BMW AG and Mercedes-Benz are locked in an expensive race for bragging rights as this year's top-selling luxury car in the U.S. market, and customers are benefiting.

The two German luxury-car brands this year have zoomed past Toyota Motor Corp.'s Lexus division, which has reigned as America's top-selling luxury auto maker since 2000, and are running neck and neck to grab the U.S. crown, reported The Wall Street Journal.

Heading into December, BMW had sold 221,073 cars and sport-utility vehicles in the U.S. market, a rise of 12.3 percent, and just 1,582 more than Daimler AG's Mercedes, whose sales are up 11.8 percent from a year ago.

The battle is being fought by lease incentives and purchase discounts, helping customers such as Mike Goodstein, who lives in a Columbus, Ohio suburb, nab a great lease deal on a BMW 535xi.

"I bought it now because, quite frankly, around the holidays is the best time of the year to buy one. They have all kinds of rebates and holiday cash," said the 47-year-old.

Luxury car maker always have year-end sales, of course, counting on well-heeled customers to spend annual bonuses. But this year's campaign is especially hot because Toyota's troubles have given rivals their first fighting chance in years to grab the U.S. sales crown. Mercedes also is fighting off Volkswagen AG's Audi globally for second place after BMW, making its U.S. showing all the more important.

Sensing an opportunity to grab market share, BMW and Mercedes have quietly offered dealers discounts they could apply selectively when they have chances to steal customers away from competitors. Now, with the title of top-selling brand on the line, both BMW and Mercedes have hit the gas on incentives in hopes of nosing the other out.

Both are offering discounts for around $4,800 a vehicle, according to research firm TrueCar.com. Most of the discounts are more subtle than the straight cash rebates typically offered by mass-market brands like Ford and Chevrolet.

BMW and Mercedes, for example, are waiving the first two month's payments on leases and loans for many models, which can give buyers a price break of up to $2,000. They also are offering subsidized interest rates of as low as 0.9 percent, and discounts for returning customers, according to summaries distributed to dealers. On lease deals, they often assume a high residual value after the vehicles are returned, which helps lower monthly payments.

For instance, buyers can get a 30-month lease on a Mercedes C250 sedan for $349 a month.

Mike Jackson, chief executive of AutoNation Inc., the largest dealer by sales in the U.S., said its sales of premium vehicles rose 35 percent in November, powered mostly by Mercedes and BMW. The German car makers have launched updated models with new technology that few others can match.

"The new vehicles haven't just been home runs, they have been grand slams," Mr. Jackson said.

Moreover, upscale brands that trail BMW and Mercedes in technology are struggling. Sales for Honda Motor Co.'s Acura division and Infiniti, owned by Nissan Motor Co., are both down, and Ford Motor Co.'s Lincoln sales are flat. General Motors Co.'s Cadillac sales are up, but only by 4.5 percent.

In Fort Lauderdale, Fla., Melissa Foster drove her late model Mercedes C-Class to her dealer and found a bargain she couldn't pass up on a new C250. "My husband just loves his new car," said Ms. Foster, 39, of Fort Lauderdale, Fla. "I went in for a service and ended up coming home with a new car."

Peter Miles, sales chief for BMW's North American arm, played down the duel, saying the auto maker is getting a lift from a redesigned X3 compact SUV and a new all-wheel-drive version of its 5 series sedan.

While the No. 1 spot in U.S. sales would be "a nice recognition from the industry, I'm not sure our customers pay attention to that," Mr. Miles said, adding: "I am sure there is a little friendly competition going on" between BMW and Mercedes.