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Let us make some order in the cabinet here.
FWD is one issue, engine size and configuration completely another and both have nothing to do with good vs. bad technical execution.
The problem with BMW and Mercedes FWD vehicles is in bad technical execution or badly refined platform. There is nothing wrong with FWD in itself if done correctly; sadly, both decided to make a platform that is cheap and just glue the badge on it; their FWD platform is not about refinement but rather only about how to pull as much money as possible out of people's pockets.
Many European mass-market cars drive much better and offer much more for a fraction of the BMW/M-B FWD price. You're mentioning VW; the EU Golf (US one is a bit different) is the reference in its class; the Mercedes A class drives like a wooden cart in comparison and the Golf has even a better interior. Open the British "What car?" magazine; A class got 3 stars and Golf got 5 stars.
But the people buy, they buy the badge.
Fashion brands make huge profits on the assorted merchandise, not on their core luxury designer stuff. Some brands decided that is not enough and begun to stamp their logo on cheap Chinese-made stuff or common T-shirts.
BMW refined their RWD platform through the years and there is where the expertise and investments of the brand are. Many inside BMW wanted the next 1 series to be RWD; why it is going to be FWD? A group came to the meeting, calculated that making it FWD results in 750$ of additional profit per each car, made a projection of sold cars and the present made standing ovations for FWD. This is how you make career.
Audi uses the knowledge and investments of the whole VW group (VW, Skoda, Seat) for their smaller FWD platforms; Audi A3, Audi Q3, Audi Q4. The upcoming models of these cars are going to offer a truly premium driving performance, materials, cabin and so on.
As for engines, EU legislation is making impossible anything over 4-cylinder engines for mass produced cars; and with year 2025 even those should be thrown out. CO2 emissions requirements that can be met only with electric cars.
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