Could new EU regulations revive the European car market?

Rising costs and stricter regulations have placed the small, budget-friendly vehicle market under intense pressure. The European Commission is now exploring policies to bring simpler, lower-cost cars back, potentially reviving affordable European cars. This initiative could suggest welcome European car market news for consumers and automakers alike

Industry support quickly followed von der Leyen’s remarks, as automakers see an opportunity to address rising costs and meet consumer demands. Although reactions in the European Parliament were mixed, the automotive industry has welcomed the Commission’s support for more small cars. Stellantis and Renault Group, in particular, have long advocated for policies encouraging affordable European cars and view the initiative as a step in the right direction.

These automakers’ push for new regulations favoring smaller vehicles stems largely from mounting development costs due to EU regulations. In recent years, growing requirements for safety and emissions equipment have made it harder to develop, manufacture and sell these passenger cars profitably and have driven up prices for consumers.

The growing pressure faced by the smallest and cheapest cars sold in Europe is reflected in long-term sales data. S&P Global Mobility data shows that A-segment passenger car sales (excluding quadricycles) in Western and Central Europe stood at only 509,700 units in 2024 and are forecast to fall by another 11.1% year over year in 2025, as models like the Renault Twingo, Smart ForTwo and VW up! exit the market. By comparison, sales totaled nearly 1.14 million units in 2019 and nearly 1.78 million in 2009, when scrapping incentives temporarily boosted registrations.

This decline is also evident in European-built A-segment vehicles, the smallest category of passenger cars. Sales of these cars in Europe (including Eastern Europe) totaled 422,500 units in 2024 but are projected to drop to only 298,700 units in 2025—down sharply from the more than 1 million units per year sold in Western and Central Europe as recently as 2017.

The CEO of Stellantis’s Citroën brand, Xavier Chardon, highlighted the regulatory pressures on small, affordable European cars in remarks made to the enthusiast publication Autocar, noting that since the COVID-19 pandemic, “we lost 2 million cars. Out of those, roughly 1 million are below €15,000.”  

Chardon noted that rising costs and regulatory pressures are pushing some customers toward used vehicles, while many owners are keeping their cars in Europe longer, further slowing the new passenger car market. As a result, the average age of cars on the road has increased, and reductions in CO2 emissions are occurring more slowly than expected.