By on August 24, 2010

Mercedes, BMW and Volkswagen/Audi are all moving inexorably towards a major downmarket expansion, as they develop a new generation of compact and subcompact cars based on front-wheel-drive architectures. Though Volkswagen has played in this space for some time, the move is a major cultural shift for BMW and Mercedes, which are typically associated with rear-drive luxury cars, particularly in the US market. But the truth is that the German luxury brands have always sold products in the German and other European markets that don’t match their premium overseas brand images (see, among other examples, the ubiquity of Mercedes taxis in Germany). But the strange thing about this next push towards smaller cheaper cars is that it’s not not aimed at Germany at all.

As the graph above [via Auto Motor und Sport's August print issue] shows, German demand for compact (Kompaktwagen) and Subcompact cars (Kleinwagen) is not expected to grow by any significant amount by 2015. And to some extent, this helps justify the concept of premium small cars, as they would theoretically extract higher transaction prices out of otherwise flat demand. But that’s not reason enough to expand into small FWD segments alone, and as the graphs show, overseas sales are expected to carry the burden of small car sales growth globally. Though much of this global growth will come from low-cost car sales in China and India, the German brands can’t simply cede all the momentum to non-premium brands. Especially since small premium cars are slowly starting to be taken seriously in mature markets like the US, thanks in part to pioneers like BMW’s MINI brand.

But how low can you go? BMW kept the more-functional hatchback variants of its 1-Series out of the US in favor of a coupe-only approach, in hopes of maintaining its premium prestige there. Will its MINI-based “City” (aka “Zero-Series”) sell in decent volume in the US without hurting the RWD-only BMW brand? The new Mercedes A-Class (not to mention a possible smaller sibling) will face the same challenge, as it’s said to be based on a front-drive chassis co-developed with Nissan-Renault (potentially making it related to future US-market Nissans). Ditto Audi, which is ahead of the game with its just-released A1, and will head even further downmarket with its rebadge of the forthcoming VW up!. Again, the German market is used to these brands offering a range of products, from the pedestrian diesel taxis to super-expensive ‘bahn-burners, but outside of Germany, where growth in these small cars is expected to take place, that precedent doesn’t exist.

Of course, the real motivation for these companies is as much based on tightening emissions standards as it is on small car demand growth, so the market should be shifting to better accommodate premium front-drive compact and subcompact cars. Still, managing the transition from the current big, powerful, premium perception of German luxury brands to one that can include small, mass-market style front-drivers will be a huge challenge. And as yet, we’re not seeing a concerted effort to start getting American and other non-German consumers used to the brand image that Germans have grown comfortable with over the years.

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16 Comments on “German Brands Move Towards Small FWD Cars… But Not For Germans...”


  • avatar
    tced2

    This is a very tricky are for a premium brand. How to go down-market without affecting the up-market models.
    The BMW 1-series was always a paradox for me – smaller but didn’t really cost a lot less than the 3-series – although I am not a BMW follower. BMW did a masterful job with the Mini – a separate brand.
    The FWD models aren’t a conspiracy – it’s a packaging issue – most passenger room with least weight (fuel consumption/emissions lowered)

  • avatar
    ash78

    With the massive amount of subsegmentation in the existing market space of BMW, Merc, Audi (and to a lesser degree, the Japanese, too), I’m surprised they haven’t started offering more lower-end cars.

    A decade ago, we basically had a 3/5/7 from BMW, but now we have at least twice as many classes, still basically bookended by 3 (and its offshoot, the 1) and 7, including numerous “crossovers” and small SUVs to answer a question few people ever asked. Where are the extension at the bottom and the top? As readily as Hyundai can sell a $45k luxury car, I don’t see why a more basic, cloth-interiored 3-series for $25k is unreasonable. Call it an enthusiast edition, drop some excess content, and pitch it to club racers and true “car people” without the luxury touches.

    I’d be in the market for something like that.

    • 0 avatar
      Wagen

      +1

      I’d gladly take a 328i with steel wheels, cloth or “leatherette” seats, manual windows, etc. Just don’t touch the engine, transmission, suspension, or brakes.

    • 0 avatar
      Demetri

      Count me as someone who likes the idea idea of a BMW driving experience without all of the “luxury” content. I’d also be interested in BMW’s take on the Mini. I would never buy an actual Mini, mainly because of the interior and styling, but if BMW could offer something more conventional on the same platform, I’d be majorly interested in that.

      Honestly though, if the brands in question are serious about moving down-market, they need to get serious about improving reliability. There’s a reason why Volkswagen doesn’t sell better in the US. The cars drive great and they offer the best interiors, but people don’t want to deal with bullshit.

  • avatar

    Why does this remind me of when GM got the bright idea to rebadge a Cavalier as a Cadillac?????

    People buy those names for their uniqueness. Not to be just another version of a Nissan/Renault.

    I would abandon the FWD on this issue.

    • 0 avatar
      tced2

      Toyota “rebadges” a Camry as a Lexus (ES-350). Honda has done some models (JDM Accord as TSX) but the JDM Accord is not well known in the US. If done well, it works. If it’s a very thinly veiled “rebadge” then it will be spotted and probably fail.
      The J-car platform wasn’t good in any form…Chevy…or Cadillac.

  • avatar
    carguy

    I think it would be wrong to conclude that this graph demonstrates German dislike for small cars. What it does show is that the total number of small cars sold in the world is rising but that the numbers are steady in Germany. No surprise really as Germany is a mature market with no population growth that already buys a lot of small cars. Unless their government dreams up any more punitive measures for larger RWD cars, I would not expect a change in their car buying habits.

    The rest of the world, however, includes emerging economies that are now buying cars of all sizes and that is reflected in the graph.

  • avatar
    Robert Schwartz

    The existing MB B class cars look like FWDs. Are they?

    • 0 avatar

      They are, and they do sell them in Canada… I’m not really familiar with Canadian sales numbers, but based on recent anecdotal evidence in Vancouver BC, I’d reckon the B Class sells at a reasonable rate, and Mercedes-Benz sells quite well as a brand. That would indicate that the brand issue might not be a huge deal, but it’s also a fairly unusual body style, (as opposed to a three-door C-segment hatchback).
       

    • 0 avatar
      Robert Schwartz

      “it’s also a fairly unusual body style”

      I thought it was a small mini-van, sort of like the Mazda 5.

  • avatar

    Where did they get those numbers drawn? Frantic search for new market segments cannibalizing their existing ones? I can’t see this coming, especially outside Germany.

    I’d guess German premium car makers will have a hard time to achieve those goals, even, and especially in Western Europe. Look at the specs of an Audi A1, for example.

    Look at the prices of an A1. (You can configure your own at http://www.audi.de/de/brand/de/neuwagen/a1/a1.html, if you speak German). Compare it to a well-established small cars like the Peugeot 207, both from the performance and price side. Even in poor-man’s white, with no frills like navigation, with two simple doors (imagine! no option!) you end up about at with least about 5,000 Euros more for an Audi. It is easy to push the A1 configuration in the 30,000 Euro region and above.

    What’s even worse for VW: in this price region an Audi A1 will compete with a rather more compelling Golf/Rabbit, at least with an option for 4 doors.

    BMW was successful with the Mini in this segment, as it is a kind of yuppie Beetle and they were first to utilize it. But how shall BMW succeed with something smaller than even the 1 series? By selling them to Japanese dwarfs? Are there any dwarfs in Japan?

    This segment is becoming just too crowded. Audi will fail, Mercedes will fail either, although Mercedes was never shy of experiments (A class, Smart) and tried it first. But they didn’t earn any money with such experiments and this is not likely to change. BTW: Audi with the ill-fated A2 already had similar experiences.

    • 0 avatar
      th009

      The Audi A1 is actually the size of (and built on the same platform as) a VW Polo; the Golf is bigger, and comparable to the A3.

      The A3, in spite of being substantially more expensive than a Golf, has not failed, and demonstrates that platform sharing and branding can work well — if it’s done right. VW is arguably doing the best job of branding and platform sharing of any auto company today (whatever you may think of their products otherwise), and I think the A1 is far from an automatic failure.

      A2 was a different situation, though. It was very early for a small premium car: 1995, before anyone else offered a similar car. Even after Mercedes introduced the A-Class, A2′s lightweight aluminum construction raised the cost (and retail price) too high, making its price tag just too high for many customers.

    • 0 avatar
      AlexD

      The A2, albeit low in power, is an ergonomic masterpiece. I had the opportunity to drive one in Berlin this summer. No problem with 2 over 6 foot dads up front and 2 daughters in baby seats in the rear. Contrast that to the A3 which is uncomfortably small.

      I can say the same about the B-series Benz. You can sit 4 tall adults in it without breaking a sweat. It’s also a very popular taxi car in Germany – typically the diesel B180. My next car will probably be a B200 Turbo for the roominess alone (yes, I’m up here in Canada).

  • avatar

    @ th009: You are right with the branding and platform sharing abilities of VW, especially when you consider the additional self-grown competition by Skoda, Seat using the same technology. For me, it’s still a miracle…

    You are wrong with the timing of the Audi A2, however. When the A2 went into production in 1999 Mercedes already had the A class in production for 2 years and the elk test problems had been solved by then.

    I have test-driven both of the cars in ’99 before I decided for the A190 then. It offered more power and overall usability than the A2 and let you forget the car’s small footprint more easily. The A2 was more experimental. On the user level, you did not profit from the extensive aluminum stuff Audi invested into this car.

  • avatar
    niky

    As with the Mini and the 1-series, the BMW Zero should be successful. Sell it more on style and dynamics than actual utility and BMW’s core market will gobble it up.

    The B-Class isn’t a very nice Benz, though it is an especially spacious MPV. Bland, boring, buzzy… I think Audi has gotten it most right with their A3 and A1.

    The A2 was well and truly ahead of its time… so ahead of its time that it was too expensive for the market thanks to all the aluminum. Now that the premium subcompact market is maturing, it may be the right time to reintroduce the idea.

  • avatar
    th009

    So far A1 seems to be hitting the mark: in spite of the higher prices (compared to, say, the sister VW brand), Audi is increasing production above original plans.
    http://www.autonews.com/apps/pbcs.dll/article?AID=/20100825/ANE/100829924/1131


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