German brands go down market long before Japanese brands like Lexus or others existed, and this was due to internal German competition. The 190 emerged as a competitor to the Audi 80 and BMW 3 Series, all entry-level line/models. I believe these "lower" ranges added significant value to the brands and made them accessible to more than just the wealthy.
They wouldn't have survived otherwise; 40 years ago, the world was very different.
Additionally, as a car enthusiast, how boring it was when Mercedes only had a couple of models and BMW only three. You'd see a new car every four, five years, or even longer, and they were almost never on the road.
So I think the more models and lines there are, the better, as long as they maintain their premium status.