Benz A-Class to wedge Golf sales?

A well-equipped German hatchback that can be driven out of local showrooms for under $40,000 has been the traditional preserve of Volkswagen.

But that tradition is under threat from none other than Mercedes-Benz. The prestige brand's new A-Class model is set to change forever the complexion of that market niche for small hatches priced between $35,000 and $45,000, according to the Senior Manager Corporate Communications at Mercedes-Benz Australia, David McCarthy.

It won't happen immediately, he told motoring.com.au during last week's trip to Europe to sample the new E-Class , but as supply catches up with demand the last obstacle to prospective buyers cross-shopping the small Benz against the Golf will be overcome. And that could spell bad news for Volkswagen in Australia.

"All car companies have a balance, where you have to balance volume, with profit contribution," Mr McCarthy explained. "At the bottom end, obviously, there is much less opportunity, even if the margin is the same; in dollar terms it's actually less. So [why] I think Volkswagen will be sitting up and taking notice is that there's effectively – and I'd also include, to a lesser extent, a brand like Opel – an assault on an area of the market that realistically Volkswagen has had to themselves... not completely, but for a long time."

The Benz PR chief reiterated comments from local Volvo MD Matt Braid, who previously told motoring.com.au that Golf pricing in Australia is more affordable than anywhere else in the world. But whereas the Volvo boss was excusing his company's V40 from playing against the Golf in that particular bunker, Mr McCarthy had a different take on the Golf's affordability – conquest sales from rivals in the higher-priced sector of the market could rapidly eat into the Golf's overall profit contribution.

"It's no secret that Australia is one of the cheapest places to buy a Volkswagen Golf. It's because... the factory is giving them a good deal, they want to expand the market, they're perhaps accepting a lower contribution... there's a currency factor in there as well – it's not just one thing."

In some ways, Volkswagen's pricing of the Golf at low levels – by the standards of European imports – is a business model that Benz is simply following with the A-Class. But it needs to be acknowledged too that the A-Class is more like a Polo competitor than a direct rival for the larger Golf. Mr McCarthy doesn't agree. Essentially, the market – rather than market segmentation – will decide which cars compete against which rivals.

"Because the market is so competitive, there's that cross-over [between a high-grade lower-segment car and a low-grade higher-segment car]... so the steps that you used to have are not as subtle as they once were. There's a lot of cross-over," he explained.

If the lucrative Golf sales start to dry up, through competition, the lower-priced Golf models might have to rise in price to counter that. Or Volkswagen might prefer to wait for the Golf 7 and trust that the market will return to the product it knows well in that segment – in a new iteration.

"Over that $35,000 to $45,000 market, Volkswagen has a very large share of that. And that's where brands such as ourselves are coming in with product and – I wouldn't call it cherry-picking, but when someone's faced with a [certain] situation, 'oh, will I have a Golf? Perhaps not, might have a Volvo... or I might have a Mercedes-Benz...."

The Benz spokesman also believes Volkswagen may suffer collateral damage from Volvo's decision for its V40 hatch to go head to head with the A-Class in Australia.

"We made a conscious decision with A-Class to spec the cars at a level that the Mercedes buyer wants... We didn't want people to come into the showroom and get sticker shock," he said.

"An A 180, effectively we would price that so that anywhere around Australia, a standard A 180 can be driven out of the showroom for $40,000.

"If we'd have set the price lower we would have had to take content out of the car. We made a conscious decision that the standard car was a car that people would buy. And it looks to me as if Volvo [has] done a similar thing."

But Volkswagen need not be too concerned. Mercedes-Benz is not specifically targeting VW with the A-Class – not in Australia nor any other market.

"We don't have the capacity – in any country, in any market – to outsell the Golf," Mr McCarthy said.

"It's definitely... a car that's cross-shopped; we do though see the more premium [models] – the Audi A3, the BMW 1 Series [and] to a certain extent the Lexus CT200h [as rivals]. People want a premium small car; that's not to say the Volkswagen isn't. But it's a car that is serious [sales] volume..."

And in a huge market like America Mercedes-Benz won't even be selling the A-Class.

"[The US] entrant in that segment is CLA. Now that's not a Golf competitor; is it a Jetta competitor? Probably."

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