T&E: ‘Carmakers hiked the prices of small cars unreasonably’

The NGO Transport & Environment (T&E) is furious. The European car manufacturers (ACEA) are fiercely contesting the future Euro 7 standard because it would cost too much. Still, they’ve hiked the prices of their cars substantially, especially of the smaller ones, says a new T&E analysis.

“Europe’s five biggest carmakers have raised the prices of their cheapest models by an average of 41% since 2019,” shows the new analysis of T&E. That’s almost double the cumulative inflation rate during this period.

“The price of a Peugeot 208, Seat Ibiza, and Renault Twingo has increased by almost €6 000, a rise of 37-56%,” claims T&E. Also, more premium brands have joined the move: the Mercedes A and B class models increased in price by over €10 000 (up 38% and 37%, respectively). “Prices have risen far above inflation levels or the cost of raw materials and other components,” says T&E.

That this wasn’t inevitable is proven by the move competitor BMW has taken in May of this year. That’s why the price increase of 7% of the BMW Series 1 and 2 was more limited: there was a sharp reduction in pricing since May 2023.

Prices of BMW’s entry-level cars have fallen by €1 300 to €3 830 since they peaked earlier this year, likely due to a larger supply of new cars on the EU market driving greater price competition between carmakers.

Boosting profits

It also suggests that a substantial share of the higher price in May was due to carmakers pricing cars purely to boost profits. This is supported by statements from Stellantis’ CEO Tavares forecasting that carmakers will have to go back to more conventional pricing and profit models (i.e., one based on higher volumes and lower profit margins as seen before the Covid-19 crisis rather than the higher profit, lower volume model preferred over the last few years).

The price hikes saw carmakers make record profits of €64 billion last year, and they issued record share dividends of €27 billion this year. “This is way above inflation and other costs, allowing carmakers to make record profits last year at the expense of consumers,” says Anna Krajinska, vehicle emissions and air quality manager at T&E.

“Yet they have fought tooth and nail against life-saving anti-pollution technologies costing only €200 per car. It’s proof that profit will always come before people for Europe’s carmakers,” she added.

Euro 7

Krajinska is pointing at a susceptible issue here. The European Commission proposed a new emission standard, Euro 7, in 2022 to reduce pollution from new cars, vans, buses, and trucks as of 2025.

According to studies of the European Environment Agency 238 000 citizens of the EU were killed in 2020 because of fine particle pollution, and some 49 000 died prematurely because of NOx emissions.

The World Health Organization has even lowered the admissible emission standards to a level that 96% of EU citizens living in urban zones in 2021 are exposed to higher concentrations of fine particles than recommended by the WHO.

Consequently, the Euro 7 proposal would save thousands of lives and improve air quality for all European citizens. Yet, the automotive industry launched a significant lobbying effort to smooth down or even kill off Euro 7 completely.

One of the central arguments they make is that it’s too expensive and will make cars, especially smaller, cheaper models, unaffordable for consumers. According to ACEA, complying with the new Euro 7 standard would add €2 000 (gasoline) to €2 500  (diesel) additional cost to a car. According to calculations of the EU Commission and its experts, the additional cost could be reduced to… €200.

At daggers-drawn

The European automotive industry and the authorities and environmental agencies are at daggers-drawn on this issue. “While carmakers have systematically increased the price of their cars, the European Council and the Parliament’s Environment Committee have bought the industry narrative, watering down the European Commission’s original, relatively weak, Euro 7 proposals,” indicates T&E.

“Without action to reverse this, 100 million more highly polluting cars will be sold before 2035 and driven on Europe’s roads for decades to come,” the NGO adds.

Anna Krajinska again: “Carmakers have used the opportunity of an inflationary market to raise prices for consumers beyond inflation to bolster their own profits substantially.

“At the same time, they ran a campaign against cheap and readily available technology that would improve air quality for all. The European Parliament has one final chance to end this gross injustice. It must act in the interests of all Europeans, not just the auto industry.”

Today, Wednesday, November 8th, the European Parliament will meet in a Plenary Meeting to vote on its final position on Euro 7. After that, it will be entering into trilogue negotiations with the European Commission and the European Council, who have already softened the original proposal substantially.

“This will be the last chance to increase its ambition for the Euro 7 and public health in Europe,” warns T&E. “The new rules would turn us away from our mission of transforming the car industry by making us invest enormously in things that have no future,” said Renault boss and current ACEA President Luca de Meo recently.

Public health

According to CLOVE (Consortium for ultra LOw Vehicle Emissions), a consortium of European academic, research, and business experts in the field of emissions, also counseling the EU, the additional cost of Euro 7 for the carmakers would amount to €30 billion, all-in, as reported in the British Newspaper The Guardian.

But the benefits for public health throughout the EU would climb to €182 billion, estimates Clove. The fact that European carmakers are, on the one hand, complaining about the huge investments they have to make for the energy transition and, on the other hand, spending half of their record profits on their shareholders doesn’t add to their credibility either.

Renault boss Luca de Meo, supported by French Minister Bruno Le Maire in this, claims that he doesn’t see the need anymore to invest in ICE technology from now on. Yet, under the Renault Group umbrella, he has created a new company, Horse, and attracted a Chinese partner, Geely,  to develop the technology of ICE engines and hybrids further. Do we see a contradiction?