German automakers pride themselves on being at the leading edge of new technology, so it has been a bit of an embarrassment that—a decade after Toyota (TM) launched the Prius—none of them has a hybrid electric model on the market. But, with fuel economy and environmental impact suddenly a key concern for well-heeled buyers, Daimler's (DAI) Mercedes unit is finally poised to get into the hybrid game.

In June 2009 the company will begin European sales of a hybrid version of its luxury S-Class that, its engineers say, will use 7.9 liters of gasoline per 100 km (or get 29.8 miles per gallon). Launches in the U.S. and China will follow in September, Mercedes said on Sept. 11.

From an engineering point of view, diesel is the better technology because it offers comparable gas mileage to a hybrid—or even superior mileage in highway driving—with less weight and expense. But the success of Toyota's luxury Lexus hybrid models showed that gasoline-oriented U.S. buyers want hybrids. "Mercedes said: 'If you want to save the planet, buy a diesel,'" says Christoph Stürmer, Frankfurt-based auto analyst at Global Insight. "They were right in their own way but proven wrong by the market."

is not a so-called full hybrid