The entry level A-Class and the slightly more expensive B-Class models have been successful for Mercedes in terms of sales but their slim profit margins have led Daimler execs to consider moving production of the next-gen versions to developing countries. Mercedes COO Rainer Schmückle revealed the carmaker won’t be giving up on the small car business and that production of these models will likely move to Eastern Europe or Asia.

Schmückle commented that the new cars should arrive on the market by 2011, and contrary to previous reports will remain FWD. According to AutomobilWoche, Mercedes hopes to see growth continue to rise at five to six percent per year and to do so execs know they must expand into new emerging markets. However, in order to profit from these markets Mercedes needs competitively priced small vehicles.

Mercedes currently has four assembly plants in Southeast Asia and one in India, where it builds the C, E and S-Class models from knocked-down kits sourced from Germany. This would be too expensive for the new A and B-Class so officials are planning to increase the level of integration with local suppliers. We wonder if it will be able to maintain the level of quality expected of a car wearing the Three Pointed-Star building them completely in developing markets.