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Mercedes-Benz, owned by Daimler AG (NYSE:DAI) and which barely missed out as America’s top luxury car maker in 2012, has plenty of reasons to be optimistic this year with its new CLA expected to hit the markets in fall. The new model will give the automaker an entry point in the sub $30,000 category. Mercedes sold more than 270,000 cars in the U.S. in 2012, and the world’s biggest economy accounts for a fifth of its sales. [1]

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New Demographic Targeted

With the new CLA, Mercedes will be able to compete against BMW’s 1-series and 3-series and Audi’s A3 and A4. The starting price of all these vehicles is below $32,500. As of now, Mercedes’ cheapest car is the C-Class, which starts at $35,500. [2] Therefore, it is pretty evident that with the help of this new model, a new demographic opens up for the automaker. Not just in terms of how the car is positioned in the market but also in terms of affordability. The CLA first featured during an advertisement on the Super Bowl and has generated quite a buzz since

The new sporty model will help Mercedes target a younger audience. Due to a lack of model refreshments in the past, the old model designs often don’t appeal to the younger buyers who, in turn, prefer the more sporty BMWs and Audis.

Mercedes also has the refreshed C-Class arriving in 2014, which again will be sportier and swankier in order to appeal to the young millionaires. Another advantage of targeting customers when they’re young is the higher rate of customer retention. Customers who purchase a Mercedes car when they are young are likely to stick to the same company when they upgrade their cars in a few years time.

The only downside of a Mercedes car below $30,000 is that it could dilute its exclusivity factor. But it doesn’t really that such a thing is going to happen since the other automakers are doing the same without experiencing any brand erosion.

It is hard to predict right now how many unit sales Mercedes is targeting for the CLA. The luxury market of cars priced below $30,000 is not a very big one, but with the options only increasing and the starting prices heading lower, it is bound to grow. Moreover, as the unemployment continues to decline and people have a greater sense of job security, they will be looking to upgrade their Accords and Camrys, and cars in this category are certainly a viable option.

We have a price estimate of $62 for Daimler’s stock, which is slightly above the current market price.

The New CLA Could Be A Game Changer For Mercedes-Benz -- Trefis
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