Mercedes-Benz Group has confirmed its plans to reduce the number of models in its entry-level compact cars range, cutting down from the current 7 models to 4. The move is part of the company’s shift to move away from chasing after sales volume, to prioritize lower volume but more profitable, higher-end products.

“What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximise the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world’s most desirable cars,” said Ola Källenius, CEO and Chairman of the Board of Management of Mercedes-Benz Group AG at yesterday’s ‘Economics of Desire’ strategy update event.

Moving forward, 75 percent of Mercedes-Benz Group’s investments will be allocated for its higher-end segments.  

The company aims to grow the sales share of its Top-End vehicles by around 60 percent by 2026 versus 2019, and to achieve an operating margin target of approximately 14 percent by the middle of the decade, in favourable market conditions.

Last year, sales of its flagship S-Class grew by 40 percent, while sales of AMG (the real ones, not AMG Line ones), MayBach, GLS, and G-Class models set new records.

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“Most luxury companies build their portfolio on the basis of one or two true icons. Mercedes-Benz has the good fortune to have multiple iconic products and brands at the upper end of its portfolio – such as the S-Class, the SL, the G as well as the AMG and Maybach brands. We see great potential here to expand our Top-End portfolio with even more fascinating products for our customers,” commented Ola Källenius on the new portfolio strategy.

Currently, Mercedes-Benz’s 7-car entry-level compact cars range include:

1. A-Class (likely to stay)
2. B-Class (to be cut)
3. A-Class Sedan (uncertain future)
4. CLA (uncertain future)
5. CLA Shooting Brake (to be cut)
6. GLA (likely to stay)
7. GLB (likely to stay)

The company hasn’t say which model will be discontinued, but the 5-seater GLA and 5+2 seater GLB will most certainly stay, seeing that SUVs are high growth, profitable segments.

The A-Class hatchback will also likely to remain as it has a strong image and sells well enough, especially in Europe.

The slow-selling B-Class will almost certainly be culled, as is the CLA Shooting Brake.

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So which will be the last remaining model to will survive the cull?

It will be either the CLA or A-Class Sedan. The fates of these two models hang in balance, as there isn’t enough separation between the two products. Between the CLA and the A-Class Sedan, our bet will be on the CLA.

The CLA’s coupe styling allow it to command a higher price premium, in-line with the company’s direction of prioritizing profit over sales volume, plus its more lifestyle-oriented product image also fits Mercedes-Benz luxury-focused direction better than the more function-oriented A-Class Sedan.

By 2026, Mercedes-Benz plans to cut its market share in the entry luxury segment by 25 percent.

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It should be noted that the cheaper entry models don’t really contribute that much in volume. In 2019, before the pandemic, sales of Mercedes-Benz’s compact cars range totalled 680,000 units, less than the ‘Core Luxury’ segment C-Class and E-Class’ 1.35 million units (including derivative SUV models like the GLC and GLE).