AMG stands for Aufrecht Melcher Großaspach. Hans Werner Aufrecht and Erhard Melcher are the engineers who created the 300 SE racing engine for Mercedes Benz, and Großaspach is Aufrecht's hometown.
When Daimler-Benz discontinued motor activities in the 1960s, Aufrecht and Melcher moved their work on their racing engine to Aufrecht's home in Großaspach. The pair gained reputations as experts in optimizing the performance of Mercedes Benz vehicles after a colleague competing in the German Touring Car Championship used their 300 SE engine and won 10 times. The pair separated from Mercedes to focus on the Aufrecht Melcher Großaspach Engineering Firm, which developed racing engines, but they later re-entered into a cooperation agreement with Benz. Because of the history between the two companies, the high-performance division of Mercedes-Benz is commonly known as AMG.