Are we witnessing the slow demise of the inexpensive citycar?
Had one been in possession of a crystal ball back in 2009 I’m not sure anyone would have believed predictions for where the motor industry would be placed only a decade later. It would simply beggar belief and yet here we are, still hoping for the best. But the news just keeps on worsening.
This week, a report by Automotive News highlighted something we discussed on these pages a few weeks ago – that being the growing inability for European carmakers to make money building compact citycars. These vehicles have always been a somewhat irksome recipe for carmakers, not simply from a creative perspective, but also from a financial one. This explains why just about every model line currently on sale is formed of joint-ventures – either between rivals or within multi-brand portfolios.
Last year, Volkswagen called the future of its smallest product line – the UP!/Mii /Citgo triplets into question, suggesting that it may not renew the models when their current cycle ends. Similarly, the PSA/Toyota joint venture which produces Peugeot’s 108, Citroen’s C1 and Toyota’s Aygo appears under threat following reports that Toyota will take over the shared-ownership production site in the Czech Republic in 2021, leading observers to speculate upon PSA’s commitment to the segment. Furthermore, Opel is shortly to phase out the compact Adam and Karl/Viva models, owing to product overlap since PSA acquired the German car brand in 2017.
PSA’s Maxime Picat, speaking to journalists last month, stated that the level of technology which both the market and legislatures now require will ensure that these cars can no longer be made economically, even as joint ventures where the bulk of costs are shared. He also cited VW’s intentions to vacate the segment, perhaps by way of justification by association.
The technology issue of course is not one to be sneezed at. Customers demand similar interfaces and connectivity to those offered in larger cars, while the insurance industry is constantly pressing for better active safety, more driver assistance and impact avoidance aids to help prevent or mitigate accidents (these cars are very often owned by young or inexperienced drivers).
Legislatures meanwhile demand improved emissions, meaning that the cheapest cars in the range will require the same level of engine and drivetrain technology as more profitable larger models. And with markedly tighter emissions regulations coming into force after 2020, the fines for non-conformance are likely to be withering. This can only mean that the additional costs must be passed on to the customer – most of whom are on a budget to begin with.
Furthermore, as the push towards full electrification gains pace, the likely expenses rise exponentially. After all, the difficulty in electrifying a vehicle which is inherently compact dimensionally and (one hopes) lightweight appears on the surface at least to be more difficult and quite likely, more expensive to engineer. It is also likely to entail changes to the vehicle architecture which could radically shift our perceptions of how these cars might appear.
Of course, the citycar is in many ways the ideal format for electrification, given that such vehicles tend to cover shorter distances, largely in built up areas and come with benefits in emissions and noise terms. However, widespread adoption will require massive infrastructure investment in charge points – which could well require some creative solutions in some older urban centres.
Carmakers are quite naturally counting on economies of scale making battery technology more affordable, at which point electric city cars may start making commercial sense, but in the interim, they will remain as economically viable (probably even less so) as just about every other EV on the market.
It’s obvious that for a whole host of reasons, manufacturers do not wish to extricate themselves entirely from the small car sector, but for it to remain financially viable, in the short term at least, a means of upping transaction prices seems to be the preferred option. So will this precipitate a situation where customers will need to come to terms with a new equation, one where small no longer means cheap?
Upmarket citycars have been tried before, but few have made a decent success of it. Some carmakers will either choose to, or be forced to leave the minicar market entirely, although for FCA/Fiat, that would likely entail an existential decision, given that between the Panda and 500 models, Fiat not only outsell their European opposition (mostly in Italy unsurprisingly) by a factor of about 2 : 1, but without those models, brand-Fiat simply could not continue.
Another potential risk factor for mainstream makers is the possibility of their so-called ‘premium’ rivals entering the citycar market. Mercedes-Benz for instance has recently made interested noises about such a move, as the necessity to reduce their corporate average emissions bites. But the path of least resistance for the majority of carmakers in raising transaction prices is probably to take the inevitable crossover approach, making taller, more rugged looking vehicles, akin perhaps to what Suzuki has done with some commercial success by offering the current Ignis.
Widely seen as a vital entry point into carmaker’s ranges, and of attracting a younger buyer who will theoretically remain marque-loyal, Europe’s minicars have historically been some of the most characterful and most attainable of cars, but all of this is now at risk as choice becomes eroded, and they shift towards being taller, heavier, more aggressive looking and by necessity, more upmarket.
Industry analysts currently seem to believe there will always be a market for small, competitively priced, entry-level cars in the European market. Not so if people can no longer afford them. Isn’t there a risk they’ll simply stop buying (new) cars at all?