I think there is a place for product placement in games. NOT advertisements. I don't want some pop-up ads or commercial breaks or nonsense like that. There is a difference between that and product placement.
My attitude is that if the character needs to wear shoes, why not make it a real pair of shoes and get some product placement money out of it? If they need to drive a car, why not make it a Mercedes if they're willing to pay for it? But the procedure is that you design the setting and the game and the characters as you normally would and then apply some product placement if it fits. And you don't draw special attention to the product in a way that takes the player out of the game. With movies for example I don't mind if the characters are driving a Mercedes if it makes sense that their character would drive a car like that (ie: low income person does not have a brand new car) but I get annoyed when the camera blatantly pauses on the logo for two seconds and really pissed off if the characters start talking about the product itself in the conversation. There is a natural way to do it and a forced one where a glorified commercial has been inserted in.
Pikmin 2 did product placement really well. You're collecting junk and it is heavily hinted that the planet is actually Earth so why not have some real products? If anything that makes it feel more authentic to have 7-Up instead of some made up soda brand.
Mario in a Mercedes does seem a little weird since the series doesn't take place in the real world and the vehicles in the Mario world have a cartoony appearance that doesn't gel with real cars. But Mario Kart 8 and Super Mario Maker don't have any particular narrative to them. They're just games. If Link can race with Mario with no explanation or you can turn into the Wii Fit trainer in Mario Maker, what does it really matter? This is just something silly added on. But if Super Mario Galaxy 3 had Mario pop by in a Mercedes that would really take me out of the game and make no sense in that context. I wouldn't like that at all.
But we're always scared of these things getting out of control. We don't want blatant ads in products we've already paid for. If any videogame company felt they could get away with charging you $100 for a game that you had to still pay microtransactions to play and with unskippable ads every five minutes, they would. I have no trust in these companies. So one day it's Mercedes in Mario Kart and it's kind of amusing in how silly it is but we're worried that tomorrow it will be Samus Aran getting a can of Pepsi from a Chozo statue. So do we rally against this, which isn't really a big deal, so that we stop Nintendo now before this gets out of hand? Or do we wait until they do do something we really don't like?