Mercedes has boosted the quality of its new models, but owners are still mad about the older ones. Can the brand regain its luster?

(FORTUNE Magazine) – An all-new Mercedes-Benz S-class sedan--the top-of-the-line model from the world's oldest automaker--comes around only a bit more frequently than Halley's comet, and in Germany it is an event treated with great solemnity. So when the latest S-class was introduced at the Frankfurt auto show in September by a man wearing a black leather jacket and riding in a red American Jeep, the scene created a stir.

The man was Dieter Zetsche, 52, who moved from Chrysler to take over as Mercedes boss in September (he becomes head of all DaimlerChrysler on Jan. 1, 2006). His S-class turn was his first public gesture toward reviving the 110-year-old marque. Stuffy old Mercedes, he was broadly signaling, is getting a makeover. "A brand is like a savings account," says Zetsche, "where you accumulate good experiences. We have pulled some assets out ... and we expect to replace them with new products"--like the S-class.

The Mercedes account isn't overdrawn, but it has been depleted. The brand ran into problems in the late 1990s when it expanded its line with less expensive models like the $30,000 C-class. Engineers couldn't keep up with the faster pace and cut costs where it showed. Customers were ticked when the sunroofs on their SUVs leaked and blogged complaints to websites with names like troublebenz.com.

After years when it ranked near the top of the J.D. Power initial quality survey, Mercedes plunged to 14th place in 2003, its lowest finish ever. Its vehicles are comically complicated. Assembly workers get confused because the cars can be built in millions of variations. Owners get confused because manuals run to hundreds of pages and provide instructions for everything down to adjusting the driver's seat.

So Zetsche is focused on brightening up the iconic three-pointed star by buffing Mercedes' reputation for excellence. Even before he arrived, the company had launched a broad-based quality effort, sharing more parts across car lines, upgrading components, debugging newly built cars, and removing from its vehicles 600 electronic functions that owners didn't use.

The effort is working. Mercedes climbed to fifth in the 2005 Power survey, and its internal quality measurements, says Zetsche, are even better. But consumers with older cars continue to suffer. Among three-year-old cars, Power ranked Mercedes 27th in dependability. "The quality problem will have a lingering effect on perceptions for a year or two," says automotive consultant Susan Jacobs.

Still, the brand has been bent, not broken. In yet another Power study, owners said they remained devoted to Mercedes and gave it a top-tier ranking. To do even better, much will depend on the performance of the new S-class, which comes to the U.S. in January of 2006. Early reviews have been respectful, if not enthusiastic. The car bristles with safety advances, including a radar system that applies the brakes and tightens the seatbelts when it detects an imminent collision. For Mercedes, its most important feature will be a lack of those quality glitches that fuel those angry websites.