Small cars will become tiny as Europe fights climate change

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Small cars will become tiny as Europe fights climate change

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GENEVA, Switzerland — You could say that if European cars shrunk any more we might as well all drive around in hybrid golf-carts.

But the European Union’s (E.U.) likely insistence on savage new fuel efficiency targets will lead to another round of weight slashing and downsizing. Unless some new technology miracle suddenly brings the carbon age to an end, cars here will look more like invalid carriages, able to overtake bicycles with ease going downhill, with a following wind.

OK, so I’m exaggerating a bit for effect, but not that much. Maybe the cheap and cheerful Tata Nano from India is the shape of things to come. Meanwhile, Toyota of Japan is busily downsizing its European fleet and keeping a low political profile.

In fact, there is a political head of steam building across Europe to price the poorest out of their cars. This pressure, from European national governments and local authorities, seeks, with relentless increases in fuel tax, so-called “congestion charges” which will curb the use of even medium sized vehicles in cities, and arbitrary parking restrictions on “evil” sport utility vehicles, to force more Europeans on to public transport.

The E.U. believes that humans can change the climate, and with this in mind is preparing to impose harsh restrictions on carbon dioxide (CO2) emissions generally, and on the automotive industry in particular. The E.U. wants tough fuel economy standards — the equivalent of about an average 43 miles per U.S. gallon. Those manufacturers that fail will be subject to huge fines. The original proposal was for this regime to start in 2012; now this is likely to be postponed until 2015.

European cars now, without direct pressure from governments, achieve an impressive average 35 miles per U.S. gallon, compared with about 25 mpg in the U.S. (In America, Washington has agreed legislation which will force American cars to match Europe’s achievement today by 2020.)

Radical changes
European car manufacturers are gearing up for this radical change in the ground rules, which also implies a revolution in travel behavior and demography, according to Professor Ferdinand Dudenhoeffer, managing director of Bochum, Germany based B&D Forecast.

“Downsizing is not just a trend in engine technology. Downsizing will be an overall trend in the car industry; small will become smart. Larger distances will be more and more traveled by planes and trains, with car use becoming more urbanized. As families become smaller — in Germany about 40 percent of all households are singles, about 70 percent of all households are one and two persons — thus there is no need for large cars and too much space,” Dudenhoeffer said.

And not just in Europe.

“Looking at gas prices, we think that this trend will also hit the U.S. Possibly in a few months we will see the $4 gallon. This provides a strong incentive to buy compact cars,” he said.

This would appear to be bad news for premium car manufacturers like BMW, Mercedes and VW’s Audi, which have become rich selling big, high performance cars to wealthy Europeans and Americans.

More small cars
This month’s Geneva Motor Show showed that the industry is gearing up to make more attractive small cars, with the launch of the little Ford Fiesta, the tinier Toyota iQ, and the Toyota Urban Cruiser, a small, city-oriented SUV. The premium manufacturers are also planning to bring smaller cars to market in the next couple of years, when Audi’s A1, the BMW City, Mercedes mini A-class, and the Alfa Romeo Junior will appear.

According to Dudenhoeffer, by 2012 about two-thirds of new cars made will be capable of returning the equivalent of 43 mpg.

Mass car manufacturers like Peugeot-Citroen and Renault of France and Italy’s Fiat will have little problem making whatever regulations are agreed by the E.U., but it will be tough for the German premium companies.

BMW has made great play of its environmental commitment with its “Efficient Dynamics” project, which adds things like “stop-start” and regenerative braking across most of its range. It also unveiled a diesel-hybrid SUV concept car at the show. BMW’s great rival Mercedes also showed a compact SUV — the GLK — which had a diesel hybrid (diesel internal combustion engine plus electric motor) and said it has made big progress with lithium-ion batteries, which promise greater range from electric-only power.

Despite this, the Germans face huge problems, according to some experts.

Germans in trouble
“The German luxury brands are in trouble,” said Krish Bhaskar, who heads the Motor Industry Research Unit based in Nice, France.

“It’s not all that difficult for volume brands to meet the targets, but Porsche, Mercedes and BMW will find it very tough and very expensive to engineer and produce vehicles which require fundamental changes,” said Bhaskar.

Audi, because it is a subsidiary of Europe’s biggest car manufacturer Volkswagen, will escape similar pressure because it can average its gas guzzlers in with fuel-sipping VW Polos and Golfs, says Bhaskar.

“The Germans face a future of seeing their volume halved, and it’s all their own fault. If they’d started early they could have easily made the (likely E.U.) target. But they procrastinated and delayed, they were guilty of taking it easy,” he said.

Dr. Peter Wells, Reader at Cardiff Business School, also says some of the manufacturers have sought to deflect regulations which were unavoidable. This risks damage to the industry because actions by national governments and local authorities, unlike the E.U, don’t take account of the industry’s problems.

“The industry has been a bit disingenuous in trying to hold up and dilute the impact of CO2 regulations. Local populations and municipalities have taken matters into their own hands. These local initiatives have no interest in the long run health of the industry and only consider things like air quality and global warming,” said Wells.

Last month, London mayor Ken Livingston, a socialist known by the British media as “Red Ken”, announced plans to raise the “congestion charge” on gas-guzzlers to the equivalent of $50 a day. At first it was assumed that this would just mean Land Rovers and Porsches, but it turned out the charge will also include some minivans which local residents use to transport children.

Porsche announced it would challenge the plan, not due to start until October, in the courts. Porsche is worried that other European and U.S. cities — even Geneva is thinking about it — will join London, Milan, Stockholm and Singapore, which have already introduced so-called “congestion charges.”

Class war
Wells said the action by Livingston was popular amongst some segments of society. (There is a London mayoral election in May).

“The symbolism is important. When you consider London, you don’t have equal ownership of vehicles, neither equal distribution of wealth. Over the last 20 years there’s been a significant divergence in incomes; the wealthy got very wealthy and the poorer got relatively poorer, so it’s not just technical but social and political. Class war, yes, there’s an element of that,” said Wells.

(On March 12, Britain’s ruling Labour government introduced new car tax rules aimed at eventually eliminating gas-guzzling SUVs and sports cars from the U.K’s roads. This includes a one-off point of sale levy of close to $2,000 on top of regular sales tax, plus an increase in annual road tax to about $900.)

Wells said as climate change becomes more obvious, the need for action by the industry will become more profound, although it will still be possible for cars to be exciting.

“Products like the Tesla (battery powered roadster from California) show that you can combine the idea of environmentally friendly with excitement. You can end up with products which are superior, not the lentils and sandals associated with the (Toyota) Prius (gasoline/ electric hybrid),” said Wells.

Gradual process
All this talk of revolutionary changes ahead doesn’t phase Maria Bissinger, European Head of Automotive and Capital Goods Ratings, at Standard & Poors in Frankfurt, Germany.

“Changes in model ranges take a long time and we expect a gradual process of improvement and working towards meeting CO2 emission targets rather than a radical change. Every big manufacturer has outlined initiatives to improve their positioning. Nevertheless, while the French and Italian automakers have considerably lower average CO2 emission levels, the German automakers have significantly higher averages,” she said.

B&D’s Dudenhoeffer said the new regulations will have an unexpected long-term, if distant, advantage to car buyers in lower gasoline costs, and praises Toyota for schrewdly remaining above the fray.

“If we take into account that with the tougher CO2 rules cars will consume less gas, the extra money it takes to meet the regulations will be paid off after 7 or 8 years. Why should that hurt the customer? I think Toyota is one of the car makers which realizes that. It’s just the old European guys who are claiming the industry will be hurt. Have you heard any negative words from Toyota on CO2 regulation? No, absolutely not. Toyota just does it (complies) because it can see it’s a big chance for the company,” Dudenhoeffer said.

Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him at