In the past, Tessa van den Oudenrijn (28) always said: I don’t need a Renault Twingo. That’s one of those shopping carts. But eco when she did an internship and needed a car, she ended up with the small model. “It was cheap and solid.”
Now she loves her metallic blue Twingo. “It’s fine for me. I only drive it to and from work.” She never has more than groceries in the back, and she likes that everyone knows the Twingo – it’s an unassuming icon. So why buy a big car?
For people like Van den Oudenrijn, a small car is just right. But it’s getting harder and harder to buy these kind of small ‘city models’. Recently, major car manufacturers have gradually been removing the more compact cars from their range. In a market dominated by low margins, shortages and a costly transition to electric driving, the unprofitable small model – and the consumer who wants such a car – is the first victim.
The most recent decision comes from Mercedes. Monday leaked through the German Handelsblatt that the luxury brand wants to delete its smallest model, the A-class, from 2025. At the end of May, CEO Ola Källenius had already announced that he was considering the future of the brand’s smaller cars (which are still much bigger than many other brands).
Other manufacturers preceded Mercedes. Volkswagen (which includes Audi, Skoda and Seat) has openly professed a strategy of more expensive models in recent months. It has already announced that it will stop developing the Volkswagen Up, the smallest model of the German mega concern. The Skoda Citigo and the Seat Mii have already disappeared in recent years, as have the Opel Karl and the Opel Adam. Renault ended the Twingo last year. In total, the number of small cars produced in Europe will fall from 1.1 million to 584,000 between 2019 and 2025, according to market researcher LCM†
For automakers, it’s a big twist. The smaller models that are now disappearing, mostly made their appearance at the beginning of this century. Manufacturers then plunged into the city car, hoping to sell even more cars to even more target groups. Sometimes consumers could buy a new car for less than 10,000 euros.
The problem: The commercial logic behind building these cars is gone. “From the manufacturer’s point of view, it is interesting to focus on the large models,” says Rico Luman, who follows the car market at ING. “They have bigger margins.”
With persistent chip shortages plaguing manufacturers, they need to prioritize: Which models will we build? Opting for larger cars like SUVs, which are relatively popular and go out the door at higher prices, makes a huge financial difference.
Many car manufacturers recently published surprisingly good profit figures, while they often had relatively few cars built. BMW, for example, achieved a record profit of 12.5 billion euros in 2021, in a year in which chip shortages, for example, caused the VDL Nedcar car factory in Limburg (where BMW has cars built) regularly shut down. “Prioritization of models is a matter of increasing shareholder value,” said Luman.
Cars for the masses
Against the background is a second trend that makes automakers decide to stop production of their small models: electrification. The battery of an electric car is by far the most expensive component, and the reason that many electric cars are still relatively expensive. Now that automakers, forced in part by European legislation, are increasingly focusing on electric cars, small cars can’t look good.
It is very difficult to make a profit on small electric cars. The price must be so low that the manufacturer does not actually earn more on it. For example, Dong Yudong, chief executive of China’s Great Wall Motor, said in February that the company was losing $1,600 for every small electric model it offers. Herbert Diess, CEO of Volkswagen, said earlier that he finds the small electric segment very difficult.
For the Wolfsburg concern, the switch to more expensive models is perhaps the most drastic of all automakers. No other European concern has tried so fervently in recent decades to become the largest, by offering cars for all walks of life. Volkswagen acquired an image of a ‘democratic’ car brand, which makes cars for the masses. But now growth in volumes is no longer a goal in itself, said financial chief Arno Antlitz in April against the Financial Times. “We focus more on quality and margins.”
Also read: Fully electric or not? The car world is divided
Parts on Facebook
The hopes of success in the small car market remained intact for a long time. In the long run, it should all work out, many car builders liked to say. The forecast was that by the middle of this decade there would be more or less equal production costs for electric cars and fuel cars. Then there would be enough battery capacity to keep the price down. But the question is whether that prediction is still correct. Battery costs have skyrocketed since the war in Ukraine, as prices for components like lithium and nickel are higher than ever. “At the moment, the price drop for electric is over for a while,” says Luman.
As a result, it is becoming increasingly difficult for people with a small budget to purchase a new car. They are dependent on a smaller group of brands and outdated models. Luman: “It is quite striking, but a large group of people is passed over for the purchase of a new car.” Until recently, small cars made up about 7 percent of total European sales.
Consumers looking for a car like this are increasingly dependent on the second-hand market. Or driving on in an old car. “For example, the number of cars that are renewed is falling,” says Luman. “That in itself is a shame, because it puts a brake on the reduction of CO2† The renewal of the fleet that is driving around is already historically low in the Netherlands, says Luman. There are production barriers and long lead times due to parts shortages, and consumers are more cautious about buying a car due to economic uncertainty.
Twingo fan Tessa van den Oudrijn hopes that she will not have to look for a new car soon. She’s trying to keep her own Twingo alive for as long as possible – even if it may become more difficult to find replacement parts. But there are solutions for that too. “People sometimes offer parts on Facebook, for example when they take their car to the scrap yard.”
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