So DKW remained in the lower market segments, and Auto Union’s outlook was bleak. Sales were slow, which was worrisome to company’s then-parent company Daimler-Benz.
During this same time, Mercedes had been flirting with the idea of re-entering some of the more mass-produced market segments it had served before the war. There were a few prototypes created, including the W118 (later W119) sedan/coupe seen here in the early 1960s.
Today we can understand the potential appeal in a premium small car like this. The W118’s large Mercedes tri-star emblem was a feature shared with the flashy SL cars, and this one had the wide grille to match the recently introduced Pagoda. Even Mercedes officially acknowledged the similarities,
“With their SL face, low beltline, roof attachment clearance and rear design, the test vehicles produced were close to the Mercedes-Benz 230 SL (W113) in terms of style.”
So when it was clear DKW needed help, Mercedes saw its baby Benz as the way forward. They sent its head of Advanced Passenger Car Development, Ludwig Kraus, down to Auto Union in Ingolstadt. He was armed with the design for the W118/W119 and a new high-compression 1.7-liter four-stroke engine codenamed M118.
The first fruit of this action could be seen in the 1963 DKW F102 model. The squared-off unibody car was a radical departure from the company’s previous rounded models.
The uncluttered three-box design with thin pillars and a large greenhouse had more than a passing resemblance to Mercedes-Benz’s W118. But this car still had the old fashioned two-stroke motor.
The German public turned up its nose to the smoky old technology. Slow sales of the F102 was the last stand for Mercedes. The company explained, “Auto Union was focused on the lower market segment; for Daimler-Benz AG to enjoy success in the lower mid-range would have meant too great a financial investment.”
Mercedes wanted cash to build a new truck plant, and so they sold Auto Union to Volkswagen in 1964. During this acquisition two key elements remained in Ingolstadt—Kraus and the plans for the M118 motor.
Auto Union would update the F102 to the F103 in 1965, and two pivotal events happened. The new car utilized a new four-cylinder, four-stroke motor. It was also decided that the DKW name was too tarnished in the public’s mind, and so the first post-WWII car with an Audi badge was born.
The high-compression (11.5:1) motor based on the Mercedes M118 design was the exact opposite of the antiquated two-stroke that it replaced. In fact, the power was so good, the engineering was utilized to expand the range of Audi vehicles into larger and more upscale market segments.
The water-cooled motor was also vastly different from the technology used by Volkswagen at the time. That gave Kraus, now Chief Engineer at Auto Union, the confidence to insist that his engineering department be separate from its VW parent.
This is a key factor that allowed Audi to grow its new reputation so rapidly.
It would take many more strategic engineering steps for the quad-ringed brand to climb from one of the lowest segments in the market to the top rung. Still, it’s hard to deny that a giveaway by Mercedes decades ago sowed the seeds for one of its chief rivals today.
It should also be noted that this development timeline is close to BMW’s New Class premium compact cars that are credited with saving the company.
This makes for an interesting speculation of what the market would look like if Daimler-Benz had continued the development of the W118/119 as its own? Had this compact car been sold under the tri-star badge, would Audi be as distant a memory as Horch? Would BMW not have had a wide-open segment for its corporate recovery?
Today, Mercedes-Benz’s overall success requires little pity for missed opportunities. But it is interesting how one moderately priced car changed the whole premium marque landscape.