BRUSSELS — The reduction of 20,000 jobs announced by Mercedes-Benz this week is part of a continuing shakeout in the luxury end of the European car industry--a global coming-to-terms influenced by the recession in the all-important U.S. market and the success of high-end Japanese vehicles.

In Europe, luxury cars mostly mean German cars; from Rolls-Royce to Ferrari, the rest of Europe's luxury car industry has all but disappeared. And because Germany's economy faces a painful combination of recession and inflation in the wake of unification with the former East Germany, the country's entire car industry is facing an uncertain future.

"You'll see more of what you've just seen at Mercedes," said John Lawson, an auto industry analyst with Nomura Research Institute in London. "The competitive situation is a challenge that the industry will meet, but the solution won't be very popular."

In the U.S. luxury market--the world's biggest--Detroit's share has hovered just above the 50% mark since the mid-1980s. But European makers tumbled to 19% of the market from 32%, roughly trading places with the Japanese. (Luxury cars are those with a suggested retail price of more than $20,000.)

Price is a major reason for the Japan-Europe flip-flop. Starting in the late 1980s, the European manufacturers had a period of rapid price escalation, which began to undermine their luxury sales, industry experts said. When the Japanese entered the market, their brands "looked like a real value," one analyst said. "Lexus could offer the same kind of product at a much lower price."

"Japan's success in luxury cars in the United States has basically come out of the hide of the Europeans," said Clifford Swenson, an analyst at Jacobs Automotive Inc. of Little Falls, N.J., which closely follows the luxury car market.

The question for Mercedes-Benz and the others is whether they can compete with the Japanese--in the United States now and in Europe later this decade, when Japan's auto makers try to take on the market there.

"Mercedes-Benz's problems are the same being faced by all European manufacturers operating in the United States: the high number of new products from Japan that are essentially undercutting the Europeans in price while providing comparable quality and sophistication," Swenson said. "They've been relying on mystique to carry the ball for them. They misread the mentality of the American consumer."