Path of Least Resistance

Are we witnessing the slow demise of the inexpensive citycar?

(c) focus2move

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?

Author: Eóin Doyle

Co-Founder. Editor. Content Provider.

15 thoughts on “Path of Least Resistance”

  1. Surely the answer is just around the corner. If the Europeans have just stopped making money in the segment now, the Chinese are bound to be ready to take up the slack.

  2. It’s not the inexpensive city car.
    Any car with a bad relation between cost of exhaust emission control equipment and sales price is moribound. The effort necessary to meet current and comint Euro regulations is prohibitive and the reason why there will be no successor to the you pee bang, Twingo et cetera.
    I don’t think Chinese manufacturers will be able to solve this cost problem.

  3. “Not so if people can no longer afford them. Isn’t there a risk they’ll simply stop buying (new) cars at all?”

    But isn’t this the point ?

    Everything I see from Europe and the UK suggests to me that the purpose of all this regulation and taxation is to force as many people out of private vehicle ownership and off the road as possible.

    $9 per gallon fuel. 100 % registration taxes. Retroactive emissions bans. Closing lanes and eliminating parking to create un-used bicycle lanes. City urban core entry fees. Technology and equipment mandates that are a much larger fraction of a small car cost. Annual inspections to force older cars off the road. Encourage everyone to buy diesels, then nail them with diesel specific “environmental” fuel excise charges. The list just goes on and on.

    Prior to WW2, less than 10 percent of British households owned cars. And I think the agenda is to drive it down to that level again.

    Uncluttered roads for the wealthy, woke, urban, globalist elite to drive their subsidized electrics and hybrids.

    1. Actually, on second thought, pls delete the last sentence, even though it is totally true, it is too political for a car website.

    2. We are certainly in a crazy place when well-maintained, older lightweight cars (like my neighbour’s 2CV) get scrapped due to prohibitive urban use charges, while someone else buys two tonnes of electric SUV and proclaims themselves an environmentalist.

    3. “while someone else buys two tonnes of electric SUV and proclaims themselves an environmentalist.”

      jacomo, it’s not only that. The purchase of such vehicles have direct cash subsidies, they are exempt from taxes paid on other new vehicles, and they get subsidized or free electrical charging.

      Forget “luxury taxes”, we now have luxury subsidies, disguised as concern for “the earth”.

    4. Is there a reason the Earth is in quotation marks?

      Underlying Angel´s point is one about social justice. On the face of it, subsidies for expensive Teslas seems wrong. But policy is a matter of the less-than-ideal. I accept that a subsidy for a Tesla ou similaire looks wrong but as far as I am aware, all hybrids and electric cars get subsidies, which includes tiny Zoes and modest Prii as well. At present, e-cars cost more and the policy wish is to change over to these generally which means creating demand and infrastructure. That can only be done in a way that includes all of these cars. In the short term, the optics are unsatisfactory. In the long term the costs come down so many more people can afford them.

      My critique is that rather than shifting to private e-transport we should be taking this opportunity to abandon the model of private transport for all and perhaps leave subsisidies for rural dwellers in tandem with a host of planning changes to obviate the need for so much private transport (urban planning). We´re looking at a crisis of unprecedented scale and scope. The oceans are warming; permafrost is melting (releasing methane hydrates); the Himalayan glaciers are melting which will create mass migration in the Asian subcontinent; the oceans are rising (which will affect billions); higher temperatures are killing insect biomass along with other factors (we may starve). In the face of all that, shifting to e-cars is the wrong policy choice, mere icing on the hand-grenade in our lap. All these things will threaten and harm the poor much more than the rich (if so many remain rich as their assets get destroyed and the economy takes more and more catastrophic hits). All that is probably too political (mea culpa) for DTW. Whoops.

  4. A work colleague has just bought an almost out of warranty Kia Venga. He’s impressed with it. As I have never thought of looking at their website until last week, I was shocked at how much a brand new Venga costs in the UK. Starting at £15k and rising rapidly towards twenty, on inspection, the spec is like that of a S Class from ten years ago. Electric everything, lane departure tech and a “premium” look to matters in my eyes. But £20 k on a Venga? Really? Sadly the SUV cause seems to gain momentum daily. Just this morning on my break, a Range Rover SVR, Audi SQ5 and a Tesla model x roared by with their single occupant. I pity the poor 2CV and its ilk.

  5. The big issue in the cheap and reasonably cheerful tiny car segment is the one mentioned in the article – money. It costs as much to design a tiddler as a bigger car and the production costs aren’t as much lower as buyers’ price expectations so it’s just not possible to make any money. The only viable reason to make a very small and cheap car is to provide a way into the model range so as to encourage buyers to migrate more profitably upwards.
    Apropos of very small cars, I was in Paris last week. The original Smart, the 450, used to be partout during the 00s and early 10s. They’re almost gone now. You see some of the second generation while the current Twingo based manifestation barely exists. Why? Partially fashion I suppose – Smart no longer seem quite so a la mode – and partially official discouragement of any species of car other than an EV in town. Yes, I know there’s a Smart EV but not many are interested.

  6. A crucial article, at a crucial timing for the point it tries to paint.

    “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?”.

    I’d say, Yes.
    The demand for a ‘cozy’, (relatively) lightweight and ‘easy-squeezy’ true city-sized car will never wane, in my opinion.
    On the contrary, as cities get more congested, the demand for true city cars will increase so much, that the price increase
    for such (much more engineering-intensive!) products
    will inevitably take place.

    Small & practical shall become premium – since it’s so difficult
    to achieve such a car nowadays with all the regs. They will become engineering gems, sold at normal, bearable profit
    but will still be (I predict) more expensive than
    a B-segment car from a comparable make/brand.

    And it doesn’t really matter, whether the nowadays 10-12 K GBP that one needs to pay for a brand new “city” car, will increase to 16-18 or more. Because, as it is now, for quite some time already, the vast majority of drivers cannot afford (or see the point to) those 10-12 K GBP for a “tin can” anyway, and choose
    to go used-route anyway.

    Technically, the city car segment is already neck-deep into “Premium” pricing. Gone are the days of 4,995 or 5,995
    new cars. Suzuki is probably closest to what’s realistically possible within the constraints nowadays.

    However, what remains to be seen is, whether the political elites
    shall reconsider the need for introducing an utterly minimalistic category of lightweight vehicles (the “Kei-car” route, that Japan took as a means to fight physical/spatial congestion).

    If that’s deemed necessary, it will probably materialise, and this category will have emissions’ and other thresholds that
    would be justifiably different to the mainstream cars.
    This is not so unrealistic, as, like Richard wisely asks in the above article, those objective factors produce some imminent risks
    to the future marketability of the concept of individual
    motoring as we know it.

    While speaking of it, let’s try to paint a possible picture:
    2-cyls maximum, 749cc max.capacity, 700kg. max empty weight (with slightly less stringent side-impact regs : perhaps central seating, Murray-style? + a tight, two-passengers bench behind),
    2,0m max.wheelbase, height, length, width & trackwidth limits etc. (Anyone remember the Matra M72? Noone…?)

    It finally boils down to one single question – will the less wealthy be doomed forever to two-wheelers & used cars, or a separate category will be drafted for them? (as there does not seem to be
    even a trace of sales-cannibalisation risk among the newly established “socio-economic infrastructures”…)

  7. A large part of the pricing issue is overcapacity of production in Europe, which is leading to cutthroat competition and chronic underpricing.

    My first new car was a VW Polo, which I purchased in 1982 for £4,200. This was a basic spec model which came without even a radio as standard. Adjusted for UK inflation, the purchase price equals around £14,300 today which is, coincidentally, the entry price for a new polo. The latter, unlike my car, comes with five doors and a level of equipment undreamt of on a small car in 1982.

    A better comparison to my Polo in terms of size and equipment, is the entry level Up! which costs around £9,800. This is astonishingly cheap, given its relative sophistication and safety features. I know that relatively few will buy this model because their expectations are so much higher, but it is available and must be a loss-leader for VW. The automotive industry only has itself to blame for this situation and is long overdue a big shake-up.

    1. True – especially regarding over-capacity.

      However, Dacia seem to do okay (11% profitability?), and the Sandero still starts at under 7k GBP. I’d say the Sandero is the closest you’ll get to a 2CV, these days; it also happens to be 1) French-based and 2) not that small.

      As long as manufacturers are able to use older / simpler tech, it’ll be possible to produce basic yet acceptable transportation. Dacia are working on an electric car, again using tried and tested (and amortised) components. Good for them.

      Finally, I must say that the concept of ‘city’ cars is a bit of an odd one, to me. People often seem to buy them, find they’re fun to drive / easy to park / big enough for most things, then use them all over the place / all the time. Perhaps better just to think of them as small cars.

  8. Mostly thanks to the culturally significant breakthrough
    of smartphones, we seem to witness an increasing and
    uneducated marketing trend, that bigger is better.

    This threatens to render automotive concepts that were intentionally designed as physically small (such as the orig.Mini, orig. Fiat 500/600, the K11 Micra in particular, eg.), somewhat doomed and left in the (c)old, from a marketing potential

    Dacia’s indisputable success in this era of newly structured thinking, owes, to a big extent, to the fact that their cars retain
    a sufficient, even opulent margin of physical presence
    and sheer sizing generousity.
    Same goes for the Upmiigo (which is a cleverly disguised monovolume, using, among else, optical methods of
    increasing main badges’ diameter by ~20-25%).

    Even a current-gen. Panda is nowadays a relatively wide-tracked, beefy affair, almost towering when parked next even
    to some substantial,

    A huge part of the questions Richard portrays seem to be, therefore, linked to this prevailing ‘bigger-is-better’ mentality. Yes, a bigger smartphone, (and even a phablet), could make sense, but the obvious transposition of this thinking
    to the automotive landscape is pure shortsighted
    trendiness of the creeping sort, carrying
    all sorts of risks with it.

  9. my first car was a 1960 Fiat 500. it was painfully unreliable and slow
    but collaborated wonderfully with the apparent immortality of youth
    as it could be driven full tilt at all times.
    over 40 years later, at 60, I began a relationship with a Peugeot 205 Gti
    and confirmed yet again that small cars are big with virtue.
    but 11 years of 205 (and small car) ownership had to end last year,
    which only increases my sadness over the shrinking demand for those cars
    which ask such big questions about design and resources, but are so modest
    and charming about their role in the world.

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