The experience gained with stronger competitors suggested a restructuring of the racing department. Young engineer Rudolf Uhlenhaut became the new Chief Engineer and his analyses of the W 25 resulted in the development of the W 125. The chassis was modified more extensively than the supercharged eight-cylinder engine. For weight reasons, the idea of a completely new V12 was abandoned once again and so the proven in-line engine was thoroughly revised with regard to displacement, carburettor and supercharger. The engines generated up to 646 hp from a displacement of almost 5.7 litres. In 1937, the W 125 put Mercedes-Benz ahead of all the other manufacturers. Rudolf Caracciola regained the German Championship as well as the European crown.
The Mercedes-Benz highlight of this extremely successful year was undoubtedly the international AVUS event. Hermann Lang, who had been promoted from racing mechanic to works driver, achieved an uncontested average speed of 261.7 km/h in the final. The top speed of 380 km/h in this race was not exceeded until 1959.