Even though three out of every five vehicles it sells worldwide is an SUV, Mercedes-Benz remains bullish on cars.
The mission may seem misguided, as sales of SUVs are projected to surpass the sedan market within the next five years, but that’s not slowing the German automaker. For 2019, Mercedes is launching major updates to its smallest and one of its largest cars and plans to bring its A-Class compact sedan to the U.S. market for the first time.
Mercedes introduced its first compact car for the U.S., the four-door CLA coupe, five years ago. Then advertised for $29,900 - the sub-$30,000 sweet spot for entry-level luxury cars - the CLA proved a powerful conquest tool, according to Dietmar Exler, president and CEO of Mercedes-Benz USA. Today, nearly 70% of CLA customers are new to the brand.
The CLA created “a new battleground in the premium segment,” Exler said at an event in Brooklyn, NY in July. “Today it’s the most powerful conquest tool that we have.”
Mercedes hopes to recreate the magic with the A-Class compact sedan, which has sold more than six million units since it launched in global markets two decades ago but has never been available in the U.S. The updated small car will target younger buyers with the brand’s new user experience interface, called MBUX, which features natural voice recognition and advances in artificial intelligence.
It’s a familiar page from Mercedes’ playbook for marketing the CLA, whose buyers are 11 years younger on average than the brand’s other customers. “With car buyers, this is a big deal,” Exler said. “The formula for success is simple: Attract young customers to the brand and keep them for life.”
Exler called the A-Class, which goes on sale in the U.S. later this year, the “all-new gateway to our brand,” and a “big deal” for a “new generation of customers.”
Meanwhile, Mercedes is also investing in updating a car that sits at the top of its lineup, the CLS “four-door coupe.” For its third generation, the high-performance sports car, historically credited with merging the styling of a coupe with the practicality of a sedan, gets a hybridized engine and a fifth passenger seat.
On sale this fall, the 2019 Mercedes-Benz CLS will sport a straight six-cylinder engine, the brand’s first in 20 years. The engine delivers 362 horsepower; the introduction of the brand’s EQ Boost “mild hybrid” electric motor is good for another 21.
It’s a necessary investment, as car sales industrywide continue to slip. The four-door coupe category has become crowded since the 2005 launch of the original CLS. Though it’s been a strong seller for Mercedes, with global sales exceeding 375,000, the CLS has fallen behind as BMW and Audi introduced their own competing models.
“If an automaker lets its sedan lineup go without product updates, the ability to be successful in the market is severely limited,” said Stephanie Brinley, an analyst with IHS Markit. “If an automaker walks away from the demands of this buyer completely, there is no opportunity to keep them.”
Last year, sedan registrations fell to 27% of the new vehicle market in the U.S. from 38% a decade earlier, according to data from IHS Markit. Demand has continued to drop over the first five months of 2018, with sedans comprising just a quarter of sales. The appetite for sedans and hatchbacks, the body style long favored in global markets, has also continued to wane worldwide as more consumers opt for SUVs.
Updating the A-Class is a wise move for Mercedes as luxury sedans have shown more resilience than their mainstream counterparts, Brinley said. IHS Markit forecasts that the launch of the compact sedan in the U.S. and China will help the nameplate’s sales grow nearly 86%, to more than 330,000 units in 2020 from 177,000 last year.