The Mercedes E class once ruled the medium-premium segment in Europe. Not any more, said Automotive News Europe.

Plagued by well-publicised quality problems, E class sales dropped 28.4% this year compared with 2004, dropping it to third place behind the BMW 5 series and Audi A6 after 10 months.

The decline in E class sales highlights Mercedes' loosening grip on the heart of the European luxury market. The C class lower-premium car, Mercedes' other core vehicle, also has fallen to No. 3 in its segment behind the Audi A4 and BMW 3 series.

Contrary to Mercedes' troubles, Audi has been the biggest gainer in the lower-premium segment. The A4 has passed the BMW 3 series to take the segment lead after 10 months. The A6 is in a close race with the BMW 5 series to be the No.1 seller this year in the medium-premium segment.

Critics blamed the E class's lacklustre sales mainly on electronics glitches, which led to several recalls. Said CSM Worldwide Frankfurt analyst Arne Behlmer: "The E class is clearly suffering from quality problems, which permanently tarred its image. Recalls have received massive attention in the media."

Mercedes sources said the E class will get a face-lift next year in which conventional hydraulic brakes will replace the car's twice-recalled by-wire braking system. The car also will get more powerful engines. A new C class will be launched in two years.