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Why the $30,000 2014 CLA250 is Huge for Mercedes-Benz

A 2014 Mercedes-Benz CLA250. The CLA-Class offers the look of a sporty Mercedes sedan at a compact-car price: The CLA starts at $29,900. Photo credit: Mercedes-Benz

German automaker Daimler (NASDAQOTH: DDAIF  ) said this week that its pre-tax profits more than doubled in the first quarter. 

Daimler earned 2.07 billion euros (before interest and taxes) in the first quarter, up from 949 million in the first quarter of 2013. Revenue was up 13% as global sales at Daimler's car division rose 14%. It's a big turnaround from a year ago, when Daimler looked to be running out of steam.

So what? Well, Daimler's car division includes Smart, which doesn't make a ton of money, and Mercedes-Benz, which makes quite a bit.

And what's working for Mercedes-Benz right now? The answer might surprise you.

The small Mercedes that has hit it big
Mercedes-Benz still sells plenty of big luxury cars (and SUVs), of course. Its top-of-the-line S-Class sedan, all-new last year, saw sales double to just over 24,000 in the first quarter (its predecessor was being phased out a year ago.) It's a big seller in China, where one out of every four is sold.

But Mercedes has recently hit it big with some smaller models — much smaller, in fact. Mercedes has sold very small, relatively inexpensive cars — its A- and B-Class vehicles — in Europe and some other markets for years. They're little hatchbacks that don't look much like Mercedes' famous sedans. 

But last year, Mercedes rolled out something new and different: A global model, called the CLA, that does look like a sporty Mercedes sedan — but that is built on its small-car platform. 

Unlike Mercedes' mainstay C-, E-, and S-Class sedans, which are built on rear-wheel drive platforms, the CLA is front-wheel drive, with all-wheel drive optional. And it's priced accordingly, starting at just $29,900 in the U.S.

It's small and based on a front-wheel drive architecture, so it's relatively inexpensive to build. But like the bigger Mercedes sedans, it can be optioned way up — making it very profitable.

The CLA-Class sedan starts at just $29,900, but loaded versions, like this CLA45 AMG, can run more than $50,000. There's a lot of profit in the difference. Photo credit: Mercedes-Benz

Mercedes' goal with the CLA was obvious: To make the Mercedes-Benz experience — and cachet — available to a larger audience. It fits right in with the "affordable luxury" trend we've seen unfolding all over the world in recent years.

How is it working? Pretty well: Sales of Mercedes' small cars as a group were up 26.4% in the first quarter. The results have been good enough that Mercedes just rolled out a sibling for the CLA — the GLA, a small crossover SUV built along the same lines.

Another small Mercedes that is has a chance to do well
Mercedes says that the new GLA-Class "lightfootedly masters all day-to-day challenges and is also robust enough for off-road excursions." In other words, it's a crossover SUV, offering car-like drivability with some light off-road capability.

The 2015 Mercedes-Benz GLA250 is a new small crossover SUV based on the CLA-Class's underpinnings. It will arrive in the U.S. this fall. Photo credit: Mercedes-Benz

When it comes to the U.S. this fall, the mainstay GLA250 model will have a 2.0 liter turbocharged four-cylinder engine with a 7-speed dual-clutch transmission, just like the CLA250 sedan. It'll be all-wheel-drive-only initially, but Mercedes will add a (presumably less expensive) front-wheel drive version next year. A higher-performance version, the GLA45 AMG, will also be offered here, again following the pattern set by the CLA.

It won't get here until this fall, but the GLA-Class started arriving at Mercedes' European dealers in March. Sales have reportedly been strong. Mercedes is expected to roll it out all over the world in coming months. 

It's a timely product. Compact SUVs and crossovers — particularly luxury models — have been an extremely hot market segment recently. Rival BMW (NASDAQOTH: BAMXF  ) saw already-huge sales of its X1 rise almost 15% in the first quarter, and Audi's Q3 is a hot seller in China.

If the CLA's success is any indicator, the new GLA-Class should be another small-but-big hit for Mercedes.

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John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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