A Mercedes spokesman said around 15% of all new Mercedes registered this year were likely to have come from continental dealers. About 40% of all aftersales business in London and the South-east is now being carried out on imported cars.
John Adair, chief executive of William Jacks, which has two Mercedes outlets, said: "We have lost a significant amount of business. Even the wealthiest customers have become aware of the savings by buying elsewhere in Europe."
He described the price cut - an average 9% with up to 20% on some models - as "brave" and more than enough to stabilise the market. But he said dealers had been wanting the cuts for a year.
"Mercedes has been throwing money at the problem to keep registrations up, but this is a positive, strategic move," he said.
Mercedes-Benz dealers have also welcomed an increase in the surcharge for selling right-hand drive cars in left-hand drive markets. This is now 3.2% of selling price, the maximum level permitted under EU law.
The Mercedes spokesman said the UK price cuts were a reaction to the long-term strength of sterling against the euro which nobody had predicted. He claimed the exchange rate difference created a "natural tendency" to purchase abroad.
Mercedes believes the rapidly increasing trade in parallel imports is leading to higher levels of customer dissatisfaction and difficulties for dealers over warranty issues.
"We would prefer these customers to be within the Mercedes UK family and enjoy the full Mercedes-Benz buying experience," said the spokesman.
As a result of the price cuts customers will find it more difficult to get significant discounts on new cars. The tactical bonus support for individual purchases, which has been available for the past few months, has been withdrawn and the volume fleet discount is being cut from 6% to 3%.
Dealer margins are unaffected.
Nick Lancaster, HR Owen chief executive, said the price differential had educated "a whole raft of customers" into the benefits of going to mainland Europe.
"Our customers are financially aware people who are certainly not shy of dealing internationally if they will benefit," he said.
Mr Lancaster said the problem of waiting lists was almost as bad as the currency issues and called on all prestige carmakers to "meter out supply in Europe on the same basis as the UK". He said customers were still able to travel to company-owned stores on the continent and buy UK-specification cars "much quicker and cheaper".