Europe's carmakers walk tightrope between low cost and high spec

Thu Oct 2, 2014 4:06am EDT
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By Edward Taylor

PARIS (Reuters) - Carmakers are betting on style and recycling in the battle for Europe's burgeoning small car market, adding hi-tech safety and entertainment features while often using older vehicle underpinnings as a way to keep prices down.

Several new cars on display at this month's Paris auto show from Opel, Citroen, Skoda and Kia are based largely on modified components used in a previous generation vehicle, or taken from another model already on the road, as a way to save cash.

Analysts say the move makes sense, as austerity-scarred Europeans are in no mood to splash out on expensive, big cars.

While the region's auto sales are growing again after a six-year slump, they are still down around 20 percent from their 2007 peak and a full recovery looks years away.

The market for small, fuel-efficient cars, or so-called A-segment subcompacts, has been a rare bright spot. It has grown by 32 percent in the past 10 years to reach 1.12 million vehicles in 2013, at a time when the market for slightly larger B-segment cars, such as the Ford Fiesta, has slumped 33 percent to 2.89 million, according to forecaster IHS Automotive.

They predict further growth in the A-segment of 15 percent to 2020.

But competition is heating up, and so the pressure on carmakers to lower manufacturing costs by sharing ever more parts among their models is intensifying.

"The winners in the auto industry will be those who can attain economies of scale," said Wolfgang Bernhart, a partner at Roland Berger strategy consultants.   Continued...

Shareholders walk among cars at the German carmaker Volkswagen annual shareholders meeting in Hanover on May 13, 2014. REUTERS/Fabian Bimmer