Because there is a lot of money to be made selling lots of a cheaper product if you can produce it profitably. Besides that dealers are typically willing to sell such smaller vehicles at or near their own purchase price counting on the recurring income for service and fleet sales of such vehicles tend to be quite profitable because there is only one signature but a very large amount of money involved.

Mercedes is a nice example of a premium brand, they make more money per car and a bit more money in total on lower volume. VW (or rather, the VAG group) is simply a different kind of company. But their profits are nothing to sneeze at.