BMW and Mercedes would have to struggle for lower emissions and higher fuel efficiency. With European CAFE regulations, measured in tailpipe CO2 emissions rather than fuel economy, also getting much tighter, Germany’s luxury automakers, too, are feeling the heat from global warming. Even Audi which can average out its CO2 figures across the entire VW Group portfolia, feeling the pressure to build more fuel-efficient cars and smaller body.
Audi management has settled on a strategy of making its 2009 A2 a straightforward subcompact with mass appeal, rather than leftfield, like the Gen I aluminum A2. This would be key rival for BMW and Mercedes if they bring it to USA, since they offer more interior space than a Mini. The 2009 A2 won’t have a unique platform, but will use the VW subcompact underpinnings, like the Polo, with gasoline engines ranging from 1.2 to 1.8 liters, plus diesels.
Mercedes already has the A and B classes so they've got nothing worry about as these cars are very popular in Europe. The original Audi A2 was popular at first but could never quite beat the A class in sales. The A class was also more expensive.
I saw this car many years ago in a "car" magazine I think back in the year 2000 or 1999