Did you ever drive a German car (not necessarily a Mercedes, even a simple VW Polo) vs a non German car? Seriously, that's the reason. Quality.
You can be as innovative as you wish, but if you are cheap and provide low quality products, that's what you get. Eventually someone is able to provide the same technology and then quality wins.
My VW CC is not a quality car; it's got nice fit and finish, but it's probably the most unreliable car I've ever owned, and I say that having owned a Fiat Mirafiori in the 80's. My CC has chronic design flaws, assembly flaws, and leaves me on pins and needles when I think about having to rely on it for another 4 years.
You can be as innovative as you wish, but if you are cheap and provide low quality products, that's what you get. Eventually someone is able to provide the same technology and then quality wins.