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]