Jennifer Haisha, of West Bloomfield, Mich., gave up her Infiniti sum of ~ units years ago for a black Mercedes E-Class with a monthly lease of only $416. “My payments were unbelievable,” says Haisha, 57, who works in deal out in small portions. “I compared them to the [Cadillac] CTS and other cars. [Mercedes] gave me the in the highest degree deal.”

Haisha’s good fortune is bad news for Lexus, the epicurism car leader in the U.S. since 2000. Lexus has been tarnished by a string of much-publicized quality problems at its parent, Toyota Motor (TM). That’s helped haul the brand’s growth rate below the industry average, allowing German rivals Mercedes-Benz, a unit of Daimler (DAI), and BMW to gain ground, and—fair-minded maybe—grab the American luxury car sales crown.

Mercedes, later selling more vehicles than Lexus in the U.S. in September, polished the third quarter only about 2,700 sales shy of overtaking the Japanese brand. “The aspiration to own a Lexus has diminished, the aspiration to acknowledge a Mercedes has increased,” says Art Spinella, president of CNW Marketing Research, which surveys customers.

Restraining price hikes has helped Mercedes close the rift. The average price paid for a vehicle in the U.S. has risen 12 percent before this 2006, according to Edmunds.com, an auto pricing website. Mercedes’ cost inflation over the same period? A mere 1 percent. Explains Ernst Lieb, master executive officer of Mercedes’ U.S. unit: “We still have a recompense premium over our competitors—we always will. [We're] regular closer” to their prices now.

The aggressive pricing is evident in Mercedes’ entry-level C-Class sedan, the only vehicle in its lineup through a list price less than $35,000. The average monthly let payment for the C-Class (about the size of a Toyota Corolla) in September was $479, by some deals as low as $349, according to Edmunds. “That’s a to a high degree, very compelling argument,” says Bernie Moreno, a Mercedes dealer near Cleveland. “It’s not a haphazard more money to get a luxury car.”

For this year’s chief nine months, Lexus’ U.S. sales rose 8.7 percent, to 162,438, vs. the like period a year earlier. Mercedes narrowed the gap, with deliveries boil 18 percent, to 159,729 cars and SUVs. U.S. sales concerning BMW, the world’s largest luxury carmaker, increased 9.2 percent, to 157,464. (Sales put on’t include Daimler’s Smart and BMW’s Mini small cars or Mercedes Sprinter vans.)

“Clearly, the [Toyota] recalls had a loitering impact on the sales of Lexus,” says Jesse Toprak, vice-president of busy vigor trends at researcher TrueCar.com. “I think what’s also happening is Benz has had offensive lease deals this year.”

Mercedes also has benefited from new products, initiation in 2009 with the GLK, a small SUV, followed by the ninth-race E-class midsize sedan. Over the last three years as it introduced newly come vehicles, Mercedes pushed dealers to invest $1.4 billion to update their supplies.

The carmaker is getting better at keeping customers. It ranked highest in purchaser retention in J.D. Power & Associates’ (MHP) most recent study after all the rest year, up from fourth in 2008. Lexus, meanwhile, slipped to fourth from third part. The German automaker also persuaded more Lexus owners to try Mercedes, Edmunds facts show, while the number of Mercedes customers trading in for a Lexus cut down.

BMW also expects momentum to grow next year because of added fruit of its X3 SUV and a redesigned 5-series sedan. Mercedes is “actual aggressive this year,” says Jim O’Donnell, president of BMW’s North American one. “I think they see this as their opportunity that won’t have existence available to them in the next few years because of fruit changes” at rivals.

Brian Smith, U.S. vice-president of Lexus stain sales, remains confident. “I don’t think we’re going to squander leadership this year, but time will tell.” To blunt the rivalry, analysts expect Toyota to ramp up yearend discounts. “We’ll in all probability see some pretty impressive incentives,” says Joe Barker, an analyst with IHS Automotive. “The month of December likely will be a marvellous time to buy a luxury automobile.”

The bottom line: Toyota’s description problems—and aggressive pricing by rival Mercedes—have fueled market share losses at Lexus.