Item 4. Information on the Company.

INTRODUCTION

Organization

        The legal and commercial name of our company is DaimlerChrysler AG. It is a stock corporation organized under the laws of the Federal Republic of Germany and was incorporated on May 6, 1998. Our registered office is at Epplestrasse 225, 70567 Stuttgart, Germany, telephone +49-711-17-0. Our agent for U.S.

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federal securities law purposes is DaimlerChrysler North America Holding Corporation, located at 1000 Chrysler Drive, Auburn Hills, MI 48326-2766.

History

        On May 7, 1998, Daimler-Benz Aktiengesellschaft and Chrysler Corporation entered into an agreement to combine their businesses. The stockholders of each company approved the agreement on September 18, 1998. Chrysler became a wholly owned subsidiary of DaimlerChrysler AG through a merger transaction completed on November 12, 1998. In the merger, Chrysler shareholders received ordinary shares of DaimlerChrysler AG. The combination also involved a contemporaneous exchange offer in which Daimler-Benz stockholders exchanged more than 98% of their Daimler-Benz ordinary shares for DaimlerChrysler AG ordinary shares. Daimler-Benz was then merged into DaimlerChrysler AG on December 21, 1998. Accordingly, DaimlerChrysler AG is the successor corporation to Daimler-Benz AG and we comprise the respective businesses, stockholder groups, managements and other constituencies of Chrysler and Daimler-Benz.

Business Summary and Developments

        DaimlerChrysler AG is the ultimate parent company of the DaimlerChrysler Group. The Group develops, manufactures, distributes and sells a wide range of automotive products, mainly passenger cars, light trucks and commercial vehicles. We also provide financial and other services relating to our automotive business. We have four primary business segments. Our fifth segment, Other Activities, comprises all other businesses and investments in businesses not allocated to one of our primary business segments. Our segments are:

•

Mercedes Car Group



•

Chrysler Group



•

Commercial Vehicles



•

Services



•

Other Activities

        We offer our automotive products and related financial services primarily in Europe and in the NAFTA region, which consists of the United States, Canada and Mexico. We have also taken significant steps towards increasing further our presence in the Asian markets. In 2004, we increased our interest in the Japanese truck manufacturer Mitsubishi Fuso Truck and Bus Corporation from 43% to 65% and entered into two joint venture agreements with Chinese partners relating to the possible production of passenger cars and vans in China. Both joint venture agreements require further approval by the relevant Chinese authorities. Approximately 45% of our 2004 revenues derived from sales in the United States, 16% from sales in Germany and 18% from sales in other countries of the European Union. In line with our strategy of concentrating on the automotive business and related services, we disposed of several non-core business assets and expanded our core automotive activities over the past several years. These transactions include the following:

        MMC.     In 2004, we reevaluated our 37% equity investment in Mitsubishi Motors Corporation (MMC). On April 22, 2004, our board of management and our supervisory board decided not to provide further financial support to MMC. In the second quarter of 2004, MMC, together with its other shareholders, established a restructuring plan, which led to changes in the capital and shareholder structure of MMC as well as to changes in the composition of MMC's board of directors and management. In this context, a new investor acquired a 33.3% interest in the voting stock of MMC and received significant - contractually guaranteed - managerial rights. As a consequence, our interest in the voting stock of MMC was diluted from 37.0% to 24.7%, our representation on MMC's board of directors was significantly reduced, and we no longer have the ability to exercise significant influence over the operating and financial policies of MMC. These changes were approved at the annual shareholders' meeting on June 29, 2004, and following that meeting we ceased to account for our investment in MMC using the equity method of accounting and classified our investment in MMC as an

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investment in related companies, accounted for at fair value. Since then our equity interest has been further diluted. As of December 31, 2004, we held 19.7% of the share capital of MMC.

        MFTBC.     In January 2003, MMC spun off its"Fuso Truck and Bus" division, creating Mitsubishi Fuso Truck and Bus Corporation (MFTBC). In March 2003, we (DaimlerChrysler AG) acquired from MMC a non-controlling 43% interest in MFTBC for €764 million in cash plus certain direct acquisition costs. Ten Mitsubishi Group companies, including Mitsubishi Corporation, Mitsubishi Heavy Industries and Bank of Tokyo-Mitsubishi, entered into a separate share sale and purchase agreement with MMC pursuant to which they agreed to purchase from MMC a total of 15% of MFTBC's shares for approximately €266 million in cash. On March 18, 2004, we (DaimlerChrysler AG) 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% interest. The aggregate amount we paid for the 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). We also re-allocated a €87 million portion of the initial purchase price for our interest in MMC and previously included in our investment in MMC to the acquisition costs of MFTBC. We have included the consolidated results of MFTBC in our Commercial Vehicles segment since March 31, 2004, with a one-month time lag. Prior to March 31, 2004, we accounted for our proportionate share in MFTBC's results in the Commercial Vehicles segment using the equity method of accounting.

        HMC.     In June 2001, we (DaimlerChrysler AG) entered into a commercial vehicle joint venture agreement with Hyundai Motor Company (HMC). In a first phase, we and HMC established DaimlerHyundai Truck Corporation (DHTC), of which we and HMC each owned 50%. We formed DHTC to produce and distribute engines and engine parts and we anticipated starting production in mid-2004. The commercial vehicle joint venture agreement with HMC also included an option for us to acquire 50% of the commercial vehicle business of HMC for approximately €400 million. Pursuant to this option, which we exercised in December 2002, we intended that HMC would contribute its entire commercial vehicle business into a new legal entity.

        In May 2004, as part of the realignment of our strategic alliance with HMC, we terminated discussions with HMC regarding the formation of the commercial vehicles joint venture. Also in May 2004, we sold our non-controlling 50% interest in DHTC to HMC for a total pre-tax gain of €60 million. In August 2004, we sold our 10.5% stake in HMC for €737 million in cash, resulting in a pre-tax gain of €252 million that is included in financial income (expense), net.

        Beijing Benz-DaimlerChrysler Automotive Co. Ltd.     In November 2004, we (DaimlerChrysler AG and DaimlerChrysler (China) Ltd.), agreed upon an amended and re-stated joint venture contract with Beijing Automotive Industry Holding Co. Ltd. (BAIC) to expand the existing joint venture Beijing Jeep Corporation, Ltd. and to rename the expanded joint venture Beijing Benz-DaimlerChrysler Automotive Co. Ltd. (BBDCA). As agreed in the joint venture contract, we intend to make a capital contribution of $105 million to BBDCA and then to hold a 50% equity interest in this company. This joint venture is still under review and subject to the approval of the relevant Chinese authorities. Once the approval is obtained, BBDCA will manufacture and sell under our license Mercedes-Benz C-Class and E-Class passenger cars. BBDCA continues to produce and sell passenger cars under license agreements with our subsidiary DaimlerChrysler Corporation and with Mitsubishi Motors Corporation. We expect production of Mercedes-Benz C- and E-Class passenger cars to begin in the second half of 2005 with a capacity of 20,000 vehicles per year.

        DaimlerChrysler Vans (China) Ltd.     In November 2004, DaimlerChrysler Vans Hong Kong Ltd., a company in which we hold a majority equity interest, and Fujian Industry Group Corporation agreed upon a joint venture contract to establish DaimlerChrysler Vans (China) Ltd. (DCVC). As agreed in the joint venture contract, once the company is established, we intend to make a capital contribution of €54 million to DCVC and then to hold a 50% equity interest in this company. This joint venture is still under review and subject to approval by the relevant Chinese authorities. Once approval is obtained, we plan for DCVC to manufacture and sell under our license Mercedes-Benz Vito/Viano and Sprinter vans. We expect production of these vans to commence in the second half of 2006 with a capacity of 40,000 units per year.

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        MTU Aero Engines.     On December 31, 2003, we sold MTU Aero Engines GmbH and its subsidiaries to the investment company Kohlberg, Kravis and Roberts & Co. Ltd. (KKR) for €1,450 million, consisting of €1,052 million in cash and net debt of €398 million which KKR assumed. We further agreed to provide a vendor loan to KKR in the amount of €175 million, reducing our cash proceeds from the transaction to €877 million. The sale of MTU Aero Engines also triggered a compensation payment of $250 million to United Technologies Corporation, the parent company of Pratt & Whitney, which we paid in January 2004. This compensation payment released us from financial obligations which we had undertaken in order to facilitate a pre-existing strategic alliance between MTU Aero Engines and Pratt & Whitney. As required by U.S. GAAP, we classified and are reporting the results of MTU Aero Engines and the gain on the sale of this business as discontinued operations in our consolidated statements of income.

        Global Engine Alliance.     DaimlerChrysler Corporation, HMC, and MMC have (directly or through wholly owned subsidiaries) formed joint ventures to develop and engineer through HMC, and jointly manufacture (in the United States) a family of world-class in-line four cylinder gasoline engines. Each of the three companies will utilize the same base engine in some of its future vehicles and will work with the other two to reduce the cost of the engine, improve quality and maximize production efficiencies. HMC and MMC will manufacture engines in production facilities in Korea and Japan, respectively, while the joint ventures will own and operate the production facility in the United States. HMC commenced manufacture of the engine in 2004. Engine production is scheduled to commence in the United States for Chrysler in 2005 and MMC in 2006.

        Sale of capital services portfolios.     In an effort to refocus our financing and leasing portfolios on the automotive sector, which is our core business, we disposed of several non-automotive financial assets in 2002, 2003, and 2004. Most importantly, during 2002 we sold substantial portions of our commercial real estate and asset-based lending portfolios to GE Capital and other financial services providers for an aggregate amount of €1.3 billion. In October 2002, we concluded further agreements to sell additional portions of our capital services portfolio. We completed these sales in 2003 for proceeds of €0.3 billion. Minor dispositions occurred in 2004.

        Sale of debis Systemhaus.     In October 2000, our subsidiary DaimlerChrysler Services AG combined its information technology activities with those of Deutsche Telekom AG in a joint venture. As part of the transaction, Deutsche Telekom contributed €4.6 billion in cash to our information technology subsidiary debis Systemhaus in exchange for a 50.1% controlling interest in that company. In 2001, debis Systemhaus was renamed T-Systems ITS. In January 2002, we exercised our option to sell our 49.9% interest in T-Systems ITS to Deutsche Telekom for €4.7 billion. We consummated the sale in March 2002.

        Sale of Temic.     In April 2001, we sold a 60% interest in TEMIC TELEFUNKEN microelectronic GmbH (now known as Conti Temic microelectronic GmbH) and its subsidiaries to Continental AG for proceeds of €398 million. The sale agreement provided Continental with the option to purchase our 40% interest, and gave us the option to sell our 40% interest to Continental. On April 1, 2002, we exercised our option and sold our 40% interest to Continental for €215 million.

        For additional information on these transactions and a discussion of changes in revenues, please refer to "Operating Results" in "Item 5. Operating and Financial Review and Prospects." For additional information on acquisitions and dispositions of businesses during the last three years, please refer to Notes 3 and 4 to our Consolidated Financial Statements.

        Net income from continuing operations was €2.5 billion in 2004 compared to a net loss from continuing operations of €0.4 billion in 2003. Basic and diluted earnings per ordinary share (from continuing operations) were €2.43 in 2004, compared to basic and diluted loss per ordinary share of €0.41 in 2003.

        Total net income was €2.5 billion in 2004 compared to total net income of €0.4 billion in 2003. Basic and diluted earnings per ordinary share were €2.43 in 2004, while in 2003 basic and diluted earnings per ordinary share were €0.44.

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        For additional information on our financial performance, please refer to "Item 3. Key Information" and "Item 5. Operating and Financial Review and Prospects."

        Our aggregate capital expenditures for property, plant and equipment were €6.4 billion in 2004, €6.6 billion in 2003 and €7.1 billion in 2002. In 2004, the United States and Germany accounted for 40% and 37% of these capital expenditures, respectively. Expenditures on operating leases were €17.7 billion in 2004, higher than in the prior year (2003: €15.6 billion; 2002: €17.7 billion). For information on our capital expenditures by business segment, please refer to "Description of Business Segments" below.

        As of December 31, 2004, we had 1,012,824,191 ordinary shares outstanding and approximately 1.7 million stockholders. Our ordinary shares trade on various stock exchanges throughout the world, including the Frankfurt Stock Exchange and the New York Stock Exchange.

        DaimlerChrysler AG owns 100% of DaimlerChrysler North America Holding Corporation, DaimlerChrysler Services AG and smart gmbh. DaimlerChrysler North America Holding Corporation owns 100% of DaimlerChrysler North America Finance Corporation and 100% of DaimlerChrysler Motors Company LLC. DaimlerChrysler Motors Company LLC owns 100% of DaimlerChrysler Corporation. DaimlerChrysler Corporation owns 100% of DaimlerChrysler Services North America LLC.

DESCRIPTION OF BUSINESS SEGMENTS

Mercedes Car Group

        The Mercedes Car Group designs, produces and sells Mercedes-Benz passenger cars, Maybach high-end luxury sedans and smart compact passenger cars. In 2004, the Mercedes Car Group contributed approximately 33% of our revenues. In 2004, Mercedes Car Group began a broad quality offensive. In early February 2005, we announced a comprehensive program designed to improve efficiency and increase earnings.

        Mercedes-Benz.     Our Mercedes-Benz passenger cars are world-renowned for innovative technology, highest levels of comfort, quality, safety, and pioneering design. The availability of individual models differs by geographic market. The Mercedes-Benz passenger car product range consists of the following classes:

        S-Class.     S-Class full-size luxury sedans range from the S 350 to the S 600. In addition to various gasoline-powered models, two diesel engine versions with common-rail technology - the S 320 CDI and the S 400 CDI - and three models with permanent all-wheel drive - the S 350 4MATIC, the S 430 4MATIC and the S 500 4MATIC - are currently available. A sportier version, the S 55 AMG completes the line-up . We expect to launch the successor model of the current S-Class in the second half of 2005.

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        The CL-Class is a top-of-the-line two-door coupe derived from the S-Class platform. The CL coupes combine superior driving performance, comfort and state-of-the-art technology. Customers can choose among three models - the CL 500, the CL 600, and the CL 55 AMG.

        Our renowned SL convertible models are available in four variants - the SL 350, the SL 500, the SL 600 and the SL 55 AMG. They all feature a retractable hard top, an electronic braking system, and an active suspension system.

        In the first half of 2004, we launched a new high performance Mercedes-Benz sports car, the SLR. McLaren Cars Ltd., a subsidiary of McLaren Group Ltd. in which we hold a 40% interest, produces the SLR.

        E-Class.     The E-Class is a line of luxury sedans and station wagons. E-Class sedans are available in five gasoline engine versions ranging from the E 200 to the E 55 AMG and six common-rail diesel engine versions. Three models are available with permanent all-wheel drive — the E 240 4MATIC, the E 320 4MATIC and the E 500 4MATIC. E-Class station wagons are available in five gasoline engine versions, ranging from the E 200 Compressor to the E 55 AMG, and in four common-rail diesel engine versions.

        In October 2004, we introduced a new four-door coupe, the CLS. The CLS is an innovative vehicle concept with a highly emotive design and leading-edge technology. It is based on the E-Class platform and is available as a CLS 350 and a CLS 500. A more powerful AMG version and a diesel version are expected to be available in 2005.

        C-Class.     The C-Class is a line of compact luxury sedans and station wagons. We offer seven gasoline engine versions and four common-rail diesel engine versions. Two models are available with permanent all-wheel drive. The C-Class sports coupe, the SLK-Class (a two-seat roadster), the CLK coupe, and the CLK convertible complement the C-Class product family. In the spring of 2004, the C-Class sedans and station wagons underwent an extensive facelift. The new SLK convertible was launched in 2004.

        A-Class.     The A-Class is a front-wheel drive four-door hatchback. Customers can choose from three gasoline engines of varying displacements and three diesel engines with common-rail technology. In the third quarter of 2004, we introduced the successor of the four-door A-Class, followed by the launch of a new 2-door variant in November 2004. Together with the introduction of the all-new Compact Sports Tourer CST (the new B-Class) in 2005, we will be able to offer new choices and a wider selection in this segment to our customers. We do not offer the A-Class in the United States.

        M-Class.     The M-Class is a line of sport-utility vehicles with permanent all-wheel-drive. We currently offer two diesel and three gasoline engine versions. In mid-2005, we plan to launch the successor generation of the M-Class and an all-new Grand Sports Tourer GST (the new R-Class), first in the United States and then in Europe.

        G-Class.     The G-Class is a four-wheel drive cross-country vehicle that comes in a short and a long wheelbase version and is also available as a convertible. We currently offer three gasoline engine models and two common-rail diesel engine models. The long wheelbase version of the G 500 is also available in the United States. We expect to launch a remodeled version in 2006.

        Maybach.     The prestigious Maybach brand represents a line of exclusive high-end luxury sedans with unsurpassed luxury, comfort, and individuality.

        We introduced the first Maybach sedans in the summer of 2002. Two models are currently available, the Maybach 57 and the Maybach 62, which has a 50 cm (19.7 inches) longer wheelbase than the Maybach 57. Customers can customize their vehicles by choosing from an extensive selection of the finest interior furnishings and materials.

        smart.     The smart brand was originally synonymous for a micro-compact car specifically designed for urban mobility and the optimal use of resources. Beginning in 2003, we transformed smart into a multi-product brand. In addition to the original fortwo, we introduced a roadster version in 2003 and launched a four-seat, four-door model, the smart forfour, in April 2004.

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Markets, Sales and Competition

        Markets.     In 2004, the main markets for our Mercedes Car Group were Germany (32% of unit sales), the remainder of Western Europe (35% of unit sales), the United States (18% of unit sales) and Japan (3% of unit sales). In Germany, new passenger car registrations for all manufacturers reached 3.3 million units, 1% more than in the previous year. In Western Europe (excluding Germany), new registrations of passenger cars increased 14% to 13.8 million units.

        Sales.     The following table shows the distribution of revenues and unit sales for our Mercedes Car Group segment by geographic market since 2002:

¹

€ in millions.

        In 2004, worldwide unit sales of the Mercedes Car Group were 1% higher than in 2003, while revenues decreased 4% compared to the prior year. Unit sales reached 1,226,800 units compared to 1,216,900 in the previous year. Sales of the renewed C-Class sedan were particularly strong at 228,500 units while the entire C-Class family achieved sales of 474,800 units. The E-Class maintained its worldwide segment leadership with sales of 294,200 units in 2004, a slight decline compared to 2003. Despite continued strong performance in its market segment, unit sales of the S-Class family, which is reaching the end of its lifecycle, declined 21% to 85,900 units.

        In Germany, unit sales of our Mercedes Car Group were 386,900 in 2004, 1% less than in 2003, while unit sales in Western Europe (excluding Germany) increased 3% to 433,800 units. In the United States, the

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most important non-European market for Mercedes-Benz passenger cars, we sold 222,500 units in 2004, a 2% increase over the previous year. The continued strong sales performance of the successful C-Class family, certain S-Class models, the E-Class station wagon and the CLK convertible supported this increase. Unit sales in Japan fell 10% to 41,400 units in a very difficult market. In the rest of Asia (excluding Japan), we were able to surpass last year's sales level by 3% at 51,900 units. Sales performance in emerging markets such as China was especially encouraging with an increase of more than 5%. For a discussion of changes in revenues, please refer to "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

        The following table shows, by vehicle line, the number of units sold since 2002:

        Competition.     In Western Europe, our Mercedes-Benz passenger cars principally compete with products of BMW Group (BMW and, since January 2003, Rolls Royce), Volkswagen (Audi, Bentley, VW) and, depending on the market segment, Fiat (Lancia, Alfa Romeo, Ferrari, Maserati), Ford (Jaguar, Aston Martin, Land Rover, Volvo), General Motors (Opel, Saab, Vauxhall), Porsche, PSA (Peugeot/Citroen), Renault and Toyota (Lexus). In the United States, our principal competitors include BMW (BMW, Rolls Royce), Ford (Jaguar, Aston Martin, Land Rover, Lincoln, Volvo), Honda (Acura), Nissan (Infiniti), Porsche, Toyota (Lexus), Volkswagen (Audi, Bentley, VW) and, depending on the market segment, Nissan, Toyota and certain models produced by General Motors (Cadillac, Saab). Competitors of Maybach are Rolls Royce and Bentley sedans. Principal competitors of smart are Fiat, Ford, PSA (Peugeot/Citroen), Renault, Suzuki, Toyota (Daihatsu), BMW (new Mini) and Volkswagen (Seat, Skoda, VW).

Distribution

        We distribute Mercedes-Benz passenger cars through a worldwide distribution system covering 200 countries and customs areas. The sales organization differs by geographic market depending on local needs and requirements. At the wholesale level, we distribute Mercedes-Benz passenger cars through affiliated or independent general distributors or through wholly owned subsidiaries. In the United States, in Canada and in major European markets we operate our own wholesale subsidiaries which we call market performance centers. In Europe and Canada, we also operate an increasing number of retail outlets, and are in the process of establishing our own retail locations in select major European metropolitan areas. A network of approximately 900 smart centers in 36 countries provides sales and repair services for our smart vehicles.

        We distribute our Maybach luxury vehicles through exclusive Maybach centers in Europe and Asia and selected Mercedes-Benz dealers in the United States. The Maybach centers are outposts of our Center of Excellence at our largest passenger car production plant in Sindelfingen, Germany. We entrust the responsibility of caring for our Maybach customers only to specially trained personal liaison managers. These managers are not only knowledgeable in all technical details relating to Maybach vehicles, but are also intimately familiar with the demanding lifestyles of our customers which enables them to provide a maximum level of support.

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        Effective October 2002, the European Commission adopted revised legislation concerning automotive retailing and services in the European Union. The new legislation no longer permits territorial and brand exclusivity in automotive distribution agreements. Under the new law, independent repair shops may become authorized service partners if they meet the qualitative criteria established by the manufacturer. Beginning in October 2005, authorized automotive retailers have the right to establish additional sales outlets anywhere in the European Union. In light of the new legislation, we concluded new contracts with our retail partners. The new contracts establish binding qualitative standards, which we intend to enforce through audits at regular intervals.

Capital Expenditures; Research and Development

        Our Mercedes Car Group spent €2.3 billion on capital expenditures for fixed assets in 2004. Principal areas of investment were the preparation for production of the successor models of the S-Class, the new four-door coupe CLS, the new A-Class and the new Compact Sports Tourer CST (the new B-Class), the new M-Class and the new cross-over model Grand Sports Tourer GST (the new R-Class). Capital expenditures also included production equipment for manufacturing new engines and transmissions. In 2004, research and development activities of the Mercedes Car Group related primarily to the development of new car models and new engines and transmissions. The new car models under development included the successor models of the S-Class and the A-Class, the new Compact Sports Tourer CST (the new B-Class), the successor models of the C-Class and M-Class, the Grand Sports Tourer GST (the new R-Class) and two smart models. The following table shows the capital expenditures for fixed assets and the research and development expenditures of the Mercedes Car Group segment in the last three years:

        Our Chrysler Group segment consists of DaimlerChrysler Motors Company LLC and its subsidiaries DaimlerChrysler Corporation, DaimlerChrysler Canada Inc., and DaimlerChrysler de Mexico S.A. de C.V., as well as other international automotive affiliates. These companies manufacture, assemble and sell cars and trucks under the brand names Chrysler, Jeep® and Dodge. The Chrysler Group segment contributed approximately 35% of our revenues in 2004.

Products

        The Chrysler Group designs, manufactures and sells vehicles under the Chrysler, Jeep® and Dodge brand names. The Chrysler and Dodge brands offer full-size, mid-size and compact cars and standard and extended wheelbase minivans. Additionally, the Chrysler brand offers the Pacifica in the sports tourer segment and the PT Cruiser. The Dodge brand also includes full-size and mid-size pick-up trucks, a sport-utility vehicle, full-size vans and the Dodge Magnum in the sports tourer segment. Under the Jeep® brand, the Chrysler Group sells full-size, mid-size and compact sport utility vehicles. These vehicles are sold in the NAFTA region and some vehicles are also sold in markets outside of NAFTA.

        In addition to producing and selling cars, trucks, and minivans, the Chrysler Group also provides its customers with parts and accessories marketed under the MOPAR® brand name.

        2004 Product Introductions.     In 2004, the Chrysler Group introduced the following nine products:

•

2004 Dodge Ram SRT10 Pick-up

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•

2005 Chrysler Town & Country and Dodge Caravan Minivans



•

2005 Chrysler PT Cruiser Convertible



•

2005 Chrysler 300 Series



•

2005 Chrysler Crossfire Roadster



•

2004 Jeep® Wrangler Unlimited



•

2005 Dodge Magnum



•

2005 Dodge Dakota



•

2005 Jeep® Grand Cherokee

        The 2005 Chrysler 300 Series, the Chrysler Group's newest four-door sedan, and the 2005 Dodge Magnum sports tourer are a return to rear-wheel drive. These vehicles are offered with an optional 5.7-liter HEMI® Magnum V-8, all-speed traction control, an electronic stability program and anti-lock brakes.

        With the 2005 Chrysler Crossfire Roadster and the 2005 Chrysler PT Cruiser Convertible, the Chrysler Group added two new convertible models in 2004. Chrysler Group's new 2005 Chrysler Town & Country and 2005 Dodge Caravan minivans offer more than fifteen new features and safety enhancements. Among the available options is the Stow'n Go™ seating and storage system which gives customers the ability to easily fold their second- and third-row seats into the floor and conveniently stow items.

        The 2005 Dodge Dakota pick-up offers the only V-8 engine in the mid-size pick-up truck market. The new 2004 Dodge Ram SRT10 is powered by the Viper V-10 engine with 500 horsepower and 525 lb.-ft. of torque.

        The 2005 Jeep® Grand Cherokee, a full-sized sport utility vehicle, continues the tradition of Jeep® innovation with new technologies, sophisticated all-new Jeep® design and a new dimension in on-road refinement and off-road capability. The new 2004 Jeep® Wrangler Unlimited delivers 13 inches more cargo space and 2 inches more second row leg-room. Wrangler Unlimited also features towing capacity of 3,500 lbs. due to its 10-inch longer wheel base.

        2005 Product Introductions.     In 2005, the Chrysler Group plans to introduce the following products:

•

2006 Chrysler 300C SRT8



•

2006 Dodge Viper SRT10 Coupe



•

2006 Dodge Magnum SRT8



•

2006 Dodge Charger



•

2006 Dodge Ram Mega Cab



•

2006 Jeep® Commander

        The Chrysler 300C SRT8 offers a 6.1-liter SRT HEMI® V-8 engine producing 425 horsepower and 420 lb.-ft. of torque.

        The 2006 Dodge Viper SRT10 Coupe generates 500 horsepower and 525 lb.-ft. of torque from its 505-cubic-inch V-10 engine and features a traditional front-engine, rear-wheel-drive layout with six-speed transmission and a fully independent four-wheel suspension.

        The 2006 Dodge Magnum SRT8 offers key SRT attributes including an SRT-engineered, 425-horsepower 6.1-liter SRT HEMI® V-8 engine.

        The Dodge Charger returns to create a new era for the Dodge legend with one of the biggest names in muscle car history. The Dodge Charger offers modern coupe styling with four-door functionality and pays homage to muscle cars of the "60s", while adding 21 ^st century performance, safety and technology.

        The all-new 2006 Dodge Ram Mega Cab effectively expands the Dodge Truck product line, delivering a crew cab derivative model that complements the Dodge Ram Regular and Quad Cab in the full-size pick-up

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market. It also offers customers the choice of the standard 345-horsepower HEMI® engine, or the Cummins Turbo Diesel with 610 lb.-ft of torque.

        The 2006 Jeep® Commander is a three-row sports utility vehicle and represents an all-new addition to the Jeep® brand. It is the ideal complement to the Jeep® Grand Cherokee, which was introduced in the fall of 2004.

¹

€ in millions.

²

Unit sales represent factory unit sales by the Chrysler Group.

        In 2004, our most important markets for Chrysler, Jeep® and Dodge vehicles were the United States with 82% of factory unit sales, Canada with 8% of factory unit sales and Mexico with 4% of factory unit sales. In the United States and Canada, we sold 2,416,900 vehicles in the retail market in 2004, an increase of 3% from 2,340,400 vehicles in 2003. For 2004, this represents a 12.8% share of the United States and Canada car and truck market, compared to 12.6% in 2003. Industry retail sales in the United States and Canada for 2004 were 18.9 million units, an increase of 2% from 2003.

        In 2004, revenues of our Chrysler Group segment increased, primarily as a result of higher worldwide factory unit sales, a lower average sales incentive expense per vehicle and a shift in product mix to higher priced vehicles, largely offset by the appreciation of the euro against the dollar. Total factory unit sales increased by 5% to 2,779,900 primarily as a result of the successful launch of new products. For additional information regarding Chrysler Group's revenues, please refer to "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

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        In the NAFTA region, principal competitors of our Chrysler, Jeep® and Dodge passenger cars and trucks are products of General Motors, Ford, Toyota, Honda and Nissan. Competition is likely to intensify as new products and capacity in NAFTA are added by Asian and European manufacturers.

        The following table shows, by vehicle line, the number of units sold:

¹

Unit sales represent factory shipments by the Chrysler Group.

²

Replaced by 300/300C and Magnum.

Distribution

        Dealers in the NAFTA region, who have sales and service agreements with DaimlerChrysler Motors Company LLC, sell Chrysler, Jeep® and Dodge vehicles and MOPAR® parts and accessories at retail. The dealers purchase vehicles, MOPAR® parts and accessories from DaimlerChrysler Motors Company LLC for sale to retail customers. In 2004, the Chrysler Group continued "Project Alpha," a program to develop a new style of dealership in key markets that combines in one modern facility the display, sale and servicing of all three brands of Chrysler Group vehicles (Chrysler, Jeep® and Dodge). Approximately 200 Alpha dealerships have been created under this program.

        In the United States, we distribute our Chrysler, Jeep® and Dodge products through 3,997 dealers at December 31, 2004, compared to 4,115 dealers at December 31, 2003. In Canada, the dealer network

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comprised 489 dealers at December 31, 2004, compared to 502 dealers at December 31, 2003. In Mexico, the dealer network comprised 123 dealers at December 31, 2004, compared to 122 dealers at December 31, 2003.

        Chrysler International Corporation, a wholly owned subsidiary of DaimlerChrysler Corporation which in turn is a wholly owned subsidiary of DaimlerChrysler Motors Company LLC, sells vehicles in various other countries through wholly-owned, affiliated and independent distributors and dealers.

Capital Expenditures; Research and Development

        In 2004, our Chrysler Group segment invested €2.6 billion in fixed assets. These capital expenditures related primarily to new product programs. In addition, Chrysler Group made capital expenditures to upgrade powertrains, enhance flexible manufacturing capabilities and maintain existing facilities.

        Research and development expenditures in 2004 were primarily for product development for vehicles launched in 2004 and for vehicles to be launched in future years. They also included development costs for improving the quality, cost and performance of existing products. These expenditures included compliance costs associated with regulations promulgated by various governmental agencies worldwide.

        The following table shows the capital expenditures for fixed assets and the research and development expenditures of the Chrysler Group segment during the last three years:

        The increase of capital expenditures for fixed assets from 2003 to 2004 is mainly attributable to increased spending to support the launch of product programs scheduled over the next several calendar years. The decrease of research and development expenditures is attributable to the appreciation of the euro against the dollar. Measured in U.S. dollars, the principal functional currency of the Chrysler Group, research and development expenditures increased slightly in 2004 compared with 2003.

International Operations/Cooperations/Alliances

        The Chrysler Group's international operations in South America include a manufacturing facility in Venezuela, where it assembles the Chrysler Neon, Jeep® Cherokee and Jeep® Grand Cherokee.

        International cooperations in Austria include the production of Jeep® Grand Cherokees and the production of Chrysler Voyagers under an assembly contract with Magna Steyr Fahrzeugtechnik AG & Co KG. In 2005, production in Austria will expand to include the 300C models. In Brazil, the segment participates in a joint venture with Bayerische Motoren Werke AG to manufacture a 1.6-liter gasoline engine for use in both Chrysler Group and BMW vehicles. DaimlerChrysler Corporation also has a minority interest in a company that assembles Jeep® Cherokees and long wheelbase Jeep® Wranglers in Egypt.

        The segment's automotive affiliations in the Asia-Pacific region include the assembly and distribution of Jeep® Cherokees and Jeep® Grand Cherokees in China by Beijing Jeep Corporation, Ltd., a minority-owned joint venture. Beijing Jeep® also assembles the Mitsubishi Pajero and Outlander for sale in China. Also in January 2005, the Chrysler Group signed a contract with Taiwan-based China Motor Corporation (CMC) to manufacture Chrysler Town & Country minivans beginning in 2006 at CMC's facility in Yang Mei, Taiwan, for the Taiwanese market.

        Production of the Chrysler Crossfire two-seat coupe, the Chrysler Crossfire SRT-6, a derivative of the Chrysler Crossfire, and the Chrysler Crossfire convertible occurs in Germany under an assembly contract with Wilhelm Karmann GmbH, one of our long-time business partners.

        DaimlerChrysler Corporation (DCC) and Mitsubishi Motors Corporation (MMC) have agreed to work together on several projects to share research and development costs and to combine purchasing volumes, where possible.

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        DCC, Hyundai Motor Company (HMC), and MMC have (directly or through wholly owned subsidiaries) formed joint ventures to develop and engineer through Hyundai, and jointly manufacture (in the United States) a family of world-class in-line four cylinder gasoline engines. Please refer to the discussion above under the heading "Business Summary and Developments" in "Introduction" for further information.

        In 2005, DCC will produce mid-size pickups for MMC for sale in the U.S. market.

Commercial Vehicles

        We manufacture and sell commercial vehicles under the brand names Mercedes-Benz, Freightliner, Sterling, Mitsubishi, Fuso, Setra, Thomas Built Buses, American LaFrance, Western Star and Orion. Our worldwide facilities provide us with a strong production and assembly network for commercial vehicles and core components. We distribute our commercial vehicles through a worldwide distribution and service network. In 2004, our Commercial Vehicles segment contributed approximately 23% of our total revenues.

Important Changes in the Commercial Vehicles Segment

        MFTBC.     On March 18, 2004, we (DaimlerChrysler AG) acquired from MMC an additional 22% interest in MFTBC, thereby reducing MMC's interest in MFTBC to a non-controlling 20% interest. MFTBC develops, designs, manufactures, assembles and sells small, mid-size and heavy-duty trucks and buses, primarily in Japan and other Asian countries. We have included the revenues, unit sales and consolidated results of MFTBC in our Commercial Vehicles segment since March 31, 2004 with a one-month time lag. Prior to March 31, 2004, we accounted for our proportionate share in MFTBC's results in the Commercial Vehicles segment using the equity method of accounting. Please refer to the discussion above under the heading "Business Summary and Developments" in "Introduction" for further information.

        In 2004, we discovered a number of quality issues in products manufactured and sold by MFTBC before we invested in the company in March 2003. Following the initial discovery of some of these issues, MFTBC implemented a new quality management system and conducted several detailed internal investigations, which resulted in several publicly announced field campaigns. MFTBC has also systematically disclosed its past quality issues and is in the process of rectifying them. MFTBC expects to complete most of these field actions by the end of 2005, with the remainder to be completed in 2006. For a discussion of the impact of these past quality issues on the Commercial Vehicles segment's operating profit, please refer to the discussion under the heading "Operating Results" in "Item 5. Operating and Financial Review and Prospects." Early in 2005, MMC agreed in principle to compensate us for financial damages deriving from these quality issues with cash and the remaining 20% of the shares of MFTBC owned by MMC. In addition, MMC agreed in principle to continue to maintain 100% ownership interest in NedCar, a company that produces the smart forfour for us, and to cooperate with MFTBC in various other areas.

        Off-Highway.     As of January 1, 2004, we allocated the Off-Highway business which we previously included in the Commercial Vehicles segment to the Other Activities segment. We have adjusted prior period amounts accordingly.

        HMC.     In May 2004, we terminated discussions with Hyundai Motor Company (HMC) regarding the formation of a commercial vehicles joint venture as part of the realignment of our strategic alliance with HMC. Also in May 2004, we sold our non-controlling 50% interest in DaimlerHyundai Truck Corporation (DHTC) to HMC and recorded a total pre-tax gain of €60 million as a result.

Products

        Vans.     Worldwide, we currently offer four lines of Mercedes-Benz vans between 1.9 metric tons (t) and 7.5t gross vehicle weight (GVW): the Sprinter, the Vito/Viano, the Vario and the compact multi-purpose vehicle Vaneo. We produce our Mercedes-Benz vans primarily in Germany and Spain. We also manufacture the Mercedes-Benz Sprinter in Argentina for the South American, South African, Australian and several Asian

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markets and assemble it in the United States for the U.S. and Canadian markets where we currently sell it under the Freightliner and Dodge brand names.

        Trucks.     Our current European Mercedes-Benz truck lines consist of the Actros and the Axor in the heavy weight category, the Atego in the medium weight category, and the Econic. The Axor is positioned between the Actros and the Atego in terms of price and function. The Econic is a specialty vehicle that customers can adapt for a variety of applications. Complementing our line-up is the Unimog, a four-wheel drive vehicle designed for special purpose applications, such as street maintenance, some construction industry uses, fire-fighting, forestry and agriculture. We sell trucks manufactured in our European factories also in Africa, Asia and Australia. In 2005, we plan to launch additional variants of the Axor and offer trucks that meet the emission regulations EURO 4 and 5, starting with long-haul applications.

        In Turkey, we manufacture medium and heavy duty trucks, mainly for the local market, but also for export sales. Our subsidiary DaimlerChrysler do Brasil develops and produces Mercedes-Benz trucks in the medium and heavy duty segments, especially for the South American markets. We will launch the Axor in South America in 2005 .

        Our U.S. subsidiary Freightliner manufactures trucks and buses (based on truck chassis) in Classes 5 through 8 (from 16,000 lbs. GVW to 33,000 lbs. GVW and over) and sells them under the Freightliner, Sterling, Western Star, and Thomas Built Buses brand names, primarily in the NAFTA-region. Through American LaFrance, Freightliner is active in the custom fire truck chassis market. Freightliner also manufactures chassis for trucks, buses and motorhomes in Classes 3 through 7 (from 10,000 lbs. GVW to 33,000 lbs. GVW). In 2004, Freightliner launched a new integrated school bus, the C2 Safe T-Liner.

        Our Japanese subsidiary MFTBC manufactures three lines of trucks and tractors, primarily for the Japanese and other Asian markets: the Canter trucks (from 3.5 to 7.5t GVW), the Fighter trucks (from 8.0 to 15.1t GVW), and the Supergreat trucks (from 15.1 to 24.8t GVW). MFTBC also sells trucks in Western Europe and the United States.

        Buses.     We are a full-line supplier in the worldwide bus and coach market. Our product portfolio includes city-buses, coaches, interurban buses, midi buses and bus chassis. We utilize our global production facilities in France, Germany, Turkey, Canada, Mexico, the United States and Japan to tailor our product range to local market requirements and preferences. We also produce bus chassis that we sell under the Mercedes-Benz brand name in various countries. We sell completely built-up buses under the Mercedes-Benz and Setra brands in Europe and under the Setra and Orion brand names in the United States and Canada. In 2004, Setra launched the final variant of its new ComfortClass 400 line of buses. We also manufacture heavy, medium and small coaches, buses and bus chassis at MFTBC in Japan.

        For our commercial vehicles, we produce diesel engines, axles and transmissions under the Mercedes-Benz, Mitsubishi Fuso and Detroit Diesel brand names for on-highway use.

Markets, Sales and Competition

        Markets.     The market for commercial vehicles depends significantly on the prevailing general economic conditions since they directly influence transportation needs and the availability of funds for capital investment.

        Our most important commercial vehicle markets are Western Europe, North America, South America and Asia. Economic conditions in all these regions improved in 2004, particularly in North America.

        Total commercial vehicle registrations for trucks, vans and buses in Western Europe increased significantly by 8% to 1,370,200 units. This increase was mainly driven by the medium and heavy-duty truck segments. Additionally, the mid-size and large van segments in Western Europe showed strong registration increases from 940,000 to 1,043,000 units due to strong market demand. Registrations of heavy (over 8t GVW) buses in that market improved slightly from 7,000 units in 2003 to 7,200 units in 2004.

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        Commercial vehicle registrations in Germany increased 10% to 306,400 units. Registrations in the medium and heavy-duty truck segment increased 14% to 32,200 units, in line with overall market growth.

        In the NAFTA region, retail sales for all manufacturers of trucks in Classes 5 through 8 reached 452,600 units, 31% more than in 2003. In the United States, retail sales of all manufacturers in Classes 5 through 8 increased 33% from 288,800 units in 2003 to 384,600 units in 2004. Retail sales in the Class 5-7 truck segment rose from 146,800 units in 2003 to 181,400 units in 2004, while retail sales for all manufacturers in the Class 8 heavy duty truck category showed a strong increase of 43% from 142,000 units in 2003 to 203,200 units in 2004. This increase reflects the recovery of the U.S. economy and the need to make new truck purchases deferred in prior years.

        In South America, demand went up in the Brazilian market, particularly in the medium- and heavy-duty truck segments, resulting in a 25% increase in commercial vehicle sales.

        In Japan, sales of trucks and busses (3.5t GVW and above) decreased 10% to 272,100 units. This decrease was the result of accelerated vehicle purchases during 2003 triggered by new engine emission standards which became effective in October 2003.

        Sales.     The following table shows the distribution of revenues and unit sales of our Commercial Vehicles segment by geographic market since 2002:

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¹

Beginning in 2004, revenues of our Off-Highway business have been included in our Other Activities segment. Prior year amounts have been adjusted accordingly.

²

Due to the consolidation of MFTBC, the 2004 figures include incremental increases to revenue and unit sales of €3.6 billion and 114,800 units. Most of MFTBC's revenues and unit sales relate to sales in Asia.

        Worldwide unit sales of our Commercial Vehicles segment increased 42% from 501,000 vehicles in 2003 to 712,200 units in 2004. Unit sales in 2004 include an additional 114,800 units sold by MFTBC. Excluding these incremental MFTBC sales, our Commercial Vehicles segment increased unit sales by 19%.

        The overall 10% increase of commercial vehicle unit sales in Western Europe is primarily due to higher sales of Mercedes-Benz trucks and vans. In Germany, the most important market for our Mercedes-Benz and Setra commercial vehicles, we sold 110,600 units in 2004, an increase of 9% compared to the previous year. Unit sales in Germany represented 15%, and the remaining Western European market 23% of our total 2004 commercial vehicle sales.

        In the NAFTA region, sales of our commercial vehicles increased significantly to 177,100 units in 2004. This increase was achieved through higher sales of Freightliner trucks (mainly Class 8), commercial vehicle chassis manufactured by a Freightliner subsidiary, and fire trucks and other specialty vehicles produced by the Freightliner subsidiary American LaFrance. In addition, sales of the Sprinter van in the NAFTA region rose from 11,800 units to 18,900 units.

        In South America, sales continued their upward trend with an increase of 43% from 39,000 units in 2003 to 55,800 units in 2004.

        Our unit sales in Japan were significantly higher at approximately 45,000 units following the integration of MFTBC. We have included MFTBC's revenues and unit sales in our figures since March 31, 2004, with a one-month lag. MFTBC's 2004 unit sales in Japan decreased in comparison to 2003. This was partially due to new engine emission standards, which became effective in 2003 and resulted in accelerated purchases in that year and partially to the negative impact of past quality issues which resulted in several field campaigns and homologation delays.

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        The following table shows, by vehicle category, the unit sales of our Commercial Vehicles segment since 2002:

¹

This category reflects sales of Mitsubishi pickup trucks (L 200) and Mitsubishi Pajero vehicles sold by our subsidiary DaimlerChrysler South Africa. These numbers were previously reported within the vans category.

²

The 2004 sales reported in the categories "Trucks" and "Buses" include 113,500 and 4,600 unit sales, respectively, of MFTBC.

        For a discussion of changes in revenues, see "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

        Competition.     In Western Europe, the primary sales market for Mercedes-Benz vans, our principal competitors are Fiat (Fiat, Iveco), Ford, Volkswagen and Renault.

        In the truck segment, competitors vary in each geographic region. In Western Europe, our main competitors are MAN, Iveco, Volvo, Scania, DAF and Renault. In the NAFTA markets, our main competitors in the Class 5 through 8 truck categories are Navistar, Paccar (Kenworth/Peterbuilt), Volvo/Renault (Mack), General Motors and Ford. In Japan and the South East Asian markets, our main competitors (including busses) are Hino, Isuzu and Nissan Diesel.

        Our main competitor in the bus sector (over 8t GVW) on a global scale is Volvo. Other major competitors are Neoman (MAN, Neoplan), Scania and Irisbus (Renault, Iveco). Their primary markets are in Western Europe. In South America, Volkswagen and Agrale are our main competitors. Volvo and Scania are also represented in this region. In Asia, our main competitors are Toyota, Hino and Isuzu.

Distribution

        In Germany, we sell our commercial vehicles through our own wholesale network. We also own several retail outlets. In some minor cases, we also sell our commercial vehicles through independent dealers.

        In other major European markets, local DaimlerChrysler subsidiaries provide wholesale services to a network of independent dealers and, in some cases, to our own retail outlets.

        Outside Europe, we sell our commercial vehicles through independent distributors or, if we have a local production company, through the sales organization of the production company. In Japan, MFTBC sells its commercial vehicles through its own wholesale network and owns most of the retail outlets.

        We expect to continue to establish our own retail outlets in major European metropolitan centers in an effort to strengthen our retail activities.

Capital Expenditures; Research and Development

        In 2004, our Commercial Vehicles segment had capital expenditures for fixed assets of €1.2 billion. These expenditures primarily related to a future successor model of the Sprinter and new low-emission engines.

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        Research and development projects in the commercial vehicles area focused on new products, especially the Sprinter successor, lifecycle management for the Atego/Axor line and engines meeting new low-emission regulations. In 2004, our expenses for research and development amounted to €1.2 billion.

        The table below shows capital expenditures for fixed assets and research and development expenditures of our Commercial Vehicles segment during each of the last three years:

        Our services activities, which contributed approximately 8% of our revenues in 2004, consist almost exclusively of financial services supporting our automotive businesses.

        The revenues of our services segment amounted to €13.9 billion in 2004, €14.0 billion in 2003 and €15.7 billion in 2002 and were almost exclusively attributable to financial services.

        The financial services we offer consist mainly of customized financing and leasing packages for our retail and wholesale customers in the automotive sector. We also provide financing to our dealers for property, plant and equipment purchases and vehicle inventory. Since 2002, we have operated a fully licensed bank, the DaimlerChrysler Bank, in Germany. The DaimlerChrysler Bank offers financial services in Germany, which include leasing and sales-financing services and car savings plans to our customers and employees, as well as credit cards and demand-deposit accounts. In addition, we offer insurance and reinsurance brokerage and fleet management services, including dealer property and casualty insurance.

        In an effort to refocus our financing and leasing portfolios on the automotive sector, which is our core business, we disposed of several non-automotive financial assets in 2002, 2003 and 2004. Most importantly, during 2002 we sold substantial portions of our commercial real estate and asset-based lending portfolios to GE Capital and other financial services providers for an aggregate amount of €1.3 billion. We sold additional portions of our capital services portfolio in 2003 for proceeds of €0.3 billion and made minor dispositions in 2004.

        We also have an ownerhip interest in Toll Collect, for which we account using the equity method of accounting. In September 2002, our subsidiary DaimlerChrysler Services AG, Deutsche Telekom AG and Compagnie Financiere et Industrielle des Autoroutes S.A. (Cofiroute) contracted with the Federal Republic of Germany to develop, install and operate a system for electronic collection of tolls from all commercial vehicles over 12t GVW using German highways. Toll Collect GmbH, a German limited liability company in which we and Deutsche Telekom each hold a 45% interest and Cofiroute holds the remaining 10%, is the principal builder and operator of the system. You can find additional information about Toll Collect under the heading "Off-Balance Sheet Arrangements" in "Item 5. Operating and Financial Review and Prospects," under the heading "Legal Proceedings" in "Item 8. Financial Information" and in Note 3 to our Consolidated Financial Statements.

        In October 2000, Deutsche Telekom AG acquired a 50.1% controlling interest in our information technology activities. In March 2002, we exercised our option to sell to Deutsche Telekom our remaining 49.9% interest in these activities. You can find additional information about these transactions under the heading "Business Summary and Developments" in "Introduction" above, under the heading "Operating Results —

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Overview of Business Segments Revenues and Operating Profits (Loss)" in "Item 5. Operating and Financial Review and Prospects," and in Note 4 to our Consolidated Financial Statements.

        In 2004, we generated approximately 54% of our total financial services business in the NAFTA region, 29% in Germany and 12% in other European Union countries. We discuss period-to-period changes in revenues under the heading "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

        In 2004, the Services segment processed new leasing and finance contracts covering approximately 2,329,000 units with a total value of €50.9 billion. In the prior year, we processed new leasing and finance contracts covering 1,944,000 units with a total value of €47.5 billion. The total value of leasing and finance contracts at December 31, 2004, was €102.4 billion compared to €98.2 billion at December 31, 2003, a 4% increase in total contract value. Excluding currency translation effects, our total contract value increased 9% compared to 2003. The average monthly payment for new vehicle installment sale contracts in 2004 was €469. The average new contract balance amounted to €21,806 and the average original term was 49 months.

        The following table shows the number of units and the value covered by new leasing and finance contracts as well as the number of units and the value covered by all our outstanding leasing and finance contracts at December 31, 2004 (in each case by geographic area and in total):

¹

These figures include contracts which we included in several asset-backed receivables transactions in these countries.

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        In the leasing and financial services area, our competitors include leasing and finance subsidiaries of banks and financial institutions. We also compete with the financial services businesses of other automobile manufacturers to the extent they do not limit their activities to their own automobile brands.

Other Activities

        Our Other Activities segment comprises our businesses, operations and investments not allocated to one of our other business segments. The segment includes our Off-Highway business, our holdings in EADS and Mitsubishi Motors Corporation (MMC), our real estate and corporate research activities, our holding companies and our finance subsidiaries through which we refinance the capital needs of our operating businesses in the capital markets.

        EADS.     We account for the minority interest we hold in EADS using the equity method of accounting and we report our share of the operating results of EADS as part of the operating results of our Other Activities segment. EADS is a global supplier in the aerospace sector, the defense business and of related services. The EADS Group includes the aircraft manufacturer Airbus, the helicopter supplier Eurocopter and the joint venture MBDA, a guided missile producer. In addition, EADS is a partner in the Eurofighter consortium and a prime contractor for the Ariane launcher. The company is developing the A400M military transport aircraft and is the industrial partner for the European satellite navigation system Galileo.

        Off-Highway.     As of January 1, 2004, we allocated our Off-Highway business, which was previously included in Commercial Vehicles, to our Other Activities segment. We have adjusted prior figures to reflect this new presentation. Our Off-Highway business includes the MTU Friedrichshafen Group, the Off-Highway businesses of Detroit Diesel Corporation and DaimlerChrysler AG as well as our minority investment in VM Motori S.P.A. The Off-Highway business focuses on engine applications for rail and marine products, military and industrial vehicles as well as stationary industrial and commercial applications (e.g. back-up generators). We sell our Off-Highway-products under the brand names Mercedes-Benz, Detroit Diesel and MTU.

        MMC.     Following a corporate restructuring at MMC, our interest in the voting stock of MMC was diluted from 37.0% to 24.7% and we no longer have the ability to exercise significant influence over the operating and financial policies of MMC. As a result, on June 29, 2004, we ceased to account for our investment in MMC using the equity method of accounting and classified our investment in MMC as an investment in related companies, accounted for at fair value. Since then our equity interest has been further diluted. As of December 31, 2004, we held 19.69% of the share capital of MMC. Please refer to the discussion above under the heading "Business Summary and Developments" in "Introduction" for further information.

        MTU Aero Engines.     On December 31, 2003, we sold MTU Aero Engines GmbH and its subsidiaries to the investment company Kohlberg Kravis and Roberts & Co. Ltd. (KKR). As required by U.S. GAAP, we reclassified the results of MTU Aero Engines and the gain on the sale of this business as discontinued operations in our consolidated statements of income and report them accordingly. We have adjusted our consolidated statements of income (loss) for all periods presented to reflect this presentation. For further information regarding the effects on our operating profit in 2003, please refer to "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

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        Temic.     In April 2001, we sold a controlling interest in our TEMIC automotive electronics business for
€398 million. We sold our remaining 40% minority interest in that business for €215 million in April 2002.

        Revenues from continuing operations of this segment originate mainly from our DaimlerChrysler Off-Highway business unit and our real estate business. The following table shows the revenues generated by our Other Activities segment since 2002:

¹

As of January 1, 2004, we allocated the Off-Highway business previously included in our Commercial Vehicles segment to the Other Activities segment. We have adjusted prior year amounts accordingly.

²

On December 31, 2003, we sold MTU Aero Engines. As a result, we report the 2003 and 2002 revenues of MTU Aero Engines as discontinued operations and all other businesses as continuing operations. We have adjusted the figures for prior reporting periods accordingly.

        For a discussion of changes in revenues, see "Operating Results" in "Item 5. Operating and Financial Review and Prospects."

¹

As of January 1, 2004, we allocated the Off-Highway business previously included in our Commercial Vehicles segment to the Other Activities segment. We have adjusted prior year amounts accordingly.

²

Revenues for the years 2003 and 2002 include the revenues of MTU Aero Engines which we sold on December 31, 2003.

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SUPPLIES AND RAW MATERIALS

        In 2004, we purchased goods and services from suppliers around the world with a total value of approximately €101.4 billion compared to €99.7 billion in 2003. Mercedes Car Group accounted for 38% of our total purchase volume, Chrysler Group for 32%, Commercial Vehicles for 26%, Services for 3%, and Other Activities for 1%. We purchase various commodities used in vehicle manufacturing, such as steel, through annual and long-term supply agreements. From time to time, we also purchase commodities on the spot market.

        We operate our worldwide procurement and supply activities through a single global procurement and supply function. We aim to maximize the efficiency of our supply networks by working not only with the first tier supplier but also with sub-suppliers, raw material suppliers, and transportation carriers. E-procurement is one of several standard processes we use in purchasing supplier products and managing logistics.

        We strive to avoid material shortages in supplies and raw materials and substantial price increases by carefully managing our current and future requirements and delivery needs in close cooperation with our suppliers and sub-suppliers.

        In 2004, steel prices increased significantly due to increased worldwide demand. Annual and long-term supply agreements based on regional supply needs and pricing helped minimize the impact of higher steel prices in 2004. Although we will continue to benefit from similar supply arrangements, continued high steel prices may have a more significant impact on us and our suppliers in 2005. Oil prices increased significantly throughout the year but declined in the fourth quarter from their record high levels. Fuel and resin (plastic) prices increased as a result of higher oil prices. Precious metals, including platinum, palladium and rhodium, which we primarily use in catalytic converters, are subject to price volatility. We use derivative commodity instruments to hedge against this volatility to the extent we deem appropriate. We also continue to research alternative materials and processes for use in these components. In addition, we have established a corporate commodity risk management committee to provide enhanced control and oversight over our commodity price exposure.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

        The automotive industry is subject to extensive government regulation. Laws in various countries regulate the emission levels, fuel economy, noise, and safety of vehicles, as well as the levels of pollutants generated by the plants that produce them. These regulations often impose differing standards and substantial testing and certification requirements. The cost of complying with these varying regulations can be significant, and we expect to incur significant compliance costs in the future. We recognize, however, that leadership in environmental protection and safety is an increasingly important competitive factor in the marketplace.

Vehicle Emissions

        U.S. Standards. Federal.     Under the Federal Clean Air Act, the Environmental Protection Agency, or EPA, has imposed tailpipe emission control standards on passenger cars and light trucks, including minivans, sport utility vehicles, and pickup trucks. The standards in effect for model year 1994 - 2003 passenger cars and light trucks are known as Tier 1 standards. Manufacturers may be obligated to recall vehicles that fail to meet those standards for ten years or 100,000 miles, whichever occurs first.

        The EPA also adopted Tier 2 standards that establish identical and stringent tailpipe emission requirements for passenger cars and light trucks. Tier 2 standards, which will be phased in over model years 2004-2009, can obligate manufacturers to recall vehicles that fail to meet the standards for ten years or 120,000 miles, whichever occurs first. The Tier 2 standards present a significant technological challenge to the

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automobile industry, particularly with respect to diesel engines. Beginning with 2004 model year vehicles, manufacturers are no longer permitted to sell vehicles in the United States that do not meet the new standards. Further research and development achievements on the part of the automotive industry will be required if the industry is to continue to comply with these new standards as applied to later model years.

        Separate standards are in effect for heavy light-duty trucks (those in excess of 8,500 pound gross vehicle weight) and heavy-duty commercial vehicles. Stringent standards apply to model year 2004 - 2006 vehicles, and even more stringent standards will be phased in over model years 2007 - 2010.

        California Standards.     The State of California sets its own stringent emission control standards for passenger cars and trucks. Its low emission vehicle program establishes more restrictive standards over model years 2004-2007 than those in effect for model years 1993 - 2003. Meeting these new standards in later years will require significant progress in the development of engine, exhaust after treatment, and fuel control technologies.

        An important part of California's program is the introduction of zero-emission vehicles (ZEVs). The California Air Resources Board (CARB) issued a series of regulations in the 1990s that required an increasing number of the passenger cars and light trucks sold in California each year by large-volume manufacturers to be certified as ZEVs (up to 10% by model year 2003). In 2004, in connection with the settlement of litigation brought by vehicle manufacturers (including our subsidiary, DaimlerChrysler Corporation) and dealers, CARB adopted amended regulations to allow manufacturers to satisfy the ZEV mandate with vehicles that use various technologies (electric batteries, hydrogen fuel cells, compressed natural gas, gasoline/electric hybrids) to produce limited or no emissions. The amended regulations take effect beginning with model year 2005.

        Other states may either adopt the California standards or participate in the EPA's national low emission vehicle program requiring manufacturers to sell low emission vehicles nationwide beginning with the 2001 model year. To date, the states of Connecticut, Massachusetts, Maine, New Jersey, New York, Rhode Island and Vermont have adopted the California standards. Maine has not yet adopted the requirement for zero-emission vehicles. Other states have expressed interest in adopting California's zero-emission standards when they become final. We expect to continue to incur significant costs in developing these low or zero-emission technologies.

        We participate with other vehicle manufacturers and the U.S. Department of Energy in Freedom CAR, a research project formed to develop fuel cell technology to power vehicles. Development of a commercially viable fuel cell vehicle will require further intensive research. Without new technology, we and other manufacturers may be forced to take costly actions such as reducing the number of non-zero-emission vehicles offered for sale in California or selling battery-powered electric vehicles below cost. In December 2004, we signed a non-binding memorandum of understanding with General Motors Corporation regarding a cooperative effort to develop a two-mode full hybrid propulsion system for applications in Chrysler Group, Mercedes Car Group, and GM vehicles that would improve fuel economy significantly.

        Our subsidiary DaimlerChrysler Corporation has held discussions with CARB and the EPA about the performance of the catalytic converters in some of its 1991 - 1999 model year vehicles, and the on-board diagnostic systems used to monitor catalytic converter function in certain of its 1996 - 2001 model year vehicles. DaimlerChrysler Corporation would incur significant costs if it were required to repair or replace these emission control devices.

        European Standards.     Current vehicle emission control standards in the European Union (EU) are generally no more restrictive than U.S. standards. However, the EU Commission and the EU Parliament have adopted a directive that establishes increasingly stringent emission standards for passenger and light commercial vehicles for model years 2005 and thereafter (EURO 4). Under the directive, manufacturers will be obligated to recall vehicles that fail to meet those standards for five years or 80,000 kilometers, whichever

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occurs first. Standards for heavy commercial vehicles have been adopted by the EU Commission and the EU Parliament for model years 2005 (EURO 4) and 2008 and thereafter (EURO 5).

Vehicle Fuel Economy

        U.S. Standards.     Under the federal Motor Vehicle Information and Cost Savings Act, a manufacturer is subject to significant penalties for each model year its vehicles do not meet Corporate Average Fuel Economy standards, commonly referred to as the CAFE standards. CAFE standards for passenger cars and light-duty trucks are currently 27.5 miles per gallon and 20.7 miles per gallon, respectively. A manufacturer earns credits by exceeding CAFE standards. Credits earned for the three preceding model years and credits projected to be earned for the next three model years can be used to meet CAFE standards in the current model year, except that credits earned in respect of cars may not be used for trucks. In 2003, the National Highway Traffic Safety Administration (NHTSA) adopted new CAFE standards for light-duty trucks, including minivans and sport utility vehicles, of 21.0 miles per gallon for 2005 model year vehicles, 21.6 miles per gallon for 2006 model year vehicles, and 22.2 miles per gallon for 2007 model year vehicles.

        We expect to meet the current and proposed U.S. domestic fleet CAFE standards for both passenger cars and light-duty trucks, although we will likely use credits to meet the standard for light-duty trucks. However, increased demand for larger light-duty trucks could jeopardize our ability to comply with those standards and require us to take additional costly steps, including the sale of ethanol flexible fuel vehicles. We may not be able to meet the current and proposed U.S. import fleet CAFE standards for passenger cars and light-duty trucks, and may incur fines as a result.

        The United States and other countries may adopt more stringent CAFE standards as a way of reducing carbon dioxide emissions by increasing fuel economy. These emissions are said to contribute to global warming, which has become a matter of international concern. In 2001, the United States withdrew from the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which called for the United States to reduce substantially its fossil energy use during years 2008 - 2012. Nevertheless, the United States is considering ways to achieve reductions in fossil energy use, including more stringent CAFE standards, higher fuel costs and restrictions on fuel usage.

        California is also attempting to limit such emissions through regulation of fuel economy standards. In July 2002, California passed a law that requires CARB to develop regulations that would require automakers to reduce significantly greenhouse gas emissions from their vehicles starting with 2009 models. The California Air Resources Board is in the process of submitting adopted regulations to the California legislature for its review. Several other states have stated that they will enact similar measures. The Alliance of Automobile Manufacturers, of which our subsidiary DaimlerChrysler Corporation is a member, has filed a lawsuit in federal court in Fresno, California challenging these regulations. DaimlerChrysler Corporation, General Motors Corporation and several local car dealers have filed a lawsuit challenging these regulations in state court in Fresno, California. State regulation in this area, if upheld, could be costly to us and could significantly restrict the products we are able to offer in the United States.

        In addition to conventional gasoline powered vehicles, we manufacture vehicles that operate on diesel, and flexible fuel vehicles capable of operating on both gasoline and ethanol blend fuels.

        European Standards.     The European Union (EU) signed and ratified the Kyoto Protocol, pursuant to which it is required to substantially reduce carbon dioxide emissions during years 2008 to 2012. In 1999, the EU entered into a voluntary agreement with the European automotive manufacturers association (ACEA) which establishes an emission target of 140 grams of carbon dioxide per kilometer for the average of new passenger cars sold in the European Union in 2008. That target represents an average reduction in passenger vehicle fuel usage of 25 percent, measured from 1995 levels. The EU has reaffirmed its goal of reducing carbon dioxide

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emissions from new passenger cars to an average of 120 grams per kilometer by 2010. At the end of 2003, the ACEA started a consultation round with the EU Commission on further reduction potentials for the time after 2008. This consultation was requested by the EU Commission and we, as a member of ACEA, are actively involved in this consultation process. The consultations will continue in 2005. Should the EU Commission's target to reduce carbon dioxide emissions from new passenger cars to an average of 120 grams per kilometer become a mandatory standard, this would require us to incur significant costs to improve engine and overall efficiency and reduce vehicle weight significantly.

        In addition, in 2003 the EU and the ACEA discussed a voluntary agreement for emission standards for light commercial vehicles not registered as passenger cars. So far no emission standards for light commercial vehicles have been agreed upon since the ACEA convinced the EU Commission to first establish a standardized test cycle like the New European Driving Cycle for passenger cars (NEDC) for measuring fuel consumption and carbon dioxide emission, respectively, for light commercial vehicles in a standardized manner as a basis for future possible emission standards. As a result, the EU Commission adopted a directive, which requires us, as of 2005, to measure carbon dioxide emissions of light commercial vehicles with a gross vehicle weight of up to 1.305 metric tons (class 1) as a condition for selling such vehicles within the EU. Similar rules are effective as of 2007 for light commercial vehicles with a gross vehicle weight of 1.306 to 1.760 metric tons (class 2) and 1.761 to 3.5 metric tons (class 3). There are discussions in the EU Commission about applying the above mentioned passenger cars rules also to light commercial vehicles, covering classes 1 to 3. Currently, we cannot assess the potential implications on our business if the passenger car rules were to come into effect also for light commercial vehicles. Nevertheless, the inclusion of light commercial vehicles into the above mentioned passenger car category would make it even more difficult to achieve the 120 grams per kilometer target.

Vehicle Safety

        U.S. Standards.     The U.S. National Traffic and Motor Vehicle Safety Act of 1966, or the Safety Act, requires new vehicles and original equipment sold in the United States to meet various safety standards established by NHTSA. The Safety Act also requires manufacturers to recall vehicles found to have safety related defects and to repair them without charge. The cost of such recalls can be substantial depending on the nature of the repair and the number of vehicles affected.

        NHTSA's Interim Final Rule relating to advanced airbag systems imposes a regimen of tests with stringent injury criteria, and sets forth a compliance phase-in schedule mandating that 35% of all vehicles produced by a manufacturer for the 2004 model year, 65% for the 2005 model year, and 100% for the 2006 and 2007 model years, meet the rule's safety standard. In January 2003, NHTSA reduced the first-year percentage requirement to 20%, but retained the original percentage requirements for the later model years. These standards add to the cost and complexity of designing and producing new motor vehicles and original motor vehicle equipment.

        The U.S. Transportation Recall Enhancement, Accountability and Documentation Act, or the TREAD Act requires, among other things:

•

a tire pressure warning system;



•

a program to inform consumers of a vehicle's rollover propensity as established in a dynamic rollover test;



•

upgraded tire safety standards; and



•

the development of a system of collecting from manufacturers information relating to vehicle performance and customer complaints to assist in the early identification of potential vehicle defects.

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        These requirements impose additional cost and complexity to the vehicle development process. The TREAD Act also increases NHTSA's authority to impose civil penalties for non-compliance and specifies possible criminal penalties.

        In general, vehicle safety regulations in Canada are similar to those in the United States. Countries in South America and Asia have also established vehicle safety regulations.

        European Standards.     Vehicles sold in Europe are subject to comparable vehicle safety regulations established by the European Union (EU) or by individual countries. In addition, during the last three years the ACEA, of which we are a member, negotiated a voluntary self commitment on pedestrian safety with the EU Commission. The self commitment comprises of two phases. Phase one criteria, which cover, among other things, the ban of rigid bull bars by original manufacturers, compliance with specific head injury criteria and the introduction of antilock brake systems (ABS), have been embedded into a framework directive by the EU and, as a consequence, are already legally binding. Phase one criteria are effective from October 2005, after which original manufacturers have to be in full compliance with the criteria through 2012. Phase two criteria, which the ACEA and the EU Commission are still discussing, are intended to amplify standards established in phase one. The goal of ACEA in its discussions with the EU Commission is to convince the Commission to open phase two for more active safety measures, such as the mandatory introduction of electronic stability programs or other accident avoidance measures, instead of imposing more passive requirements, such as specific rules regarding the deformation of the crash zone of a car. Should these more restrictive phase two standards become mandatory, this would have a major impact on the design freedom of our future passenger cars.

Stationary Source Regulation

        Our assembly, manufacturing and other operations in the United States must meet a substantial number of regulatory requirements under various federal laws, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Pollution Prevention Act of 1990 and the Toxic Substances Control Act. State laws parallel and, in some cases, impose more stringent requirements than federal law. Together these laws impose severe restrictions on airborne and waterborne emissions and discharges of pollutants, the handling of hazardous materials, and the disposal of wastes. Similar requirements apply to our operations in Europe, Canada and Mexico.

        Our subsidiary DaimlerChrysler Corporation is participating in a voluntary program established by the U.S. Department of Energy to reduce the greenhouse gas emissions from our manufacturing facilities. Under this program, DaimlerChrysler Corporation has pledged to reduce these emissions by 10% per vehicle produced between 2002 and 2012.

Other Environmental Matters

        In the United States, the EPA and various state agencies have notified our subsidiary DaimlerChrysler Corporation that it may be a potentially responsible party for the cost of cleaning up hazardous waste storage or disposal facilities pursuant to the Comprehensive Environmental Response, Compensation and Liability Act and other federal and state environmental laws. A number of lawsuits allege that DaimlerChrysler Corporation violated environmental laws and seek to recover costs associated with remedial action. DaimlerChrysler Corporation is only one of a number of potentially responsible parties who may be found to be jointly and severally liable for remediation costs. As of December 31, 2004, DaimlerChrysler Corporation may incur remediation costs at 133 sites in connection with the foregoing matters and other remediation issues at its active or deactivated facilities.

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        Pollution remediation is also a potentially significant issue in Germany at some of our older sites, including manufacturing plants and some of our own service outlets. These remediation issues involve 11 principal sites.

        Estimates of future costs of these environmental matters are inevitably imprecise due to numerous uncertainties, including the enactment of new laws and regulations, the development and application of new technologies, the identification of new sites for which we may have remediation responsibility and the apportionment and collectibility of remediation costs among responsible parties. We establish reserves for these environmental matters when the loss is probable and reasonably estimable. It is possible that final resolution of some of these matters may require us to make expenditures in excess of established reserves, over an extended period of time and in a range of amounts that we cannot reasonably estimate. Although final resolution of any such matters could have a material effect on our consolidated operating results for the particular reporting period in which an adjustment of the estimated reserve is recorded, we believe that any resulting adjustment should not materially affect our consolidated financial position.

        In 2000, the EU Commission issued a directive that requires automobile manufacturers to take back all end-of-life passenger cars (up to 9 seats) and light trucks (up to 3.5t total weight) sold after July 1, 2002, and, beginning in January 1, 2007, all end-of-life passenger cars including those sold before July 1, 2002. This directive stipulates that automotive manufacturers incur all, or a significant part of, the costs of recycling these vehicles. The directive affects all end-of-life-vehicles in the European Union and imposes additional costs on automobile manufacturers which could be significant. Currently, manufacturers already take back vehicles sold before July 1, 2002, and batteries for disposal or recycling, but are allowed to charge their costs in these circumstances. In addition, German manufacturing facilities are subject to enhanced noise restrictions.

        We are committed to reducing the environmental impact of our operations and products beyond currently applicable regulatory requirements where this is technically and financially feasible. Our policy is environmental protection in pursuit of sustainable development. This policy is set forth in our environmental guidelines and designed to minimize further the environmental effects generally associated with the type of manufacturing operations we conduct. We have installed environmental management systems in both our plant operations and our development departments to consider environmental effects at the planning stage of a new manufacturing process or product. We publish environmental reports summarizing our use of resources and measures we have undertaken to minimize further the environmental impact of our products and operations.

Design Protection

        On September 14, 2004, the European Union (EU) Commission adopted a proposal for an amendment of the design protection directive Nr. 98/71/EC. The proposed amendment intends to abolish the design protection for visible and styled automotive parts within the EU. The proposal would allow parts manufacturers independent from the original equipment manufacturers to copy and sell throughout the EU visible and styled replacement parts such as hoods, bumpers, fenders, doors, lights and windshields. If this proposed amendment becomes effective, it may negatively affect our future sales of visible and styled replacement parts and may increase our allocated costs per unit accordingly.

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DESCRIPTION OF PROPERTY

        At December 31, 2004, we had 101 manufacturing facilities worldwide, of which 20 are located in Germany and 38 in the United States. Most of the remaining facilities are in Brazil, Canada, Japan, Mexico, South Africa, Spain and Turkey. We also have other properties, including office buildings, spare parts centers, retail outlets, research laboratories, test tracks and warehouses, mainly in Germany and in the United States. We own most of these manufacturing facilities and other properties.

        The following table shows a list of our principal production and other facilities worldwide:

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