Daimler, which owns the Mercedes-Benz brand and is the world's leading manufacturer of heavy trucks, posted a net profit of €4.7 billion ($6.3 billion) for 2010, more than reversing a 2009 loss of €2.6 billion.
The group turned a 2009 fourth quarter loss of €352 million into a €1.1 billion profit in the last three months of 2010 and will propose a dividend of €1.85 per share, a statement said.
Daimler did not pay a dividend in 2009 but investors were unimpressed by the group's upbeat tone this time around and its shares plummeted in midday Frankfurt trading, although profit-taking might explain part of the sell-off.
"Daimler managed an excellent comeback last year," chairman Dieter Zetsche said in the statement.
"Our goal now is to maintain the level we have reached over the long term and to further improve it wherever possible," he added.
It benefited last year from special items that included the sale of a stake in Tata Motors of India which added €265 million to the bottom line.
Daimler also took a charge of €237 million in connection with the stumbling Airbus A440M military transport plane owing to the automaker's stake in Airbus' parent company EADS.
The German car maker said core earnings soared to €7.27 billion from an operating loss of €1.5 billion a year earlier.
That was better than its own forecast of €7.0 billion but undershot analysts expectations for €7.7 billion, Dow Jones Newswires reported.
Daimler now expects core earnings this year "to surpass the level of 2010 significantly," the statement said.
It also "assumes that its total unit sales will rise and that revenue will grow at a more moderate rate in 2011."
The group benefited from a recovery of all its major markets last year as well as from a programme to increase production efficiency.
It sold 1.9 million vehicles with group revenue up 24 percent to €97.8 billion, thanks notably to rising Mercedes deliveries in China and the United States.
Daimler staff, who numbered 260,100 as of December 31, are to receive a special bonus of €3,150 as a result of the group's strong performance.
Shares in the group were sharply lower in afternoon trading on the Frankfurt stock exchange, showing a loss of 2.84 percent to €54.39, while the DAX index of German blue-chips was 0.14 percent higher overall.
Auto analyst Frank Schwope at NordLB bank said "the market might have been a little disappointed by the fourth quarter but I find the reaction overdone, especially since the outlook is excellent.
"It might also be the result of profit-taking because the share has gained a lot of ground recently," he added.