Daimler, which owns the flagship Mercedes-Benz brand, said in a statement its bottom-line profit fell to 1.36 billion euros ($1.9 billion) in the period from July to September from 1.61 billion euros a year earlier.
Underlying profits, as measured by earnings before interest and tax (EBIT) dropped by 18.6 per cent to 1.968 billion euros.
Third-quarter sales, on the other hand, rose by 5.3 per cent to 26.407 billion euros on a 10.6-per cent increase in unit sales to 525,517 vehicles.
Mercedes-Benz alone saw underlying earnings drop by 14.7 per cent to 1.108 billion euros despite a 1.2-per cent increase in revenues to 13.826 billion euros and a 6.2-per cent rise in unit sales to a record 337,163 vehicles.
Daimler explained that earnings had been hit by "changes in the product mix, higher material costs, exchange-rate movements, upcoming model changes and increased research and development expenses."
Nevertheless, chief executive Dieter Zetsche was satisfied.
"Daimler operated very successfully in the third quarter. All divisions developed as we expected," he said.
Zetsche explained that the carmaker took impairment charges of 110 million euros and 23 million euros respectively on its investments in Renault and Kamaz "due to the sharp fall in both companies' share prices."
Looking ahead to the full year, Zetsche affirmed the group's forecast for a "significant" increase in underlying earnings compared with 2010.