No. They were stupid. They developed the M5 without noticing that it wouldn't be accepted by their userbase - that's what market research is for. They developed the CL as a low-cost entry model and then discovered that it was good enough for pro's too, at which point they killed it because it endangered other sales - always a sign of some skew in your product repertoire. After this shock, they wanted to kill rangefinders altogether and had to be convinced otherwise by one of their regional subdivisions. After that, they did innovate but had to be dragged towards any single innovation - metering: Minolta CLE; AE: any other camera since 1975.
All this doesn't sound very rational.
I guess there would be more people who can afford their stuff if their stuff was more affordable. After all, they're doing it in the compact digicam market. Panasonic sells a camera for EUR 500 and Leica the same camera with minor differences for EUR 600 and people do buy the Leica.
At the moment the biggest competitor to Leica are used Leica bodies. If you can get an M4-P for EUR 450 and a M6TTL for EUR 800, why bother shelling out an extra couple of thousands for a new Leica? I don't see how I'd get what I'd pay for. If I want religion, I can go to church.
The reason why Leica doesn't produce low-cost bodies is very simple: if there was a cheaper Leica, nobody would buy the more expensive Leicas, and people would start asking if the expensive Leicas are really worth it. The CL effect at work.
Philipp