posted 07-22-2003 01:39 PM         

NEW YORK -- Mercedes-Benz is giving new cars to nearly 2,000 E class owners in the United States because it can't retrofit a navigation system the buyers paid for when they bought their cars.

Another 1,000 customers who expressed an interest in the navigation system but didn't prepay will be given coupons good for $3,250 toward the purchase of their next Mercedes-Benz.

Because of a supplier problem, the navigation system wasn't available when the redesigned E class was launched last September. The DVD-based navigation system is part of an optional system called Comand that also includes phone and stereo features. It costs $2,125.

The 2,000 buyers who paid $1,625 for Comand when the E class arrived in the United States were told that the navigation system - the only component that had problems - would be installed by dealers when it was ready, says Donna Boland, spokeswoman for Mercedes-Benz USA LLC.

Dealers took the names of an additional 1,000 E class buyers who said they'd be interested in a retrofitted navigation system.

But about six weeks ago, Boland says, "We decided the retrofit would be very complex and time consuming, and it wasn't going to meet customer expectations. We decided to make it available only in production cars."

Rather than offer refunds, Boland says, Mercedes decided "we would go out of our way this time" and replace the affected cars with new ones. It's one of the few times we couldn't deliver as promised."

The delay occurred when Mercedes-Benz switched suppliers of the Comand system from Robert Bosch GmbH to Harman/Becker Automotive Systems GmbH in Karlsbad, Germany. It was not clear last week whether Mercedes is offering to take back E classes in other markets.

The new E class, which is priced, including freight, at $47,670 for the V-6 E320 and $56,570 for the V-8 E500, has affected Mercedes-Benz's standing in quality surveys.

The brand fell from 128 (tying with Chevrolet) in the J.D. Power and Associates 2002 Initial Quality Study to a ranking of 132 in the 2003 study - just one point above the average score of 133.

Mercedes says much of that decline was because of complaints about the complexity of the E class stereo/radio system and excessive wind noise.

California dealer Stephen Smythe, president of Beverly Hills Ltd., is happy with Mercedes' decision to replace customer cars.

"We have more than 30 replacement cars coming for customers who prepaid for the system," he says. "It is a wonderful thing that Mercedes-Benz is doing. I have never seen any car company do anything this big."

Smythe says the move might help quell what he called "negative press" over the reported drops in Mercedes-Benz scores on quality studies.

He says dealers would get a $500 processing fee for the replacement E-class cars. He expects most of the returned cars will end up being sold as used vehicles