Global Insight Perspective | |
Significance | The smallest car segment—the A segment—has become hugely popular this year, especially in those countries with some sort of CO2-based taxation system. |
Implications | Fiat has always specialised in small and fuel-efficient cars and is thus already reaping the benefits of the changing purchasing trends in many markets, and it clearly plans to carry on doing so. |
Outlook | Global Insight sees the trend of increasing A-segment registrations continuing and has just upgraded its sales forecast for Western Europe accordingly. Fiat, meanwhile, has recently announced plans to build and sell more of its brand-new 500 “city car” in the future, and is planning a stand-alone Abarth-branded model to capitalise on the rising number of buyers who are downsizing but still demanding a high-performance, sporty vehicle. |
Small-Car Sales Boom
Sales of small cars so far this year have soared in almost all of Europe's main markets. In the region's biggest market—Germany—the home of premium large-car manufacturers such as BMW, Mercedes-Benz, and Audi, 20% more A-segment cars were registered in the first six months of the year in an overall market that grew by just 3.6%. In the U.K. market, where overall volumes slid by 1.6% in the first half, A-segment registrations soared by 32%, while in France, where the overall market grew by 4.4%, sales of A-segment cars leapt by 40%. In those markets where more subdued small-car growth has been seen—such as Spain and Italy, where the A segment managed growth of “only” 3.1% and 6.7%, respectively—the fortunes of the overall markets must be taken into account. Total Spanish passenger car registrations have plunged by 17.6% so far this year, while the fall in Italy has been 11.6%. This means that in all of the “Big Five” European markets, A-segment cars have recorded a significant increase in market share.
A Segment's Growth in “Big Five” European Markets | |||
Market | A Segment YTD % Change | Overall Market % Change | A Segment YTD % Share |
Germany | 20.1 | 3.6 | 5.3 |
U.K. | 32.0 | -1.6 | 5.6 |
France | 39.7 | 4.4 | 7.3 |
Italy | 6.7 | -11.6 | 18.0 |
Spain | 3.1 | -17.6 | 3.2 |
Source: Global Insight | |||
It should come as no surprise that Fiat of Italy has been among the biggest beneficiaries of this trend in many of those countries, given its historic specialisation in small and fuel-efficient cars. This has been the case in France, for example, where the surge in A-segment sales can be attributed to the new ”ecotax”, which offers tax rebates to purchasers of cars at this end of the market while imposing tax penalties on buyers of larger cars (see France: 17 July 2008: French Government Expected to Make Changes to Ecotax). Although this scheme's ostensible aim was to reduce greenhouse gas emissions from the country's road transport sector, its introduction was also widely viewed as the French government's way of throwing a lifeline to the domestic car-making duo of PSA Peugeot-Citroën and Renault, both of which also specialise in small cars. However, although all three of those brands (Peugeot, Citroën, and Renault) registered year-on-year (y/y) growth of somewhere between 3% and 7% in their home market during the first half, the Fiat brand's French sales soared by an incredible 49.9% in that time.
The Fiat Panda is Europe's best-selling A-segment car. This is particularly impressive considering that the car is now four years’ old, having been launched in 2004. There are many younger models on the market, not least its younger sibling, the Fiat 500. The arrival of the new 500 one year ago could have been expected to cannibalise Panda volumes far more than it has, given the immensely positive reaction to the vehicle, which among other accolades was named European Car of the Year (COTY) 2008. One reason why Panda sales have not been eroded more than they have is the limited production of the 500 in Tychy (Poland), where it is built.
Fiat Raises 500 Production Capacity
Wishing to capitalise on the current trend, however, Fiat has just announced another production increase for the 500. According to Automotive News Europe, Fiat has recently confirmed that it will raise annual production capacity of the 500 model to above 200,000 units. Initially, Fiat had set a planned annual sales target of just 120,000 units for the car. Higher-than-expected demand soon led Fiat to raise this to 140,000 units earlier this year. This has still not been enough, however, with Fiat reportedly having received 230,00 dealer orders for the model between its launch in July 2007 and the end of June 2008, Automotive News Europe said. Now, Fiat plans to sell 195,000 units of the 500 in 2008, with 94,000 units having been sold in the first half of the year.
All-New Abarth Model to Be Launched
Meanwhile, Autocar has reported that U.K.-based engineering and consultancy firm Lotus is developing a car that will be the first stand-alone vehicle to be launched under Fiat's ”Abarth” name for three decades. The magazine says that the new Abarth model will be a modified version of the next-generation Lotus Elise, which is currently under development at Lotus's headquarters in Norfolk, in the east of England. It will be a lightweight two-seater model ready for launch in 2011, the report adds. Autocar quotes Abarth Chief Executive Officer (CEO) Luca de Meo as recently denying that there were firm plans to produce a stand-alone Abarth model. "Maybe one day we can develop a model that is just an Abarth for Abarth. We might have this one day, but we don’t have the in-house resources to do that today", he apparently said. According to Autocar, Fiat would customise the car by fitting its new generation of turbocharged, direct-injection, air-valve, 4-cylinder engines, which promise high torque, high power, and low emissions.
Outlook and Implications
A resurgent Fiat is doing all it can to capitalise on Europe's current thirst for the smallest and most fuel-efficient vehicles at this time of soaring fuel prices and punitive carbon dioxide (CO2)-based taxes. For obvious reasons, the main beneficiaries of this trend will be in the A and B segments, as aggressive reductions in taxes will incentivise purchases in these segments more and more in the future. Accordingly, Global Insight has recently raised its Western Europe A-segment forecast, predicting that registrations in this category will peak at the 1.42-million mark in 2012, which is considerably higher than our previous forecast. The previous A-segment peak was seen in 2000, after the arrival of several new models in the segment in the late 1990s, although the ”ceiling” then proved to be the 1-million mark. Now, a number of important brand-new entrants in the segment, including the VW Up! and the Toyota iQ, as well as some high-volume replacement models such as the second-generation Ford Ka, will push volumes up once more and will also provide some stiff competition to Fiat.
As part of the current downsizing trend in Europe, consumers are also increasingly demanding sporty and ”performance” models in the smaller segments. The emergence of this trend has been reinforced by Mini's recent announcement that it has started producing factory-built versions of its John Cooper Works models (see United Kingdom: 18 July 2008:Mini Launches Factory-Built Cooper Works Models, Produces One Millionth Car for Export from U.K.). Until now, John Cooper Works kits have only been available as aftermarket kits, in addition to a few limited-edition production runs. The news that Mini is launching the first unlimited factory-built John Cooper Works models reflects the increasing popularity of such aftermarket performance kits for small cars. Similarly, Fiat's decision to relaunch the Abarth performance brand in the last year has also proved a shrewd move for the same reasons. Now, a stand-alone Abarth will give Fiat a “halo” model that will sit alongside Abarth versions of its existing models, such as the Grande Punto and the 500. The decision to base the car on the new Lotus model means that Fiat will save a significant amount of time, expense, and complexity than if it had developed the vehicle itself in-house, also indicative of the recovering Italian company's ongoing focus on cost management.