Car manufacturers stop selling small and cheap vehicles - This is a big problem

Profits are what all car manufacturers want, and that cannot be negative unless you pay a price for it later that hurts you, and that is what is happening to the majority of German car manufacturers at the moment.

Optimising profits in the short term but losing the important volume segment in the long term comes at a high price. This article explains why management's short-sighted greed is accelerating the downturn of the German car industry.

Audi boss Duessmann said in an interview in February 2022: "We have also realigned Audi as a premium brand. We will limit our model range downwards and expand it upwards. In the Group, we are trying to secure the overall result. That is why we are prioritising models with higher profits. Specifically, we have decided to stop building the A1, and there will be no successor model to the Q2 either."

The Mercedes-Benz Group is completely discontinuing the once-important A-Class in the US and Europe the end is expected to be 2024, while most electric cars introduced and sold are in the €80-100,000 price range. Premium vehicles are preferred at the Stuttgart-based carmaker, but volume models are a low priority.

BMW CFO Nicolas Peter put it this way: The goal is to "generate more revenue per vehicle". In other words: premium models and models with high-profit margins are sold, all others are discontinued or have unacceptable delivery times. The BMW i3 is an example of a small, affordable, good and popular electric car, sales of which will cease in July 2022, with no plans for a successor or even a concept car in this price range.

German manufacturers want more premium; China pushes into Europe with low-priced e-cars
All German carmakers are trying to sell highly profitable premium cars, but what we see today is that affordable entry-level models are being discontinued at a time when low-cost Asian suppliers are starting to produce and sell electric cars in this segment in Europe. A good example is the Vietnamese manufacturer Vinfast, almost unknown in Europe, which is looking for a production site in Germany, but the list of new Asian suppliers is long. Nobody should make the mistake of thinking back to the 1990s when Asian manufacturers tried in vain to enter the European market, because the conditions are very different nowadays.

Premium models with higher margins and profits per vehicle sold have priority within the Volkswagen Group, Mercedes-Benz and BMW, as demand in all segments cannot be met due to supply bottlenecks for semiconductors and other components. This allocation strategy makes financial sense for the companies, as higher profits are made on premium models and it is only fair that customers who pay more get their cars sooner, while consumers who cannot pay as much have to wait.

This applies to combustion engines as well as hybrids and electric cars. This makes sense for short-term gains, but not in the long run when it comes to the industry's transition from internal combustion engines to electric cars. The market for small and mid-sized cars has been shrinking disproportionately since 2019, and this is an alarming sign for the future because once a vehicle segment is lost to competitors, it won't be easy to win it back in an era when electric cars and software dominate the technology.

Semiconductor bottleneck: premium electric cars ahead of small electric cars
The Volkswagen Group can be divided into volume brands such as Volkswagen, Skoda, Seat, Cupra and premium brands such as Audi, Porsche, and both groups together make the company one of the largest car manufacturers in the world, just behind Toyota. Not long ago, the Volkswagen Group overtook Toyota with nearly 11 million vehicles sold worldwide, but within a few years, sales shrank to less than 9 million units in 2021, and this negative trend continues. One reason for this decline is that the limited supply of semiconductors was primarily used for Porsche and Audi's high-margin premium vehicles, while Skoda, Volkswagen and Seat customers had to wait and demand could not and cannot be met. In this respect, VW's statement that demand is strong is correct, but customers are not waiting endlessly, they simply cannot.