Daimler AG is considering launching a series of small Mercedes-Benz cars in the U.S. in a bid to tap Americans' growing interest in downsized models that offer upscale features and finishes, the German car maker's chief executive said.
Under its tentative plan, Mercedes would import by 2012 at least one of four next-generation compact models it will start selling in Europe in late 2011, Daimler CEO Dieter Zetsche said in an interview with The Wall Street Journal. These diminutive Mercedes would go head to head with an expanding field of premium small cars in the U.S., including the A3 from Volkswagen AG's Audi unit and BMW AG's 1 series and Mini Cooper.
Unlike traditional compacts these cars can be costly; the Mini goes for as much as $34,000 depending on options.
Daimler's tentative move comes as buyers in Europe and the U.S. are increasingly redefining what they want in a luxury car. The severe economic downturn has driven even affluent consumers toward smaller and more understated models with higher fuel efficiency.
U.S. sales of large sport-utility vehicles such as the Chevrolet Suburban have plunged, while sales of tiny but stylish subcompacts such as the Honda Motor Co. Fit have grown.
Analysts attribute some of Daimler's drop in global sales this year to a product mix heavy on large luxury models and light on more modest vehicles, compared to, for example, German rival Audi, whose sales have fallen relatively modestly.
Beyond the recession, premium car makers such as BMW and Daimler are eager not to be on the losing end on what many see as a longer-term shift toward more environmentally friendly luxury cars, as more buyers put a premium on clean technology than on horsepower and flash.
"We believe the future customer will continue to want to show some statement" in the luxury car that he or she drives but "the definition of luxury will be somewhat different," Mr. Zetsche said. "It will be fewer CO2 emissions and more modesty in appearance."
Daimler has another motive for introducing small cars, which it already sells in much of the rest of the world: They could help it meet U.S. fuel-economy standards, which are set to tighten in the next few years.
The smaller models, though, could face difficulties in attracting U.S. customers, who equate the Mercedes brand with big sedans. "We've seen pockets of success with the [BMW] 1 series and the Audi A3," said Rebecca Lindland, senior auto analyst at IHS Global Insight. But "in the U.S., luxury is still very much equated with size."
The move wouldn't be the first time Daimler has considered selling subcompact cars in the U.S. It planned to import its B-Class that it makes in Germany earlier this decade. But it nixed the decision four years ago as the euro surged in strength versus the dollar, making it difficult to price the car competitively in dollars and still earn a profit.
The currency risk would be a factor this time around, too, and could prompt Daimler to shelve the plan, Mr. Zetsche said. But the next-generation Mercedes compacts are based on a less expensive "platform," or underpinings, and will be partially produced in Daimler's plant in Kecskemet, Hungary.
Compact premium cars have had a mixed track record in the U.S. Years ago. BMW launched a small hatchback called the 318, but American consumers weren't enthused about its four-cylinder engine and the German auto maker eventually stopped selling the car. Daimler already offers the tiny Smart car in the U.S. and its sales have been disappointing.
But the Mini has been a hit, indicating to many car makers that there is a U.S. market for a stylish, premium-priced subcompact.
In fact, the field to capture that market is growing. If Mercedes joins in it could hinder the ability of General Motors Co. and Chrysler Group LLC to bounce back. Both were reorganized in bankruptcy and are counting on boosting sales of small cars as part of their recovery. Chrysler alliance partner Fiat SpA plans to introduce sporty small cars under its Alfa Romeo brand. And GM's Cadillac has said it is looking at introducing a small car. All of them would likely compete with any offerings from Mercedes.
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