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Dieter Zetsche, CEO of Daimler AG and Mercedes Benz cars, introduces the new A-Class on Tuesday, March 6, 2012 during the press preview days at the 82nd Geneva International Motor Show.

Frank Augstein/Frank Augstein/AP

In case you don't believe that government fuel economy regulations are going to make big heavy cars extinct, check out this: Mercedes-Benz, perhaps best known for building massive sedans for German chancellors and Canadian bank presidents, is coming to market with a front-wheel-drive, four-cylinder, subcompact hatchback.

It was the star of the Daimler booth at the Geneva Motor Show. While I was gawking at it along came both Martin Winterkorn, chairman of the board of management of Volkswagen AG, and Alan Mulally, president and chief executive officer of Ford Motor Co. They both bent down low and squeezed inside to get the salesman's pitch from Dieter Zetsche, chairman of Daimler AG and head of Mercedes-Benz.

This particular subcompact is the Mercedes-Benz A-Class.

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It's been around as an awkward-looking mini-MPV since 1997, but has never been sold in affluent North America. The new one is all low and swoopy and bears no resemblance to its ancestors. Don't think of subcompacts as cheap econo-boxes any more. Car makers know they've got to sell these things whether anybody (besides governments) wants them or not so they're going to load them with all the technology and styling they can to drive up the price and flog them to the rich instead of a jumbo V-8 sedan. No wonder Winterkorn and Mulally crawled all over it like teenage gearheads.

Thomas Weber is head of R&D for Mercedes-Benz and a member of the management board of Daimler AG. He's seen the writing on the wall for a long time and knew Mercedes needed a new formula to face the new regulatory reality. If it has to be small cars, not limos, so be it.

"The vision was to extend our portfolio and attack fields where Mercedes so far had no car available for customers around the world. This design speaks for itself – low seating, sporty, dynamic, agile – that's what we never had in our portfolio and will definitely bring us a new customer base. We expect a conquest rate of 50 per cent [customers moving from other brands]and that's necessary to put a growing strategy in place," said Weber.

There is no doubt that this is planned as a world car and, although Mercedes isn't saying so, it will inevitably be sold in North America.

The problem would appear to be U.S. Mercedes dealers who can't get their heads around having a hatchback of all things alongside the big $100,000 sedans. The solution will likely be to drop the hatch for the Yanks and do a mini-sedan version instead.

Canadians are more accepting of hatchbacks and odd shapes and sizes generally. The Mercedes B-Class has been a hit in Canada although never offered to small-car haters south of the border. Even though gasoline is approaching five bucks a gallon in California, small-car sales in the United States are flat as a pancake. Mercedes knows the A-Class is U.S.- (and Canada-) bound but is tip-toeing around its dealer group.

So what is this Merc of the future really like? I haven't driven it, but in terms of styling and features it is intended to be Gen Y's wonder-car.

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The first thing you notice inside is a great big iPad-like screen on the dashboard. Mercedes is jumping aboard the Apple bandwagon with both feet. You can plug in your iPhone and use all of its features including the Siri voice recognition function. You can tell Siri to call or text people in your phone book without getting a ticket for fumbling with the phone.

Styling-wise, it looks like a car that's been flattened and lowered – aerodynamics, you know – and it has those deep sculpted creases on the doors that Chris Bangle brought to BMW about a decade ago.

In terms of powertrains – four-bangers only – it brings the latest and cleanest Merc has to offer: a 1.6-litre, 115-horsepower four-cylinder on the base model, working up to a 211-hp, 2.0-litre four on the top line. All are turbocharged and directly injected and feature start/stop technology. Transmissions include a six-speed manual, a six-speed automatic and an optional 7G-DCT dual-clutch automatic. One version breaks the 100 gram barrier with a CO2 output of 99g/km.

The world has changed – get used to it. Auto makers have. Now adjust your thinking on what a subcompact should cost.

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