Why BMW and Mercedes made cheap cars that failed and why they keep trying

Why cheap luxury cars can easily fail

German brands such as Mercedes-Benz, BMW, and Audi built their reputations on being purveyors of precise engineering cars, luxurious interiors, cutting-edge technology, and above all, pretty high sticker prices. 

But increasingly, they are selling cars with prices that are quite average.

In their quest to grow volumes and reach a broader chunk of the new car market, brands that once catered to the higher end of the American auto market are churning out smaller and cheaper models.

It is an ongoing experiment that sometimes has not worked out so well. 

BMW and Mercedes-Benz have on different occasions tried their hands at offering lower-priced cars with the hope of luring younger, less wealthy buyers into the fold and turning them into satisfied and loyal customers for life. 

But some such bets, including the compact BMW 318ti compact and the Mercedes-Benz 320 sport coupe did not last. 

However, premium and luxury automakers continue to try, and many now offer several models at the lower end of the price range. 

Increasing the number of cars they sell overall is a key goal for all larger automakers, and it is especially important now as companies are faced with the need to make big investments in new expensive technology with little near-term benefit, especially in electrification and autonomous driving. 

But there is a tension for premium car brands. Some automakers split their mainstream and premium lineups into different brands. Toyota sells its higher-end cars under the Lexus badge, and Ford and General Motors have the Lincoln and Cadillac names, respectively. Even Volkswagen Group can separate its Volkswagen cars, meant more for the average buyers, from its pricier Audi and Porsche brands. 

But Mercedes-Benz and BMW have no separate mainstream brands. They have to work with just the one brand. The risk here, say some auto industry insiders, is that in trying to reach every corner of the market they could dilute their high-end brand identity.