Audi Abandoning Subcompact Cars Over Regulatory Pressure

Matt Posky
by Matt Posky
audi abandoning subcompact cars over regulatory pressure

Audi is discontinuing the A1, citing Europe’s regulatory landscape as the main cause. Eager to limit the amount of CO2 coming out of tailpipes, the European Union has placed strict limits on petroleum-powered passenger vehicles. For Audi, the price of manufacturing a subcompact automobile-dependent upon internal combustion is getting too high. Installing a smaller motor would negatively impact drivability while slotting in a hybrid powertrain means more R&D costs and jacking up the MSRP to a point where consumers might lose interest.

There’s just not much incentive to build small, efficient vehicles when the profit margins have been made razor thin and people aren’t buying them in great numbers. And this is a lesson that’s being learned by all automakers, not just those associated to Volkswagen Group.

“We won’t have a successor to the A1,” Audi CEO Markus Duesmann told Automotive News Europe in a recent interview. “We know that offering combustion engines in the smaller segments in the future will be pretty difficult because the costs will go up. Therefore, we will leave the segment.”

Though it’s probably not the only reason. Despite routinely being on the cusp of breaking 100,000 deliveries inside Europe, A1 sales have declined steadily over the last several years. The same is true of sibling subcompacts from Volkswagen Group’s other brands. For example, the VW Polo and SEAT Ibiza have also had good and bad years. But both are coming off a high point as larger sections of the market have been trending toward crossovers and having similar difficulties balancing EU regulations with profitability. Of course, this phenomenon isn’t limited to properties owned by VW.

From AN:

This year the industry must reduce its fleet CO2 average to 95 grams per kilometer [in Europe], down from 106.7 g/km last year, according to JATO Dynamics.

The problem is that automakers struggle to get CO2 levels in their minicars and small cars to below the 95 g/km average without including some form of electrification, which adds cost in segments when margins are thin.

As a result, Opel dropped its Karl and Adam minicars. In addition, Stellantis sister brands Peugeot and Citroen plan to stop making the 108 and C1 minicars, respectively, according to a report.

Daimler, meanwhile, has begun the process of shifting production and development of its Smart brand to China, where the small cars will be built exclusively starting in 2022 as part of a joint venture with Zhejiang Geely Holding.

Mercedes has stated that it’s not going to keep dulling down subcompacts to chase the necessary volumes to make them profitable either. It’ll still produce compact vehicles but anything smaller is likely off the table unless it’s powered by electricity and can be manufactured relatively cheaply. Meanwhile, American automakers have already dipped out of the extra-small segment in their home market. While we cannot blame EU regulations for that, it may have influenced their long-term strategies along with the aforementioned influx of crossover sales.

From our vantage, it looks as though the entire industry is out of whack at this juncture. Balancing safety with efficiency/environmental requirements is already challenging enough. But they’re at odds with consumer trends (which are skewing toward larger automobiles the world over) and economic realities where the buying power of the general public has started to decline. Companies that can’t rely on high volumes are probably wise to stick with models they can charge more for. But we’re also edging out mainstream nameplates that have millions of customers that still need something capable that offers good value for money.

I suppose the preferred government solution is to supplant them all with EVs. But we seem quite a ways off from their reaching functional or financial parity with internal combustion vehicles, especially in smaller packages. It’s a problem in need of a more practical solution than the ones we currently have at our disposal and it’s difficult to see the point of regulating economical vehicles out of existence to adhere to a regulatory environment that was supposed to ensure their proliferation. Worse yet is that the average CO2 emissions (something used as a regulatory benchmark) from passenger vehicles operating in Europe actually started climbing again in 2016 after nearly two decades of consistent declines, according to data from the European Environment Agency. The group also blamed the popularity of sport utility and crossover vehicles, adding that EV adoption had not quite matched the desired targets.

[Image: Audi]

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  • APaGttH APaGttH on Jul 26, 2021

    If the US was any indication, there just wasn't much benefit from A-segment cars. The costs were only incrementally cheaper than B and C segment vehicles, the MPG was typically equal or only slightly better. All the compromises resulted in something great for narrow urban canons and easy to park - but that's about it. I get the Fiat 500, smart4two, Chevy Spark, Scion iQ, etc. had their fans. The biggest problem facing the Spark was the vastly better Sonic sitting right next to it. The Scion iQ was hampered by the Corolla or even the maligned Yaris sitting on the showroom floor. The smart4two was laughable.

    • Yankee Yankee on Jul 27, 2021

      @APaGtth: You are spot on. I rented a new Spark last week while out of state for work just for the heck of it. I was surprised at how nicely it drove and handled, and the features such as Apple Car Play made navigation a breeze on it's display that was nicely integrated into it's dash (rather than looking like a flat screen TV tacked on to like so many other cars). I was even surprised at how nice it rode on such a small wheelbase. Then came the real surprise: only 26.5 average mpg on a week of relaxed driving on suburban streets under 50 mph. Just sad.

  • Steve203 Steve203 on Jul 27, 2021

    Is Audi trying to gaslight everyone? Their arguments sound just like the big three's. -"big gummit" regs will make small cars more expensive, so they will discontinue the small cars, leaving customers no choice but more expensive models. -"big gummit" CO2 regs of 95grams/km are too burdensome for small cars to meet, but not a problem for larger, heavier, inherently less fuel efficient, but more expensive, cars. Their argument is nonsense. They just want to jack up ATP, just like the big three, and they are blaming "big gummit" for their profiteering, just like the big three.

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  • IH_Fever I can't wait to see an Escalade on 24"s blow the brakes off of the competition!
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