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Daimler AG DMLRY shares tumbled Friday after it posted weaker-than-expected third quarter earnings Friday, and said full-year profits at its Mercedes cars division would be "significantly below" 2017 levels, as the world's biggest luxury carmaker continues to struggle with the costs associated with making its diesel fleet compliant with new rules on car emissions.

Daimler said third quarter earnings fell to 27% from the same period last year to €2.488 billion, thanks in part to an "increase in expected expenses in connection with ongoing governmental proceedings and measures in various regions with regard to Mercedes-Benz diesel vehicles", the company said. Mercedes vans sales were also weaker due to delivery delays, the company said, adding that full year earnings would be "significantly below" 2017 levels. A Daimler spokesperson told Reuters the decline could be more than 10%.

"The main factor is an increase in expected expenses in connection with ongoing governmental proceedings and measures in various regions with regard to Mercedes-Benz diesel vehicles," Daimler said in a statement. "Furthermore, against the backdrop of a recent ruling by the European Court of Justice, provisions have been recognized for the potential need to take action on certain vehicles still operating with the previously used refrigerant R134a."

Daimler shares were marked 3.5% lower in Frankfurt following the ad hoc earnings update, and changing hands at €50.58 each, the lowest in more than five years and a move that extends the stock's year-to-date decline to around 30%. 

European auto stocks were also caught in the downdraft, with the Stoxx Europe 600 Automobiles and Parts index falling 3% to a two-year low of 482.51 points and France's Renault SA (RNLSY) falling 4.15% to €66.04 per share. 

Daimler said earnings from its trucks unit, however, rose 38% to €850 million, and said its full year guidance for that business was unchanged, but noted its Mercedes Benz vans unit took a loss of €93 million against a year ago profit of €214 million.

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Last month, Daimler said long-serving CEO Dieter Zetsche would step down as CEO of the luxury automaker next year, and move to the supervisory board, in order to make room for new boss Ola Kaellenius in one of the biggest management shakeups for the iconic German group in decades.

Domestic rival BMW AG (BMWYY) said in September it will post weaker-than-expected full year profits, thanks in part to costs associated with new rules on car emissions -- known as the Worldwide Harmonised Light Vehicle Test standard, WLTP -- and the ongoing uncertainty of U.S. trade policy.

BMW shares extended their decline Friday, falling a further 1.84% to €73.75 each, a move that takes its year-to-date decline past 15%

Earlier this summer, Daimler said fewer-than-expected Mercedes SUV sales, as well as higher costs that can't be passed on to customers, need to be factored in to its new 2018 earnings projections "because of increased import tariffs for US vehicles into the Chinese market."

The new Daimler profit outlook marks a stark contrast to its early 2018 optimism, when it said worldwide car demand "continued to develop favorably in the first quarter and increased slightly" and noted that U.S. demand for cars and light trucks rose 2% from the same period last year.

Since then, however, U.S. President Donald Trump has consistently referenced the European auto sector as a potential target for tariffs in his effort to reduce what he has called "unfair" trade agreements between the United States and its largest economic partners.