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Luxury Rivals Turning to Smaller Cars, U.S. Production

March 9, 1994

GENEVA (AP) _ Searching for profits in Europe’s recession ridden economy, luxury carmakers BMW and Mercedes are venturing into some unfamiliar territory - economy cars.

The two companies, whose rivalry has increased in recent years, hope to produce the smaller cars without scrimping on quality and their vaunted reputations.

BMW is the first to show how small it’s willing to go, premiering its compact 3-series at the Geneva Auto Show that opens Thursday.

Mercedes is displaying its A-class city car, a family vehicle that looks nothing like a traditional Benz, and goes into production in 1996.

BMW’s star vehicles at the show are the 316 and 318 hatchbacks.

″It’s very good for households as a second car,″ says Ralf Hussmann, head of BMW’s economic press division. ″With the compact we can reach a new range of customers, perhaps who already drive a 5- or 7-series. Single-person households also don’t need a big car. With an attractive price (under $20,000) we can bring in people who couldn’t afford a BMW.″

Mercedes calls its A-class car a subcompact.

It looks like a mini-minivan, with a short hood as most engine components are under the floor. Mercedes will produce 200,000 of them a year.

This so-called city car was originally planned for European markets only, but there was such a positive response at auto shows in the United States earlier this year that Mercedes is mulling exporting it across the Atlantic.

The BMW-Benz rivalry has been sharp since 1959, when Bayerische Motoren Werke thwarted Mercedes’ attempt at a buyout. BMW overtook Mercedes in sales for the first time in 1991, selling 552,000 ″Beemers″ worldwide to Mercedes’ 518,000. For the last two years, BMW sales have also outpaced those of Mercedes in the United States, by a margin of 78,000 to 62,000 last year, making BMW America’s No. 1 European import for the first time.

Mercedes notes however that demand in the first half of 1993 was dulled by the anticipation of its retooled E-series and all-new entry-level C-series, neither of which became available until the second half of last year.

″Our target is not to overcome Mercedes in sales. Our main target is to be profitable at all times,″ Hussmann said. BMW made $427 million in 1992; 1993 earnings are expected to tumble because of the industry recession.

Mercedes-Benz earned $470 million in 1992 and is likely to post a loss for 1993.

BMW and Toyota are the only automakers to turn a profit each of the last 30 years, Hussmann noted.

BMW and Mercedes are both planning to build vehicles in the United States once BMW’s factory goes on-line near Spartanburg, S.C., this year and Mercedes-Benz’ in Tuscaloosa, Ala. in 1997.

Benz will build a sports utility vehicle for which there is no equivalent on the market, said Andreas Renschler, the president of Mercedes-Benz Project Inc., which is setting up the U.S. venture.

″It can be for going skiing or hunting, or to New York for ballet,″ Renschler said.

BMW will build its popular 318 model in the U.S., along with an as-yet unannounced second model to be introduced in 1995. BMW won’t say more, but a two-seat roadster is a prime candidate following the success of its limited- edition Z-1, of which only 8,000 were made.

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