The sentence $$observers say that they have lost much of their quality$$ in the Direct Speech would be:

A$-$ Observers say:$$ They had lost much of their quality$.$

B$-$ Observers say: $$They lose much of their quality.$$

C$-$ Observers say: $$They have lost much of their quality$.$

D$-$ Observers say: $$We have lost much of our quality$.$

e$-$ Observers say: $$They lost much of their quality$.$