Car makers’ shift to more profitable models amid higher costs, a crippling shortage of parts and the push for electric vehicles is threatening the death of the budget family car.
Volkswagen, the German pioneer of the people’s car, is slashing its combustion engine range by the end of the decade to focus on fewer, more high-end vehicles. It abandons a long-held ambition to make the most cars in the world and a departure from its roots of offering ordinary families an affordable option.
The move makes financial sense in the scramble to increase profits, as rivals such as Mercedes, BMW and Volvo prioritise pricier models.
A shortage of computer chips amid pandemic-induced factory shutdowns has caused production numbers to plummet, pushing car makers to reassess their type of output and whether chasing sales targets will optimise profits. Now, they aim to take advantage of demand from wealthier buyers to help build the reserves needed to electrify their fleets.
Meanwhile, increases in the prices of raw materials used to build cars – from steel, to electricity used to assemble them and minerals that make up batteries of electric-powered variants – is also raising prices for customers..
Carlos Tavares of Stellantis, a conglomerate of car brands ranging from Britain’s Vauxhall to Fiat, Maserati, Jeep and Citroen, has warned that maintaining affordability should be a serious concern for the industry. He argues the ability for the majority of people to drive for work and pleasure offers opportunities for buyers – and the economy at large.
“I’m increasing my prices, I’m not afraid of that. But we all can be afraid of the moment where the middle classes will not be able to afford a new car,” he said last month.
“The problem is when we start hurting the middle classes, because they are used to a $20,000 to $25,000 car. If tomorrow it becomes a $35,000 or $40,000 car – it’s another story.”
Tavares said politicians need to decide whether or not they are interested in defending “freedom of mobility”.
Volkswagen’s decision earlier this week to cut production and move to premium cars risks making car ownership more expensive across the board. As one of the planet’s largest makers, it threatens the end of affordable, mass-produced automobiles.