Mercedes vs. BMW: Big fight over small cars

Germany's top two luxury automakers are going head to head in the race to capture new markets.

Beemer or Benz?
Beemer or Benz?
The most intense automotive rivalry in Europe is entering a new phase: Mercedes-Benz and BMW will be testing the world's appetite for small cars with big prices.

Since BMW dumped Rover and Mercedes shed its relationship with Chrysler, both automakers have shunned high-volume segments of the car business and focused on premium models. Now that pressure is growing for better fuel economy, and there are fewer top-shelf segments to exploit, both are looking for additional growth opportunities.

Given their disparate histories, geography, and culture, conflict is inevitable. Daimler, Mercedes' parent, is the successor to a company founded in 1883 that invented the automobile and never tires of reminding the world of that fact. BMW got started in 1917 as a maker of aircraft engines and didn't get into making cars until 1928. Stuttgart, home to Mercedes, is a grey factory town where the sun seldom shines, while BMW is rooted to party-happy Munich. Finally, Mercedes, elitist to its core, reveals its true self in its motto "The best or nothing," coined by Gottlieb Daimler. BMW fashions itself as creator of the "ultimate driving machine," a tagline created by an American advertising agency.

By most measurements, BMW has been outpacing its older rival, but Mercedes is trying to mount a comeback. Here's the current tale of the tape:

By Alex Taylor III, senior editor-at-large @FortuneMagazine - Last updated July 12 2012: 9:17 AM ET
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