Originally Posted by
medod
Why was the NG launched? To compete with the A320, which was taking sales from the 737 in both North America and Europe.
The Classic already had CFM56 engines, so fitting an updated model was no big deal. 61-inch fan on the NG compared to 60 on the Classic.
The big difference was the brand new wing, using aerodynamics from the 777. It's more efficient than the A320's. Plus, as said above, the 737 fuselage is "efficient", with a better ratio of seats to external area than the A320.
The excellent new wing allowed the launch of the -800, a 3m stretch on the -400. The resulting seat-mile costs measured up to the A320's and the rest is history.
More interesting is what was going on in the late 90s/early 2000s. Boeing was developing Project Yellowstone, consisting of the Y1, Y2, and Y3. The Y2 launched as the 787 and the Y1 was intended to replace the 737NG with a plastic jet using 787 tech. But single-aisle sales grew beyond what's possible to mass-produce in CFRP. Then Airbus just fitted next-gen engines to the A320 rather than develop a new, better airframe, knowing that Boeing couldn't do the same. Boeing tried anyway and the rest is... 🙁.
Minor point, the NG wing is not 'new' - it was aerodynamically re-profiled (using the same structure as the classic). The new aero bought a little drag but it also bought speed - the NG critical Mach was meaningfully higher than the classic - which given the NG's longer legs was meaningful. Some that had worked on the 737-300 complained that they'd wanted to make similar changes on the -300 but were not allowed to.
The thing that really killed going to an all new 737 replacement was how long it would take to bring it on-line. Resources were still tight with the 787 and 747-8 just entering service, and not only would it have taken a couple years longer to develop than the MAX, it would have taken another few years to bring the production rate up to the 50/month ballpark. That would have meant conceding something like 3000 narrow body sales to the NEO - something that Boeing saw as untenable (although with the benefit of 20-20 hindsight doesn't look so bad).