Europe's minicar segment to shrink as VW, PSA mull axing their smallest cars

The increasingly difficult challenge of selling minicars profitably will likely force more automakers to cut models in the segment over the next five years. Volkswagen Group and PSA Group, two of the biggest players in the segment, have expressed concerns about staying in the sector, while this year Opel/Vauxhall will end sales of the Adam and Karl/Viva minicars.

The fallout will cause minicar sales to drop to below 1 million by 2021 from 1.14 million in 2017, analyst firm LMC Automotive forecasts. “Margins are thin on these type of cars and that is why manufacturers often collaborate when producing them,” said Justin Cox, LMC’s director for global production.

One such collaboration is between PSA and Toyota to build three minicars -- the Toyota Aygo, Peugeot 108 and Citroen C1 -- in a jointly owned factory in the Czech Republic (making the country the largest supplier of minicars to Europe). Last November, however, the automakers announced that Toyota would take over the factory starting in 2021, leading to reports that PSA would exit the segment.

“The ability of any carmaker to make a profit in that segment is under pressure because of all the technology we have to add,” Maxime Picat, PSA’s operational director for Europe, told journalists in January without revealing the company’s long-term plans for the segment.

Picat also referenced previous statements by VW Group saying largely the same thing. “We have heard VW Group will stop development on that segment,” he said.

VW Group CEO Herbert Diess has previously complained that minicars are in danger of no longer making a positive CO2 contribution, one of their big selling points to companies facing potential fines for exceeding tougher pollution limits that start to take effect in 2020. In addition, Diess said during last month’s Detroit auto show that prices for a minicar such as the Up, which currently emits 95 grams of CO2 per kilometer, the targeted level that automakers need to reach in Europe by 2021, could grow by about 3,500 euros to be compliant with pollution rules in 2030. The Up currently retails for about 11,000 euros. “I am not sure how many customers could still afford our entry-level models,” Diess said.

Electric power could rejuvenate the segment if battery-driven models become cheap enough. VW sells the full-electric e-Up and this year sister brand Skoda will add an electric version of its related Citigo. Spanish sibling Seat is expected to follow with a full-electric version of the Mii minicar. Meanwhile, Fiat has said its segment-leading 500 will add a battery-powered derivative, which is expected within two years. Fiat will also add a mild-hybrid version of the 500 as well as a wagon to be called the Giardiniera.

Last autumn, Citroen CEO Linda Jackson indicated the brand was also considering going down the electric route for its entry cars. “That segment is getting smaller and smaller in terms of volume, so I think it’s going to evolve,” she told Automotive News Europe. Asked which direction the C1 could go, she said: “I think probably electric.” Holding Citroen back from making that move is PSA’s requirement that new models aren’t restricted to just one type of powertrain. “What we prioritize is a multi-energy approach,” Picat said in January. Some automakers are happy with the status quo. Toyota’s Aygo is Europe’s No. 4-selling minicar, comfortably outselling the Citroen and Peugeot models built in the same plant. The Aygo accounted for 86,772 sales through November, up 9.4 percent from the year before.

“The A-segment [minicars] is a very important portion of the market for us. It brings new customers into our fold,” Toyota Europe CEO Johan van Zyl told ANE. He said the profile of a minicar customer was much younger than the average age of buyers for the rest of Toyota’s range, adding that the Aygo was the brand’s biggest conquest model.

The company has hinted that the next Aygo could be given a higher, more SUV-like stance. “Is there a risk we get a more crossover design, a less traditional body type? It’s a possibility,” Toyota Europe sales boss Matt Harrison told ANE at the 2018 Paris auto show. That type of model has been successful for Suzuki with the Ignis, which accounted for 40,760 sales through November, according to JATO figures, giving it 13th place in the segment ahead of the Citigo and Mii.

The Kia Picanto also had a successful year. The model was launched in 2017 with more personalization options and a sporty looking GT-Line variant and last year Kia sold 70,695 units, up 19 percent on the year before. Another model on the rise was the Renault Twingo, with sales increasing 11 percent to rank fifth behind the Aygo. Renault also added a sporty GT version of the Twingo last year.

Sporty or crossover versions might give the range some sparkle, but the reality is that most minicars are bought because they are the cheapest option -- selling for an average price of 14,044 euros in Germany, France, Spain and Italy in November, according to JATO figures. “Their main advantage continues to be their price,” JATO global analyst Felipe Munoz said. Cost-conscious Italy was the biggest minicar market through November with sales of 284,633.

Italy is where the majority of Pandas are sold -- 73 percent last year according to LMC. A slump in popularity of the aging Panda, down 12 percent through November, is expected to be another drag on the sector in 2019, LMC said. The segment might be under pressure, but it remains an important gateway into car ownership. Said JATO’s Munoz: “There will always remain a market for competitively priced, basic segment cars in Europe.”