Mercedes-Benz office in Shanghai, China

The deceleration in China’s auto market is doing little to dent German premium car brands.

Shares in Daimler rose 3.5 per cent in Frankfurt after the Mercedes-Benz maker issued operating earnings figures for its five divisions, as well as better than expected free cash flow.

Earnings before interest and tax from continuing operations in the company’s car unit – its biggest business – rose 29 per cent in the third quarter.

Germany’s big three luxury carmakers – Mercedes-Benz, with BMW and Audi – have outperformed the wider Chinese auto market, which is now the world’s biggest but is experiencing a gradual slowdown.

Mercedes has the smallest sales in the country of the trio, selling 138,000 cars in China in the first half of this year, compared with 225,000 at BMW and 269,000 at Audi.

But chief executive Dieter Zetsche has targeted 300,000 units by 2015, and the company has been investing in new models while reining in costs at the cars business.

Mercedes achieved record monthly global sales of almost 163,000 units in September, putting it in second place behind BMW among the Germans – helped by a near-25 per cent rise in China.

Stuart Pearson, analyst at Exane BNP Paribas, said: “In China, Mercedes has been a massive laggard, but now they’ve got a bit of a catch-up story going on and are putting the right products into the market.”

The Mercedes-Benz S-Class, a luxury saloon that has been designed to appeal to Chinese buyers, has proved particularly popular in the country.

The Stuttgart-based company said free cash flow in its industrial business – excluding the financial services arm – stood at about €5.4bn in the third quarter, compared with €1.6bn this time last year, including the sale of Daimler’s 50 per cent stake in Rolls-Royce Power Systems, the German diesel engine supplier formerly known as Tognum.

Adjusted free cash flow was €2.9bn, again compared with €1.6bn. Daimler had assumed that the figure would fall this year.

More details on the rise will emerge next week, when Daimler’s full third-quarter report is released, but analysts said the company was benefiting from a rise in shipments to dealers.

Daimler pledged to review its guidance on free cash flow, an important driver of dividends.

In the trucks business, operating income rose 17 per cent in the quarter to €618m. Daimler maintained its guidance for operating earnings from its five divisions – cars, trucks, buses, vans and financial services – and is expecting a full-year performance “significantly above” last year’s in the first three of those units.

Daimler’s shares were up 3.5 per cent at €58.60 in early afternoon Frankfurt trading. They have declined more than 10 per cent in the past month, in line with a wider fall in carmaker shares, which have been affected by macroeconomic jitters.

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