Jan 13, 2009

Small cars

Posted by: Marian Salzman In: Europe| automotive| recession

It’s not the obvious time to be talking about what’s going right in the auto industry, what with a U.S. federal bailout in progress and record falls in sales for virtually all brands. But unless life as we know it gets stuck on Pause forever, sooner or later people will start buying again. And when they do, Europe’s success with tiny, fuel-friendly cars should put it in pole position to lead the way to a recovery of some sort—albeit in a more compact form.

BMW, with its stable of mostly mid- or full-size cars, has just reported a 4.3% drop in overall sales for 2008, whereas its Mini brand was up 4.3% on the year. French brand Renault, which specializes in compacts and sub-compacts (Twingo, Clio, Mégane) suffered a 4.2% drop in annual sales compared with an overall world market fall of 4.8%. Focusing on its small, entry-level models, Renault increased its share of the European passenger car market by 0.2%. Italy’s Fiat has had a big hit with its recent 500 model, a modern interpretation of the tiny Cinquecento of the late 1950s to mid 1970s.

Europe is probably the toughest car market in the world, with at least 20 different car brands competing in the smaller model niches and pushing up consumers’ quality expectations. Eye-watering tax rates and fuel prices make fuel-efficient engines essential (diesels are very popular), while crowded cities with narrow streets drive the need for compact design. At the same time, Europeans expect to drive their small cars long distances at high speed in comfort and safety.

It may not be European car buyers themselves who lead the way to economic recovery—developing markets have greater potential—but their tastes and expectations are likely to dictate the shape of things to come for the rebooted global auto industry.

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