As head of Mercedes-Benz USA in the late 1990s, Mike Jackson was determined to keep the ungainly, expensive A-class small car out of the United States.
"The original A class, you would say, 'Oh, my God. I will never be able to sell that to anybody. What can I do to keep it out of the U.S. so I don't have to deal with it?'" Jackson recalls.
Americans were unwilling to pay premium prices for small cars then, even if the cars wore luxury nameplates. And sales of such cars remain low.
But European luxury brands aim to change that dramatically in the next few years. Eager to increase sales and meet strict government fuel economy standards, they plan to roll out new small cars with premium prices and luxury content.
Now Jackson's on board. Mercedes-Benz unveiled a concept version of the redesigned A-class coupe in April at the New York auto show. Jackson, on the other side of the fence as CEO of AutoNation Inc., the country's biggest automotive retailer, calls it "absolutely beautiful."
"That's the car I want tomorrow," Jackson says.
Although other luxury brands, such as Lexus and Cadillac, are making similar moves, Europeans are leading the charge. The A class, expected in 2013 in the United States, is the first of a new generation of sub-$30,000 small cars that European automakers are convinced will sell in the United States.
Today, three European small luxury cars are on the market: the Audi A3 hatchback, the BMW 1-series coupe/ convertible and the Volvo C30 three-door hatchback. They're low-volume vehicles, with combined U.S. sales of 23,596 units last year.
A conservative tally of carmaker estimates shows U.S. sales of small European luxury cars at least doubling in the next few years. But some observers question whether the segment will ever be strong here.
"Even at 50,000 units, it is an insignificant number," says Jesse Toprak, vice president of industry trends at TrueCar.com. "The potential growth for compact crossovers is much greater because of their utility."
Mercedes-Benz and BMW will lead the effort to expand the segment. The route to success will be keeping the vehicles premium in content and performance, brand executives say.
The new cars are different from the halfhearted attempts in the late 1990s and early 2000s. At that time, BMW offered the 318ti -- a 3 series with a lopped-off rear end -- and Mercedes-Benz in 2002-05 sold its odd-looking C230 and C320 hatchbacks. Those cars failed after a short run.
Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, says the recession and fuel prices have changed what buyers consider important.
"They tend to look at it as 'What do I need versus what am I trying to show here?'" Schuster says. "Do I need a larger vehicle, or can I get away with a smaller vehicle and still have that content and desire?"
Michael Cantanucci, whose New Country Motor Car Group owns three Mercedes-Benz, two BMW, and Audi and Mini stores in New York, Connecticut and Florida, has seen prototypes of many of the new smaller vehicles.
Cantanucci says he doesn't believe they will dilute luxury brands' images: "They have the DNA in terms of product quality, styling, features and technology."
That won't be a problem with the four new small luxury vehicles coming to Mercedes-Benz in the next three to four years, says Ernst Lieb, CEO of Mercedes-Benz USA. Safety features such as adaptive cruise control and traction control will come standard.