Expect to see smaller engines and more hybrid options for future Mercedes Benz models, as high fuel prices and greater environmental concerns push buyers – even luxury oriented ones - towards more efficient vehicles. The solution for most automakers, including arch rival BMW, is to downsize engines and increase the use of forced induction, and this is exactly what Mercedes plans to do for its next-generation of cars.

Mercedes has already shown off its DiesOtto engine, which in prototype form has already achieved 39mpg fuel-economy in the large S-Class saloon, and it’s just months away from launching the new S400 and ML450 hybrid vehicles. A new report from AutoWeek.nl, however, suggests that the automaker has much more drastic plans in store.

Mercedes R&D chief Thomas Weber has revealed that by 2012 almost the full lineup will be available with a hybrid option, and that customers will also be able to opt for three-cylinder engines in certain models. The three-cylinder engines will be much lighter than current four-cylinder designs, not to mention a whole lot more fuel efficient.

Weber went on to reveal that Mercedes is currently looking for a partner to help develop the new three-cylinder engine and that some of the models it will appear in include the Smart ForTwo, A and B-Class and even the next-generation C-Class.

The U.S. market won’t likely see a three-cylinder C-Class for some time to come, however, there’s a strong chance that we will get a four-cylinder model in the not too distant future.