Coronavirus Boosts Cheap Cars, But Europeans Will Lose Out To Chinese.
“85% of consumers want to purchase cars that include hygiene and wellness features like air filters, health monitoring of passengers, and the use of sterilizing UV LED lights”
The coronavirus has forced people off dangerous public transport and back into their cosy, safe, sanitized cars, so that’s great news for the automotive industry, right?
Well yes, but even though the number of people deciding to buy new cars has risen strongly, they also say they want more utility and value for money and guess which sector the auto makers are now about to desert, declaring it a profit-free zone?
You’ve guessed it; little budget city cars like the Peugeot 108, Fiat 500, Toyota Aygo, VW Up and Citroen C1 will soon get the hook because profits are very hard to find, not least because the European Union in its bid to slash carbon dioxide (CO2) levels to zero by 2050, is making it increasingly expensive for car makers to produce affordable, legal internal combustion engine (ICE) powered vehicles. But it is offering colossal subsidies to its citizens to buy electric cars, so that will at least level up the damage that might have been done to the industry.
Sorry, but even with massive subsidies, Europeans on average wages still can’t afford electric cars. But never fear, Chinese manufacturers are about to launch a raft of affordable, cute and affordable practical little electric city cars priced at around $6,000 after tax. Europe’s car makers are nowhere to be seen in this market, where the cheapest electric cars cost more like $25,000.
These conventional wisdom shattering predictions come from consultancy Capgemini’s latest report “Full throttle: COVID-19 and the fast-changing automotive consumer”.
Capgemini said disruptive trends, like the electric revolution, were already hitting the automotive industry before the coronavirus struck. The report was designed to get a handle on which changes might endure.
Personal privacy please
The report found the COVID-19 pandemic has reversed shared and public mobility trends with 87% of global consumers saying their safety and physical well-being, alongside that of their families, is best served through a personal vehicle.
The report surveyed 11,000 consumers in November from the U.S., U.K., France, Germany, China, the Netherlands, Sweden, Norway, Italy, Spain, and India. These countries represent 62% of global annual car and SUV sales in 2019.
“Almost half of global consumers (46%) are now considering purchasing a car in the next 12 months, an increase from 35% in April 2020. The shift reflects the way COVID-19 has transformed the relationship consumers have with their cars; car ownership today is a safeguard for minimizing the risk and spread of infection,” the report said.
Other key findings from the report include:
Younger consumers (18-35) are most likely to buy a car with 59% considering a purchase in the next 12 months. A lot of this demand is due to first-time car buyers who prefer personal mobility instead of using public transport.
However, the majority (56%) of those considering buying a car have downgraded their purchase desires from last year, now preferring utility and functionality over aspirational value.
The report also found demand for a new range of add-ons, also a reflection of coronavirus anxieties.
“85% of consumers want to purchase cars that include hygiene and wellness features like air filters, health monitoring of passengers, and the use of sterilizing UV LED lights.”
The likely switch to smaller, cheaper cars bodes ill for automotive profits, except for Chinese manufacturers.
“This implies impending margin pressure on automakers, as more customers gravitate towards lower-cost options. Competition is likely to heat up in smaller-car/entrylevel
segments as automakers push for refreshed variants to cater to consumer interest. Already, due to lower profitability, this segment has witnessed shakeout in some parts of the world. Groupe PSA in October 2020, reportedly ended the production of small city car, Peugeot 108 and Citroën C1, citing limited profitability.”
Chinese small electric cars are coming
“At the same time, companies with favorable economics are exploring entry into small-car segments. For instance, Chinese automakers are looking to enter emerging segments such
as mini electric cars in Europe,” according to the report.
The report also pointed to the emergence of so-called micro-mobility – electric bikes and electric scooters.
“City planners are expanding the infrastructure for pedestrian spaces and bike lanes to make these options safer and more convenient. While the private car will likely remain the first choice for people’s commute, micro-mobility and walking will continue to emerge as stronger alternatives for last-mile connectivity.”
If these changes in consumer habits are long lasting and the public shuns mass transit because of fear of infection, big high-speed rail projects like Britain’s $140 billion HS2 will be undermined. Even before HS2 started, critics were saying it was a colossal error. When it’s completed, in say 2030, rail travel is likely to be obsolete, thanks to computer-driven cars. So when computerized cars become ubiquitous, they’ll be able to whizz up and down this brand new high-speed route. It is possible to make the right decisions for the wrong reasons.