History · 1958–1965
The Mercedes that became an Audi.
Stuttgart designed the compact saloon and the brilliant engine, refused to build them — and then sold the whole future to Volkswagen.
At the Frankfurt motor show in September 1965, Auto Union unveiled a tidy little saloon wearing a name no new car had carried for twenty-five years: Audi. The stand talked up its remarkable four-stroke engine. It did not dwell on where that engine came from, because it had been designed by Daimler-Benz.
The car was the F103. The engine was the Mercedes-Benz M118, developed in Untertürkheim for a compact Mercedes the board had refused to build. A Mercedes engineer had carried its drawings to Ingolstadt in his luggage — and Daimler-Benz had then sold the lot, factory, dealers, engineer and engine, to Volkswagen. This is the story of how Stuttgart designed its own fiercest German rival.
Chapter I · 1958–1962
The star buys the rings.
In April 1958 Daimler-Benz took a majority stake in Auto Union, the Ingolstadt company behind the four-ring badge, and completed the takeover the following year. The move was pushed hard by Friedrich Flick, Daimler-Benz's largest shareholder, and the logic looked sound: Mercedes would own the top of the market while Auto Union's DKW models — small, cheap, front-wheel drive — covered the bottom.
There was history in the handshake. Auto Union had been stitched together in 1932 from four Saxon manufacturers — Audi, DKW, Horch and Wanderer — and in the 1930s its rear-engined Grand Prix cars had been the Silver Arrows' only serious rivals. Expropriated from Saxony after the war, the company was re-founded in Ingolstadt in 1949 and survived on a single formula: DKWs powered by three-cylinder two-stroke engines.
One part of the purchase paid off immediately: Auto Union's Düsseldorf works was converted to build Mercedes-Benz vans, and it still does. The rest of the inheritance was a problem. As the Wirtschaftswunder lifted West German buyers out of austerity, the two-stroke — smoky, buzzy, prone to crankshaft damage in cold weather — began to smell of the past, and of the East German cars that still used it.
Auto Union's engineers stayed devoted to the two-stroke all the same. Stuttgart could see where that road ended. It was already working on the cure — though not, at first, with Ingolstadt in mind.
Chapter II · 1958–1962
A smaller star.
Chief engineer Fritz Nallinger had wanted an entry-level Mercedes for years — his Ponton-based W122 project had been canceled in 1956 — and around 1960 the advance development department in Untertürkheim, headed by Ludwig Kraus, drew one. The project was coded W118, and it was startlingly unorthodox for Stuttgart: front-wheel drive, a 1.5-liter boxer engine, and low-key coachwork with a huge glasshouse and no traditional radiator grille.
Alongside the boxer the engineers tested something better: the M118, a highly compressed 1.7-liter inline-four the company called the H-engine. With Heron combustion chambers and helical intake ports that swirled the mixture, it ran an 11.2:1 compression ratio at a time when nine was considered brave — smooth, strong and unusually economical. Fitted with it, the car became the W119.
The prototypes were lovely. A full-width grille with a big central star, a low waistline and an airy, thin-pillared cabin gave them the face of the coming 230 SL Pagoda — observers have compared the two ever since. Two- and four-door cars were built and tested, and they worked.
Then Stuttgart talked itself out of its own car. A small Mercedes would eat the market of the DKWs it now owned; the W111 Fintail had just launched above it; and the board feared what a cheap star would do to the expensive ones. The compact Mercedes was parked — a finished, running idea with nowhere to go.
- H-engine compression
- 11.2:1
- Displacement
- 1.7 L
- Drive
- FWD
- First prototype
- 1960
The name
Audi, Latin for Horch.
August Horch lost the rights to his own name in 1909, forced out of the company he had founded. The fix, in the company's own telling, came from his business partner's son, busy with Latin homework: horch — German for “listen!” — translates as audi. The badge lasted until 1940, then went to sleep.
Twenty-five years later, Volkswagen needed a name for a four-stroke DKW that could not be called a DKW. The best badge in the deal turned out to be the one nobody had used.
Chapter III · 1962–1964
The engineer with the luggage.
By 1962 Auto Union was in real trouble. Its coming saviour, the DKW F102, was a thoroughly modern car — crisp new body, inboard front disc brakes — saddled with the last and biggest of the two-strokes, and development of that engine was going badly. Nallinger dispatched Kraus to Ingolstadt to contain the damage; by late 1963 he was Auto Union's technical director.
Mercedes' own archive records what he took south: in his luggage, the plans for the W119 and the H-engine. The canceled compact would never wear a star, but its heart was precisely what Auto Union lacked — a modern four-stroke to replace engines nobody wanted any more.
The F102 reached the market in the spring of 1964 with the two-stroke anyway, and buyers stayed away exactly as Stuttgart had predicted. Auto Union ended the year deep in the red.
Kraus's engineers, meanwhile, were quietly mating the Mercedes engine to the F102's body. The four-cylinder was longer than the three it replaced, so the radiator moved from the nose to beside the block — a quirk every future owner would learn at the spark plugs. The car that resulted needed only a badge.
Chapter IV · 1964–1965
Sold, future included.
Daimler-Benz had run out of patience. Ford and Opel were pushing into its territory, Auto Union was losing money, and Stuttgart wanted its capital concentrated on its own priorities — above all commercial vehicles, where a vast new truck plant was on the drawing board. So it sold.
Volkswagen, drowning in demand for the Beetle, wanted exactly what Daimler-Benz was discarding: the modern Ingolstadt factory with capacity for 100,000 cars a year, a network of more than 1,200 dealers — and the license for the nearly production-ready Mercedes engine. On 1 January 1965 VW took a 50.3 percent stake; by 1966 it owned everything. Daimler-Benz walked away with around DM 310 million.
Wolfsburg's first move was to build Beetles in Ingolstadt — from May 1965 they filled the gap the dying two-strokes left. But Kraus's conversion was ready too, and in September 1965, at the Frankfurt show, Auto Union presented the F102's four-stroke successor under a name retired since 1940: the Audi.
Marketing christened the high-compression M118 the Mitteldruckmotor — the “medium-pressure engine” and the car was soon known as the Audi 72, after its horsepower. It grew into a family — 60, 75, 80, Super 90 — of which 416,853 were built by 1972. The renaissance of the four rings had begun, powered by a three-pointed star.
- VW's first stake, Jan 1965
- 50.3 %
- Cars a year at Ingolstadt
- 100,000
- The first Audi
- 72 PS
- F103s built, 1965–1972
- 416,853
The price of a rival
DM 310
million Deutschmarks — roughly what Daimler-Benz received for Auto Union, the Ingolstadt plant, and the engine that made modern Audi.
Chapter V · 1965–1982
The rival they paid for.
Kraus stayed in Ingolstadt, and Wolfsburg soon discovered what Stuttgart had let go. Volkswagen intended Auto Union as a Beetle factory and forbade independent model development — so Kraus developed one in secret. When management finally saw the finished Audi 100, it was too good to kill. Launched in 1968, it carried Audi into the class above and sold beyond anyone's expectations.
It saved more than Audi. As demand for air-cooled Beetles collapsed in the early 1970s, the Ingolstadt formula — a water-cooled four-stroke driving the front wheels — became the template for Volkswagen's rebirth: the Audi 80 of 1972 was rebadged as the Passat in 1973, and in 1974 the Golf turned the same engine sideways. The front-drive, water-cooled genes Daimler-Benz had paid to develop ended up rescuing Volkswagen.
Mercedes dealers, meanwhile, spent the 1970s asking Stuttgart for something to sell against the cars it had made possible. The oil crisis made the missing compact Mercedes impossible to ignore, and in 1976 work finally began on one.
It arrived in November 1982 as the W201 — the 190, ancestor of every C-Class. Nallinger had been right all along; it just took Stuttgart twenty years, and the creation of a rival, to admit it.
From star to rings.
Seven years in which Daimler-Benz designed, canceled, exported and finally sold its own compact-car future — and the two decades it took to answer it.
1958
The takeover
Pushed by its largest shareholder, Friedrich Flick, Daimler-Benz buys Auto Union — the four-ring maker of two-stroke DKWs.
1960
W118
Untertürkheim builds a front-wheel-drive compact Mercedes around the high-compression M118. Stuttgart declines to produce it.
1963
Kraus to Ingolstadt
Ludwig Kraus becomes Auto Union's technical director — the W119 plans and the H-engine travel in his luggage.
1965
Sold to Volkswagen
VW takes 50.3 percent for around DM 310 million. In September the F103 debuts as the first Audi since 1940.
1968
The secret Audi 100
Developed behind Wolfsburg's back, Kraus's saloon secures Audi's independence — and previews Volkswagen's front-drive future.
1982
The 190 answers
Twenty years after cancelling the W118, Mercedes finally builds its compact: the W201 arrives in 1982.
Epilogue
The best car Mercedes never built.
It is tempting to file the story as Stuttgart's great own-goal. Daimler-Benz designed the car and the engine, proved both, then handed them to the company that would spend the next sixty years chasing it. The DM 310 million went into trucks; the M118 went into 416,853 Audis, and its logic into the Passat and the Golf that saved Volkswagen.
But it is a rare corporate blunder with no villain. The compact Mercedes died for defensible reasons; Auto Union was cured by exactly the medicine Stuttgart prescribed; and the engineers simply did work good enough to outlive the badge it was drawn for. Ludwig Kraus retired in 1973 having built Audi's modern identity out of a canceled Mercedes.
The W118 and W119 prototypes survive only in the factory's photographs — small, airy, star-nosed saloons that look like nothing Mercedes ever made, and everything Audi became.