SHANGHAI (Bloomberg) -- Daimler AG CEO Dieter Zetsche was leaning back in the rear seat of a prototype Mercedes-Benz S-class sedan in 2010 when he realized it didn't recline far enough.
With wealthy consumers accustomed to sumptuous airline seats, he figured Mercedes needed to approach that level of comfort in its flagship model.
"Engineers traditionally focus on the driver seat position," Zetsche said in an interview. "S-class owners often experience their car from 'the second row,' especially in China," where luxury cars are frequently driven by chauffeurs.
So Zetsche had his designers create a back seat that reclines to an industry-leading 43.5-degree angle, which will be available as an option on versions of the revamped S class unveiled Wednesday in Hamburg, Germany.
For back-seat sleeping, the front passenger seat slides forward to add legroom and the backrest slips into a recess illuminated by ambient lighting.
A calf support swivels forward and a heel rest pulls out of the front seat.
A hot-stone-massage function in the seat aids relaxation on long drives.
There's even a special airbag to prevent slumbering passengers from sliding under the seat belt during an accident.
Back-seat amenities are critical to reviving the Mercedes brand among well-heeled Chinese, who account for more than half of all worldwide sales of the S class.
Sales of the car, which starts at about $151,000 in China and runs from $92,350 to $212,000 in the United States, are key for Daimler's bottom line.
In the first quarter, Mercedes's operating profit margin was 3.3 percent, versus 11.1 percent at Audi and 9.9 percent at BMW.
With luxury-car demand growing in emerging markets like China, and the S-class lineup expanding to five variants, including the extra-long Pullman version, "this leads to a profitability potential for this model line that we haven't seen before," Zetsche said.
Commerzbank AG estimates the profit margin on the S class at 25 percent, versus 1 percent for the A-class hatchback, so boosting sales of the brand's flagship model would have an outsize impact on Mercedes earnings.
To tap this potential, China is key. McKinsey forecasts sales growth of upscale vehicles in the country will average 12 percent a year through 2020, outpacing the 8 percent rate for the overall car market.
That increase would put sales of high-end autos in China ahead of those in the United States by 2016 and on par with demand for all of Western Europe by the end of the decade, McKinsey said in a March report.
Mercedes lost its long-held rank as the No. 1 global luxury brand in 2005 and it can only regain that status "if they improve in the biggest market -- China," said Thomas Schiller, an automotive partner at consulting firm Deloitte in Munich.
"The S-Class serves as a brand ambassador."
Zetsche in 2011 announced a goal of overtaking BMW AG and Volkswagen AG's Audi luxury brand in global sales and profit by the end of the decade.
But Mercedes's 2013 deliveries -- 441,500 vehicles through April -- trail Audi by 61,500 and No. 1 BMW by 70,500.
Investors, though, are seeing Mercedes's potential to close the gap.
Daimler shares have risen 13 percent this year, beating BMW's 1.4 percent decline and VW's 5.5 percent fall. The S-Class has been the clear leader in luxury sedans since it first hit the market in 1972.
The halo effect from the flagship car -- which can cost as much as $486,000 in China, due to heavy import levies -- also allows Mercedes to charge more than rivals for its other cars.
"The S class stands for luxury, prestige, comfort, and safety," said August Joas, head of the global automotive practice at consultant Oliver Wyman in Munich. "It's the absolute flagship model, and a thorn in the flesh of the competition in terms of volume, pricing, and margin."
That leadership position isn't unassailable.
Last year, Mercedes sold 80,300 S-class vehicles globally compared with 59,200 for the BMW 7-Series and 38,600 for Audi's A8.
In 2008, S-class sales were more than double those of the 7-Series and more than four times those of the A8.
One reason for the falloff was Mercedes's decision in 2006 to maintain separate sales organizations in China for locally-made vehicles such as the smaller C-class sedan, and imported cars like the S-class. That pitted Mercedes models against one another and resulted in price-cutting: S-Class discounts shot up to an unprecedented 25 percent in 2012.
Turnaround efforts are underway.
Daimler this year completed merging its Chinese sales operations, and in February, Nicholas Speeks, CEO of Mercedes-Benz China, lashed out at the brand's dealers there for missing already-lowered sales targets.
"These sales figures can be reached by call-center employees," Speeks wrote in a February letter to dealers that was obtained by Bloomberg.
He accused the brand's sales partners in China of "slack work and neglecting the ambition to develop the Mercedes-Benz brand."
The tough talk drew a chilly response from Chinese dealers. "Automakers can't act like they have all the power," said Shen Rong, deputy secretary general of the China Auto Dealers Association.
With all brands looking to expand, "it's a buyer's market in China, so to succeed it's crucial to handle dealer relationships well."
Mercedes's bigger focus is wooing wealthy Chinese buyers.
The brand's dealer in Shanghai offers perks like a 13-seat movie theater, a cigar room, and an in-house tea artist.
Mercedes is also offering some features that are extra-cost options elsewhere in the world as standard equipment on S-class cars sold in China.
Those include active parking assist technology, a night-vision package, and -- surprise -- a rear- seat entertainment system.
"China will have an increased significance for the new S class compared to the previous generations," said Zetsche. "And Chinese customer tastes also had a greater influence on the conception of the vehicle."