The University of Duisburg’s Centre of Automotive Research forecast mighty Mercedes will fall to third place after BMW and Audi, which is owned by Volkswagen, amid surging demand for fancy German cars in China.

Ferdinand Dudenhöffer, the director of the university’s centre, said Audi’s better market share in the fast-growing Asian country would allow it to overtake Daimler’s Mercedes brand for sales in 2010.

“While Mercedes will remain the German market leader in the premium segment with slightly fewer than 260,000 sold vehicles, Mercedes’ lead will melt by nearly 20,000 cars,” the study said, pointing to Audi’s increasing advantages in pricing and productivity.

The biggest factor weighing on Mercedes sales appears to be that its cars are more expensive than Audi’s.

Audi is able to keep its costs lower through its ties to Volkswagen, which means it can use components and car platforms made for several VW models. The study also calculated that Mercedes could eliminate around 17,000 positions if its car workers had the same level of productivity found at Audi plants.

“Mercedes has far too many workers and does too much on its own,” said Dudenhöffer.