Daimler CEO Deiter Zetsche introduced the Mercedes CLA-Class at a private press preview at the Detroit Auto Show.

Daimler AG has launched production of its newest model from a brand new plant in Hungary. Based on its compact A-Class platform, the new Mercedes-Benz CLA will become the smallest vehicle the German luxury maker has ever sold in the U.S. when it reaches American showrooms later this year.

The decision to produce the CLA at the new plant in Kecskemét, Hungary appears to be a critical step in holding down production costs on a vehicle that would be difficult to market in the U.S. and other parts of the world were it to come from Germany, analysts suggest.

The CLA is the first model exclusively built in Kecskemét, but the plant’s second product along with the slightly larger Mercedes B-Class, which went into production last year for delivery to markets across Europe.

“The CLA is based on the Concept Style Coupe, which we introduced last year,” noted Dieter Zetsche, Chairman of the Daimler Board of Management and Head of Mercedes-Benz Cars. “The most frequent comment by far was ‘Please put this car into series production.’ That’s precisely what we are doing now,” added Zetsche, who had unveiled the CLA in Detroit on the eve of the North American International Auto Show.

Zetsche said after the unveiling of the CLA in Detroit the quality of the cars built in Hungary by the plants young workforce was equal to those built at any Daimler AG plant anywhere in the world.

“More than 40.000 B-Class vehicles built here prove that you know how to build great cars. You are doing a first-class job here at the plant.” Zetsche said during this week’s production launch in Hungary.

The new four-door coupé echoes the design of the CLS, whose design concept has spawned more than its fair share of imitators since its debut in 2003.

Mercedes is hoping that the new CLA will establish a distinctive niche for itself.  Despite its size – smaller than the current C-Class – it will be given a more up-market array of equipment. It’s part of the maker’s goal of breaking the traditional link between the size of a luxury vehicle and its price.

A quick survey of high-line manufacturers including Lincoln, Land Rover, BMW and Audi shows they’re all taking aim at downsized segments. That reflects some significant trends in the luxury market as buyers come to grips not only with rising fuel prices but increasingly crowded urban environments, analysts and industry planners suggest.

“If we want to grow and don’t want to lose our customers, we have to downsize,” contends Zetsche.

Like other luxury makers, Mercedes is searching for a new generation of buyers by building smaller vehicles with a heavy dose of style.

Whether buyers will welcome even smaller models today remains to be seen, especially in the U.S. where “it has always been bigger is better,” and buyers have measured luxury – and the concurrent price tag – by the inch and pound, said George Peterson, of consulting firm AutoPacific, Inc.