The CLA, a new Mercedes that starts under $30,000, has been a big hit for Mercedes-Benz and its parent company, Daimler. Photo credit: Mercedes-Benz.

Daimler (OTC:DDAI.F) reported fourth-quarter and full-year 2013 earnings, and they were impressive -- impressive enough to set records.

Daimler's fourth-quarter pre-tax earnings of $3.4 billion capped a year in which the German luxury-car and truck maker posted record sales, record revenue, and record profits. 

What made 2013 such a good year for Daimler? One part of the story is pictured here: the new CLA, an affordable compact Mercedes that became a big hit around the world.

But as John Rosevear explains in the following video, there was more to the story for Daimler in 2013 -- and there are a couple of good reasons to think that 2014 will be another good year for Mercedes and Daimler.

A transcript of the video follows.

Hey, Fools, it's John Rosevear. German automaker Daimler reported a 45% increase in fourth-quarter profits this past week, as strong sales of the new Mercedes-Benz CLA and S-Class helped boost the bottom line. Earnings before interest and taxes rose to just over 2.5 billion euros -- that's $3.4 billion dollars -- with revenue rising 7.6% to 32.1 billion euros. They had record sales, record revenue, and record profits last year.

That's all good news. Daimler, and specifically its Mercedes-Benz unit, has had some trouble in the last few years, lagging its German arch-rivals BMW and Audi in some ways and getting off track in China. But CEO Dieter Zetsche seems to have things going in the right direction now. Daimler is in the midst of a two-year cost-cutting effort, aiming to reduce costs at Mercedes by 2 billion euros by the end of this year.

And the outlook for this year is quite strong. The company expects a "significant" -- that's their word, significant -- increase in pre-tax profit over the 7.9 billion euros it earned in 2013. And what's going to drive that? Well, we saw the CLA and the new S-Class boost Mercedes numbers last year. The CLA is an all-new model, a compact four-door built on a front-wheel-drive architecture that starts at under $30,000 here in the U.S. 

A lot of us were skeptical of the idea of a small inexpensive Mercedes, but they did a nice job on it, and it has been selling very well. And at the other end of the market, the new S-Class has also done quite well. That's their big sedan. It doesn't sell in huge numbers, but at that level the profit on each sale is pretty significant.

This coming year we're going to see more new Mercedes. The C-Class will be all new -- that's Mercedes' biggest seller, the compact sedan that competes with cars like BMW's 3-Series and Audi's A4 -- so that will give them a boost. And there's another new Mercedes on the way, the new GLA -- that's a compact SUV. Compact luxury SUVs have been maybe the hottest market segment in the whole world recently, China has gone crazy for them, and they've been big here in the U.S. and elsewhere, too. The new GLA should do very well for Mercedes.

So, long story short, while Mercedes is of course a luxury-car maker, the story we're hearing from them is a lot like the story we're hearing at their larger mass-market counterparts -- a combination of more efficiency on costs together with improved products. It's a good story for them, and a nice save for Dr. Zetzche, who seemed to be in some trouble a year or two ago but who now seems to be in quite a strong position with his company on a solid upswing. Thanks for watching, and Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.