and social aspects.

Equity method. Accounting and valuation method for share-
holdings in associated companies and joint ventures, as well as
subsidiaries that are not fully consolidated.

Free float. Free float is the percentage of a company’s shares
held by shareholders who hold less than 5% of that company’s
shares in total (see page 25).

Goodwill. Goodwill is the term for the amount by which the price
paid for a company exceeds the value of the shareholders’
equity of that company when its assets and liabilities are valued
at current market value.

IFRS – International Financial Reporting Standards. IFRS is
a set of standards and interpretations developed by an inde-
pendent private-sector committee, the International Accounting
Standards Board (IASB). IFRS includes regulations for compa-
nies’ external accounting and reporting. DaimlerChrysler will
probably prepare and publish consolidated financial statements
according to IFRS for the first time at the beginning of 2007 for
the 2006 financial year (see page 203).

Integrity Code. Our Integrity Code has been in use since 1999
and was revised and expanded in 2003. It sets out a binding
framework for the actions of all our employees worldwide.

Net assets. Net assets are the capital invested by the Group
and the industrial divisions; they are defined as the total of sha-
reholders’ equity plus financial liabilities and the accrued pen-
sion liabilities of the industrial business. The relevant capital base
for the financial services business is shareholders’ equity (see
page 44).

Net operating income. Net operating income is the opera-
tional profit measure after taxes and the relevant parameter for
measuring the Group’s operating performance.

Fair value. The amount for which an asset or liability could be
exchanged in an arm’s length transaction between knowledgeable
and willing parties who are independent of each other.

Operating profit. Operating profit is the operational profit mea-
sure before taxes (see page 39).

206

Index

Rating. An assessment of a company’s creditworthiness issued
by rating agencies.

ROE – return on equity. For the financial services business,
return on investment is measured by means of ROE (return on
equity). ROE is defined as a quotient of operating profit and
shareholders’ equity.

RONA – return on net assets. For the Group as a whole and
for the industrial divisions, return on investment is measured by
means of RONA (return on net assets). RONA is defined as a
quotient of net operating income (for the Group) or operating
profit (for the industrial divisions) and net assets (see page 45).

Sarbanes-Oxley Act. The Sarbanes-Oxley Act was passed in
the United States in 2002. This new law resulted in additional
regulations for the protection of investors, including greater
responsibility for management and the audit committee. In par-
ticular, requirements concerning the accuracy and complete-
ness of published financial information have become stricter,
and disclosure and auditing duties have been expanded.

US GAAP – United States Generally Accepted Accounting
Principles. The principles of accounting, evaluation and dis-
closure that are generally followed in the United States and which
are applied by DaimlerChrysler.

Value-at-risk. Measures the potential future loss (related to
market value) for a given portfolio in a certain period and for
which there is a certain probability that it will not be exceeded.

Value added. Value added indicates the extent to which the
operational profit measure exceeds the cost of capital. When
value added is positive, return on net assets is higher than the
cost-of-capital (see page 45).

Auditors’ report
Capital expenditure
Cash flow
Code of Ethics
Compensation system
Consolidated Group
CORE
Corporate Governance
Deferred taxes
Dividends
EADS
Earnings per share (EPS)
Equity method
Financial income
Goodwill
Integrity Code
Investor Relations
Liabilities
Net assets
Net income
Operating profit
Pension obligations
Portfolio changes
Profitability
Quality
Ratings
Revenues
RONA - return on net assets
Safeguarding the Future 2012
Sarbanes-Oxley Act
Segment reporting
Shareholders’ equity
Shares
Stock options
Strategy
Toll Collect
Unit sales
Value added
World Engine

125
55, 67
48, 130 f, 182
106
110 ff
143
74
102 ff
155 ff
43
87, 144
199 f
144 ff
42, 155
160
106
26
179 ff
44
43
39 ff, 196, 198
170 ff
33
37 ff
74
52
36, 196, 199
45
92
121
195 ff
53, 129, 166 f
24 ff, 166
111, 167 ff
32
23, 85, 146 f
35 f, 72, 76, 80
45
23, 78

207

International Representative Offices

Hanoi
Phone +84 8 8958 710

Fax

+84 8 8958 714

Hong Kong
Phone +86 10 6598 3388

Fax

+86 10 6590 6265

Istanbul
Phone +90 212 482 3520

Fax

+90 212 482 3521

Jakarta
Phone +62 21 86 899 100

Fax

+62 21 86 899 611

Kiev
Phone +380 44 206 8080

Fax

+380 44 206 8088

Kuala Lumpur
Phone +603 2246 8811

Fax

+603 2246 8812

Lagos
Phone +234 1 461 8727

Fax

+234 1 261 2945

Ljubljana
Phone +386 1 5883 798

Fax

+386 1 5883 799

Madrid
Phone +34 91 484 6161

Fax

+34 91 484 6019

Melbourne
Phone +61 39 566 9104

Fax

+61 39 566 9110

Mexico City
Phone +52 55 5081 7313

Fax

+52 55 5081 7479

Milton Keynes
Tel.

+44 190 8245 800

Fax

+44 190 8245 802

Moscow
Phone +7 495 745 2616

Fax

+7 495 745 2614

New Delhi
Phone +91 20 2750 5800

Fax

+91 20 2750 5951

Paris
Phone +33 1 39 23 5400

Fax

+33 1 39 23 5442

Pretoria
Phone +27 12 677 1502

Fax

+27 12 666 8191

Rome
Phone +39 06 4144 2405

Fax

+39 06 4121 9097

São Paulo
Phone +55 11 4173 7171

Fax

+55 11 4173 7118

Seoul
Phone +82 2 2112 2555

Fax

+82 2 2112 2644

Singapore
Phone +65 6849 8321

Fax

+65 6849 8493

Berlin
Phone +49 30 2594 1100

Fax

+49 30 2594 1109

Abidjan
Phone +225 21 75 1001

Fax

+225 21 75 1090

Abu Dhabi
Phone +97 1 4 8833 200

Fax

+97 1 4 8833 201

Bangkok
Phone +66 2344 6100

Fax

+66 2676 5550

Beijing
Phone +86 10 6590 6227

Fax

+86 10 6590 6337

Brussels
Phone +32 2 23311 33

Fax

+32 2 23311 80

Budapest
Phone +36 1 8877 002

Fax

+36 1 8877 001

Buenos Aires
Phone +54 11 4808 8719

Fax

+54 11 4808 8702

Cairo
Phone +20 2 529 9120

Fax

+20 2 529 9105

Caracas
Phone +58 241 613 2460

Fax

+58 241 613 2462

208

Skopje
Phone +389 2 2580 000

Fax

+389 2 2580 401

Sofia
Phone +359 2 919 8811

Fax

+359 2 945 4014

Taipei
Phone +886 2 2715 9696

Fax

+886 2 2719 2776

Tashkent
Phone +998 71 120 6374

Fax

+998 71 120 6674

Teheran
Phone +98 21 2204 6047

Fax

+98 21 2204 6126

Tel Aviv
Phone +972 9 957 9091

Fax

+972 9 957 6872

Tokyo
Phone +81 3 5572 7172

Fax

+81 3 5572 7126

Warsaw
Phone +48 22 312 7200

Fax

+48 22 312 7201

Washington D.C.
Phone +1 202 414 6756

Fax

+1 202 414 6729

Windsor, Ontario
Phone +1 519 973 2201

Fax

+1 519 973 2226

Zagreb
Phone +385 1 348 6600

Fax

+385 1 348 6601

Addresses/Information/Internet

DaimlerChrysler AG
70546 Stuttgart
Phone +49 711 17 0
Fax
+49 711 17 22244
www.daimlerchrysler.com

DaimlerChrysler Corporation
Auburn Hills, MI 48326-2766
USA
Phone +1 248 576 5741
www.daimlerchrysler.com

Investor Relations
Stuttgart
Phone +49 711 17 92261
+49 711 17 95256
+49 711 17 95277
+49 711 17 94109
+49 711 17 94075

Fax

Auburn Hills
Phone +1 248 512 2812
Phone +1 248 512 2923
+1 248 512 2912
Fax

Publications for our shareholders:
• Annual Report (German, English)
• Form 20-F (English)
• Interim Reports for the 1st, 2nd and 3rd quarters

(German, English)

• Environment Report (German, English)
• Social Responsibility Report (German, English)
• Sustainability Report (German, English)

The financial statements of DaimlerChrysler AG prepared in
accordance with German GAAP were audited by KPMG
Deutsche Treuhand-Gesellschaft Aktiengesellschaft,
Wirtschaftsprüfungsgesellschaft, and an unqualified opinion
was rendered thereon. These financial statements are
published in the German Federal Gazette and are filed with
the Commercial Registry of the Stuttgart District Court.

The aforementioned publications can be requested from:
DaimlerChrysler AG
Investor Relations
HPC 0324
70546 Stuttgart
Germany

The documents can also be ordered by phone or fax using the
following number: +49 711 17 92287

www.daimlerchrysler.com/investors

Additional information on the Internet. Special information
on our shares and earnings developments can be found in the
“Investor Relations” section of our website. It includes the
Group’s annual and interim reports, the company financial
statements of DaimlerChrysler AG, and reports to the US
Securities and Exchange Commission (SEC) for all the financial
years since 1998. You can also find topical reports, presenta-
tions, an overview of various performance measures, informa-
tion on the share price, and other services.

DaimlerChrysler Worldwide

Mercedes Car Group

Chrysler Group

Commercial
Vehicles

Sales Organization
Automotive
Businesses

Financial Services

Other Activities

Europe

Production locations

Sales outlets

Revenues in millions of €

Employees

NAFTA

Production locations

Sales outlets

Revenues in millions of €

Employees

South America

Production locations

Sales outlets

Revenues in millions of €

Employees

Africa

Production locations

Sales outlets

Revenues in millions of €

Employees

Asia

Production locations

Sales outlets

Revenues in millions of €

Employees

Australia/Oceania

Production locations

Sales outlets

Revenues in millions of €

Employees

30,088

92,930

12,043

4,472

202

1,083

1,358

5,520

5,531

340

718

3,060

244

45,439

82,321

438

560

321

461

208

17,201

57,477

12,770

26,838

1,932

13,414

1,410

1,081

6,116

18,340

679

5,333

42,225

4,965

2,777

611

232

1,152

2,643

243

1,128

6,208

4,602

8,609

5,326

133

279

218

505

109

194

145

223

209

1,234

14,795

533

466

1,930

151

357

839

163

600

Note: Unconsolidated revenues of each division (segment revenues).

Financial Calendar 2006

Annual Press Conference
Mercedes Event Center (MEC)
Sindelfingen

February 16, 2006
10 a.m. CET

Analysts’ and Investors’
Conference Call

February 16, 2006
2.30 p.m. CET

Presentation of the
Annual Report 2005

March 6, 2006

Annual Meeting
Messe Berlin

April 12, 2006
10 a.m. CET

Interim Report Q1 2006

April 27, 2006

Interim Report Q2 2006

July 27, 2006

Interim Report Q3 2006

October 25, 2006

DaimlerChrysler Worldwide

Addresses

DaimlerChrysler
Stuttgart, Germany
Auburn Hills, USA
www.daimlerchrysler.com