* "Everything going in wrong direction" - fund manager
* Analysts say carmaker should have warned on profit earlier
* Daimler CFO says wants to improve profitability
* Daimler shares fall over 3 pct, lag all German blue chips (Adds fund manager, analyst)
By Hendrik Sackmann and Christiaan Hetzner
STUTTGART/FRANKFURT, Oct 25 Investors punished Daimler for shelving plans to improve group profit next year, showing they fear the carmaker's management has not yet grasped the scale of its problems.
Premium carmakers, which until recently had sailed unscathed through the crisis plaguing mass market peers, are starting to feel the pinch as the outlook for the austerity-hit European car market worsens and competition heightens in China as the economy slows.
The German automotive group hastily promised 2 billion euros ($2.6 billion) in cost cuts at its Mercedes premium car division by the end of 2014 after warning late on Wednesday it would miss its operating profit target this year by 1 billion euros, or more than 10 percent.
Shares slid over 3 percent by 1258 GMT, the biggest underperformer among German blue chip stocks.
"This quarterly report is a new low point. Wherever one looks - whether it's the divisions, the cashflow or China - everything is going in the wrong direction," said Michael Muders, a portfolio manager at Union Investment.
"Problems were made in the past whose solution requires an entire model lifecycle - the product range was deficient, they missed the boat on the trend to efficient powertrains, the design was everything but successful and the sales distribution in China was improperly managed."
Many analysts had been expecting a profit warning since June, when it became clear that sales in the lucrative Chinese market were stuck in neutral.
They criticised management's overly optimistic view in July that there was no need for a profit warning as indicative of an inability to realistically evaluate the extent of the problems.
Investors should steer clear of the stock in order not to expose themselves to a "sheer endless road of negative earnings revisions, missed targets and a management team that keeps running behind peers," wrote Arndt Ellinghorst of Credit Suisse.
More than two years ago, Daimler set a target for a 10 percent EBIT margin at Mercedes for 2013, but an abrupt profit warning at its car business in m i d-September prompted Chief Executive Dieter Zetsche to cast doubt on the goal about four weeks ago.
On Wednesday, Daimler said it now expected it to take longer to reach its margin target due to the tough market environment even though it aimed to achieve a significant portion of its 2 billion euros in cost cuts by the end of next year.
"The fact that management is once more cutting costs without addressing Daimler's core problem - too high labour costs - supports our view that the company remains in denial," Ellinghorst added.
Finance chief Bodo Uebber sought to calm concerns in a call with reporters on Thursday, claiming Daimler aimed to boost 2013 operating margins, albeit not as much as initially planned.
"We naturally want to improve profitability over our current performance," said Uebber.
Mercedes managed only a 7.8 percent operating margin in the first nine months of 2012 compared with 11.2 percent for rival Audi. With 4.2 billion euros in profit, VW's luxury brand has also almost earned as much through September as the 4.4 billion that Mercedes wants to achieve for the full year.
Uebber said the company had a plan in place to catch up with peers Audi and BMW - fix its China operations while diversifying its product range to include all-new models like a compact Mercedes SUV.
Problems at Mercedes that contributed to substantial cash burn this year have also triggered fears that Daimler might not be able to afford a flat dividend of 2.20 euro per share for 2012 - speculation that Uebber dismissed. ($1 = 0.7711 euros) (Reporting by Maria Sheahan and Christiaan Hetzner; Editing by Noah Barkin and Helen Massy-Beresford)