Blog: The 'eco-warrior' conundrum
Dave Leggett | 9 September 2008
The proliferation of ultra energy efficient (and therefore low CO2) car variants and sub-brands (like VW's Bluemotion) is an interesting market trend in Europe with major implications for manufacturers if they don't get it right. Market analyst Jay Nagley, writing in AM, makes some very good points.
Firstly, to take the British car market as an example, sales of these 'niche' variants are growing rapidly (Nagley says at an unprecedented rate) across three segments - city car, supermini and lower medium. And it's the lower medium segment (Europe's largest car market segment) which is especially interesting because initial customers for these cars in that segment aren't exactly looking for baby cars or cheap cars. But they are attracted to lower running costs.
In this case, the 'eco' in 'eco-warrior' perhaps stands for economy rather than ecology, but buyers for cars like the Ford Focus TDCI are seeking out the economy variants in that segment, rather than downsizing en masse from other segments.
Here's the conundrum. These cars may have the lowest running costs, but they are certainly not the cheapest in the range. However, if the sub-120g/km models are presented as economy models, the list prices may have to be lower to be consistent with that proposition. And if the proportion of relatively low-margin 'eco' sales rises, Nagley argues, that means carmakers' profits will fall. These cars with their eco bells and whistles have higher unit costs than standard model variants and that's difficult to reverse much, even with substantially higher volume.
The message carmakers may want to communicate is that eco variants save buyers on running costs but exceptional fuel efficiency comes with a higher purchase cost.
But will buyers continue to go for that and will some manufacturers be tempted to break rank by marketing cut-price eco cars that promise more share? Nagley reckons these eco variants and sub-brands will take 10% of mainstream sales in the medium-term. Clearly, pricing will be something to watch closely.
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