Daimler still undecided on whether to enter luxury subcompact segment

Article by Anita Panait, on April 17, 2013

Daimler AG has yet to reach a final decision whether to barge into luxury subcompact car segment, just like what its fellow German carmakers have already done. It could be because the German carmaker has yet to find ways to keep costs down and volumes up to earn profit from any future small Mercedes-Benz model.

Subcompacts are best known volume models like the Volkswagen Polo, Renault Clio and Opel Corsa. It is known that margins in the subcompact sector have traditionally been tight while buyers are motivated by value. However, Audi's A1 and BMW's Mini have demonstrated subcompact drivers are willing to pay a premium for quality and style.

Although Daimler offers the tiny Smart microcar, its smallest Mercedes is the A class, which is aimed at BMW 1 series and Audi A3. German weekly Focus recently reported that Daimler was planning to position a new Mercedes model due in 2016 above the Smart. The new model will be based on the A-class architecture and will be powered by engines from Renault.

In March, AutoBild reported that Mercedes is mulling a subcompact car range dubbed as X-class, which will include a crossover and a minivan priced below EUR20,000. A spokesman for Daimler remarked that every once in a while, they assess whether “there is room below the A class for another Mercedes.”

Daimler’s luxury car unit is preparing for multiple model launches including the new CLA four-door sedan, the flagship S class and a major facelift of the E class. German luxury brands never dared to venture into the subcompact segment until Audi rolled out the A1 in 2010.

Investors initially expressed concern that an Audi underpinned by a Volkswagen Polo platform would not be a welcomed product from premium car buyers. Likewise, a general rule of thumb in the auto industry states that the smaller the car is, the lower the profit margin will be. However, Audi’s well-planned concept and careful price positioning allowed it to make the A1 distinct from the Polo.

Topics: daimler

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