Subcompact car sales slow on demand for small SUVs

The Ford Fiesta was Europe's top-selling subcompact in the first quarter.
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The subcompact segment's eight-year reign as Europe's largest car class is likely to end this year because of rising demand for small SUVs. Subcompact sales in Europe are forecast to fall to 2.64 million this year from 2.72 million in 2013 while compact car sales are forecast to rise to 2.76 million this year from 2.57 million last year, according to IHS Automotive.

The consultancy also predicts that the subcompact segment’s share of total European vehicle sales will drop to 22.7 percent this year, well below the nearly 28 percent share the segment had in 2003 when a record 4 million units were sold. The segment, however, is expected to bounce back to No. 1 in 2015 with the arrival of new models.


One reason for the predicted decline this year is the increasingly popularity of subcompact-sized SUVs, which are stealing sales away from models such as the Peugeot 208 and Renault Clio hatchbacks. “Some cannibalization by subcompact SUVs was inevitable but this has been somewhat stronger than Renault and Peugeot expected,” Jonathon Poskitt, LMC Automotive head of European sales forecasting, said.

The Clio, Europe’s No. 2-selling subcompact in the first quarter, and the 208, which was fifth in sales, have suffered volume declines in the first three months of the year following double-digit increases in 2013, according to figures from JATO Dynamics. Sales of the Clio-based Renault Captur and the 208-based Peugeot 2008, meanwhile, have grown so fast that they would have ranked in seventh and ninth place, respectively, in Europe’s subcompact top 10 this quarter if they were included in the table. IHS Automotive predicts the subcompact SUV sector will account for almost 600,000 sales by 2015.

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The segment also is being hit by the run outs of two popular models, the Opel/Vauxhall Corsa and Fiat Punto, said Tim Urquhart, a principal analyst at IHS Automotive. The Corsa, which ranked fourth in the first quarter, will be renewed at the end of this year, while Fiat recently announced that the weak-selling Punto will be replaced in 2016. Two other key models, the segment-leading Ford Fiesta and the third-ranked VW Polo, also are likely to experience reduced demand prior to being replaced in 2016, Urquhart wrote in a recent forecast.

A reason there are large swings in demand for key subcompacts is because buyers of the models are among the most geographically loyal. They favor cars from national champions or that are either locally built or have local connections. The Punto remains Italy’s best-selling subcompact despite depressed sales elsewhere, while the Clio is France’s No. 1 subcompact; the Seat Ibiza is tops in Spain. Also, all of the models in the top 10 are built in Europe. Nissan is hoping that by returning production of the Micra to Europe from India the car will get a boost.

The automaker announced last year that the new-generation Micra, due in 2016, would be made at alliance partner Renault’s factory in Flins, France. Nissan aims to produce 82,000 Micras a year in France. By comparison, Nissan sold just 48,000 units of the India-made Micra in Europe last year.

Subcompact customers are incredibly demanding, Etienne Henry, former Nissan head of product strategy for Europe, told Automotive News Europe in March. “A subcompact used to be a second car, but that has evolved. Customers want to get the maximum for their money. With our future subcompact we have to deliver what the compact delivers today in terms of driving dynamics, perceived quality and practicality – that’s what these future customers want,” said Henry, a 2014 ANE Rising Star who was recently promoted to global product planning director for minicars, subcompacts and electric vehicles at Renault.

Tight margins

Another challenge facing automakers is finding new ways to improve subcompacts’ fuel economy. “It is probably difficult for engineers to achieve significant exponential leaps in powertrain efficiency … without spending significant extra amounts,” Urquhart said in a note to investors. “Given the tight margins for subcompacts, it is unlikely that OEMs will be willing to spend more on making small gains.” He predicted that could hit subcompact sales as cash-conscious buyers respond to ever-tougher taxation based on CO2 figures. The tight margins in the segment have kept most premium brands from entering, Poskitt said. The only true premium subcompact is the Audi A1, which would not have made the volume segment’s top 10 in the quarter with sales of 26,170 units, according to JATO data. In contrast, compact-sized premium models such as the Audi A3, BMW 1 series and Mercedes-Benz A class would have ranked Nos. 4, 5, and 7 if they competed again volume compacts in 2013.

The future for the segment, however, looks bright because of southern Europe’s sales rebound. IHS expects Italy’s, Spain’s and France’s subcompact sales to increase by double digits by 2020 compared with 2013. IHS’s Urquhart also predicts the segment will “recover significantly” to 3.38 million units by 2020 and once again become the “traditional stalwart” of the European car market.

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