What should Mercedes and BMW do to counteract the Japanese threat in the US and Europe?

Mercedes Benz and BMW are higher to top end cars; and the Japanese Cars are mainly for the economically growing people so that they have a different market totally. A tiny %age may overlap but there is no threat as they are different and cater to the respective markets. As the Japanese look at cheap and shorter shelf life cars, cheaper parts and smaller often they have been mainly for the Asian countries - they have also been looking at the higher end market and have developed some prototypes like Lexus which are big and more fuel efficient and have been working at the middle markets also as well as few luxury cars for the high end but the values and concepts are different.

Benz and BMW have been concentrating on upper end , longer use and hardy as well as powerful cars they have been gearing up here for that market and in fact they are succeeding in India too. where roads are bad and smaller etc and petrol is very costly too.