Two years ago, Daimler kicked off production of its newest U.S. model — the millennial-targeted Mercedes-Benz A-Class — at its $1 billion joint-venture factory with Nissan in Aguascalientes, Mexico.
Now Mercedes has reversed course and is shipping production of the compact sedan back to its plant in Rastatt, Germany, supply chain and dealer sources told Automotive News.
Mercedes' focus at the Mexico assembly plant, known as COMPAS, is now the GLB, a compact crossover that launched in the U.S. last year.
In a communication with A-Class suppliers this month, obtained by Automotive News, Daimler said: "The current dynamic development of the automotive market under the influence of the pandemic requires constant monitoring and adjustment of production strategies.
"Therefore, we have decided to focus on the X247 [GLB] project at COMPAS and discontinue the V177 [A-Class] production in Mexico."
A Daimler spokesman late last week confirmed the production move from Mexico, saying the decision will give Mercedes additional capacity for crossovers.But the production shuffle suggests an expensive miscalculation by Daimler on America's appetite for compact sedans.
At the end of 2015, when Daimler would have been orchestrating the North American production plan, compact sedans made up 12.7 percent of the total light-vehicle market in the U.S. That market share was down to 8.4 percent last year.
"I think Mercedes misread the market and underestimated just how badly demand for small luxury sedans would fall," AutoPacific analyst Ed Kim said.