German car companies have moved to embrace Japanese manufacturering techniques (with MB slowest of them) which reduced...the quality of their vehicles.
I find this a somewhat dubious reason for their decline in quality and/or high maintenance costs. If the problem was caused by Japanese car manufacturing techniques, then it seems that Japanese cars would suffer from the same high maintenance issues and costs, etc. In my experience this in not the case at all. This includes the ones built here in the States.
I'm sure that they've done much to lower manufacturing costs over the years, as has everyone. Automated manufacturing levels the playing field quite a bit - a Korean robot can probably weld just as well as a German one. This in large part eliminates differences from a craftsmanship/worker skills standpoint. Most manufacturers probably have access to much the same level of precision in casting, machining, etc. The higher the tolerances, the higher the cost, which is probably more of a factor in quality than worker skill now.
I'm sure your friend is absolutely right about not making cars with mechanics in mind, and trying to hit price points. It seems all large scale manufacturers have embraced designs that emphasize replacement over repair whenever possible. This seems to be a necessary "evil" that goes along with ever more automated manufacturing processes.
Once upon a time German cars commanded a premium for a number of reasons: quality and precision, highly skilled workforce, innovations and driving/performance characteristics among others. Now the gap between German cars and others has grown quite small. I struggle to understand that premium in the face of reliability issues and this ever decreasing gap. I'm not saying all cars are equal at all. BMWs still lean towards performance as John said. All cars have different personalities and pluses and minuses. I guess it's fair to say that the German marques still maintain more personality than some of the other brands. It's almost mind boggling though how far Hyundai/Kia has come since the first crappy cars that they sold here in the States back in the 80s. Speaking of crap, that fact should scare it out of the German brands, but it's hard to see that they feel a need to react in any meaningful way.
This is an over-simplification and it's a really complex topic, but I think Mercedes, BMW and Audi are all in trouble because their lead in performance, quality, innovation and distinguishing characteristics is now quite small. They still sell a whole bunch of cars though - fun cars at that.