How Fiesta, Polo, Clio are losing out to SUVs, crossovers

Ford Motor’s announcement in October that it would discontinue the Fiesta small car next year is the most dramatic sign yet of difficulties facing a segment that once defined Europe’s car market but now is facing a cost crisis.

The small car segment lost its position as Europe’s most popular car type to small SUVs through the first nine months of this year, according to figures from market analyst Dataforce. 

Sales dropped 17 percent to 1.23 million, compared with 1.43 million for small SUVs. And that second place may not be safe: Compact SUVs threaten to push small cars to third in 2023.

Ford’s decision to drop the Fiesta to concentrate on SUVs is the culmination of the company’s desire to rid itself of unprofitable models, even if they continue to be popular. As recently as 2015 the Fiesta was Europe’s best-selling small car and the second-best seller overall, after the Volkswagen Golf.

Ford has deprioritized production of the Fiesta amid parts shortages and frequent stoppages at its assembly plant in Cologne, Germany. Registrations have fallen 36 percent this year, pushing it down to ninth place (see chart, below).

Automakers are struggling to balance the need to keep small cars both affordable and profitable. Last year Audi CEO Markus Duesmann told Automotive News Europe that the company would not replace the A1 small car when it came to the end of its life due to rising emissions costs. 

In November, Volkswagen boss Thomas Schaefer warned that the brand might have to axe the Polo small car in response to the tougher Euro 7 emissions, due in 2025
 
Small cars may be most obvious candidate for electrification because they generally are used for shorter trips compared with larger models. But their pricing position as a budget car means carmakers find it much harder to mask the cost of the battery.

A recent report by investment bank Bernstein found that up to 60 percent of the total build cost of a small full-electric car comes from the battery, compared to 40 percent for a compact EV.

Through the end of September, full-electric cars accounted for just 6.3 percent of small car sales, according to Dataforce. Just four models are currently available, with Peugeot e-208 taking the sales lead followed by the Renault Zoe. Others include the Opel Corsa-e and Kia Soul.

Others are coming. The Volkswagen Group is aiming to launch four small cars – two for VW, and one each for Skoda and Cupra – by 2025 to be built in Spain. 

However, the price target is now “below 25,000 euros,” compared to 20,000 euros when the project was begun due to higher battery prices, Schaefer told Automotive News Europe sister publication Automobilwoche in November.

Renault is also planning a new small EV, the Renault 5. The brand says it will be up to one-third cheaper than the long-running Zoe, thanks to the less-expensive CMF-BEV platform that will underpin it. The Zoe is currently priced from 31,500 euros in France.

But the volatility in raw material pricing is making it difficult to predict the Renault 5’s final price. 

"I can come up with better battery chemistry and better power electronics, but these gains would be erased when the price of cobalt doubles in just six months," CEO Luca de Meo said in October.

Renault Group’s Dacia division is reaping the benefits of a combustion-engine strategy for small cars, using older, proven technology from the Renault-Nissan Alliance.

The Sandero retained its second place in the segment after first nine months, with sales flat in a market where only the top-selling Peugeot 208 increased registrations among the top 10 models.

Even though the Sandero, which starts at around 10,000 euros in some markets, is Dacia’s best-selling model through the end of September, profit margins for the division are now running at 10 percent, CEO Luca de Meo told investors in November’s "Revolution" strategic plan update, making it as profitable as some premium brands. 

It also meant that Renault was diverting scarce semiconductors to Dacia, rather than the other way around, de Meo said, helping keep volumes up in a time when rivals such as the Fiesta found their production constrained.

Low-cost manufacturing is one reason for the Sandero’s profitability. Production of the model is split between Romania and two plants Morocco, allowing Dacia to take advantage of a reduced wage bill.
 
Others are also migrating production of their smaller cars to cheaper countries. Toyota builds the Yaris in France as well as the Czech Republic, where it also makes a hybrid version for Mazda.

Economies of scale also help when building small cars. Stellantis said in November that it will invest 300 million euros to double production at its plant in Kenitra, Morocco, where it builds the Peugeot 208. 

The Morocco plant will also make a new range of small cars aimed at emerging markets that will share technology with European models on the small CMP platform, including the 208.

Global car companies are also looking further east to China, which has become attractive as an export location due to both its underutilized plants and its lower-cost battery supply chain. 

For example, BMW’s Mini unit will supply the new Mini Cooper E electric small car from 2023 built in a joint venture with China’s Great Wall. Dacia, meanwhile, continues to supply the Spring electric minicar from China.

Figures from individual European countries for October and November show sales of small cars are increasing as supply constraints ease, but the segment is unlikely to regain the top spot from small SUVs as automakers focus on segments with higher average pricing to better mask cost increases.