Small cars are being driven out of existence

Car launches are 10-a-penny so it’s very rare that a particular model’s demise captures the world’s attention. The Volkswagen Beetle, the last of which rolled off the production line in Mexico this week, was no ordinary vehicle though.
The downfall of the “People’s Car,” an icon of post-war German prosperity as well as the 1960s counterculture, is all the more painful because of what’s replacing it. Bloomberg News reported this week that the Mexican plant is now gearing up to build — wait for it — a compact sports utility vehicle.
With all due respect to VW’s new SUV, I doubt it’s going to capture hearts the way the “Love Bug” did, not to mention the original tiny Fiat 500 or Britain’s Mini for that matter. Petite, fuel-efficient cars would seem to be an obvious solution for a warming planet and our increasingly crowded cities. Yet they’re fast becoming an
endangered species in western markets. Consumers have voted with their wallets by buying SUVs and because they carry fatter profit margins, carmakers have been happy to oblige. VW’s famous entreaty to Beetle customers to “think small” hasn’t worked out.
But killing the affordable small car could yet have adverse consequences for the auto industry — as well as the environment. At their best, they marry affordability and utilitarian styling and they can be outrageously good fun to drive. In a recent “research” video report for clients, the Bernstein analyst Max Warburton borrowed a vintage 1.9 liter Peugeot 205 GTI — a racy version of the French bestseller. His boyish delight at getting behind the wheel was palpable.
Compact cars have always struggled to gain traction with Americans, though, and they’ve been overshadowed recently by the boom in trucks and SUVs, which account for almost 70 percent of the US market. Cheap credit and leasing have made larger vehicles more affordable; the average purchase price of a new car has risen to an eye-watering $37,000. And low gas prices make these heavyweights less costly to run. In fairness, some compact SUVs are actually pretty fuel efficient, so even a big rise in pump prices might not reverse this trend.
Plus there’s the safety factor, which compels even people who don’t like SUVs to buy one in case they get into an accident with another giant vehicle. Pedestrians are more likely to be killed if they’re hit by a large SUV, but that’s apparently of little concern.
In Europe, where small cars still account for about one-third of the market, there’s another (counter-intuitive) factor working against compact models: Tougher emissions standards. By 2021 carmakers must achieve average fleet emissions of 95g CO2/km. Targets for 2025 and 2030 are even more stringent. The problem, car executives say, is that the high cost of electrification technology is difficult to combine with the economics of smaller, cheaper cars.

—Bloomberg