In November 2022, the European Commission proposed a new law, known as Euro 7, reducing allowable pollution from cars, vans, buses and trucks. The proposal would save thousands of lives cut short by air pollution and improve air quality for all European citizens. Yet, the automotive industry has been intent on derailing any meaningful progress on reducing pollution from cars and trucks, criticising even the severely watered down Euro 7 general approach of the Council, and the weak position of the European Parliament’s Environmental Committee. One of the central arguments of carmakers against Euro 7 is that of affordability. Carmakers argue that Euro 7 is too expensive for both them and consumers, and will result in large price hikes which will make cars, especially smaller, cheaper models, unaffordable.
Yet, price data from Europe’s five biggest carmakers (BMW, Mercedes, Stellantis, Renault and Volkswagen) shows that they have raised the prices of their cheapest models by up to 41% since 2019, almost double the average EU cumulative inflation (21%). Notably, the price of small, affordable models, the Peugeot 208, Seat Ibiza and Renault Twingo, which previously retailed at (€10,300-€15,500) have increased by almost €6,000. The more premium but still small Mercedes A and B class models increased in price by over €10,000. The price increase of 7% of the BMW Series 1 and 2 was more limited only due to a sharp reduction in pricing since May 2023.
Rather than the rise being due to increased costs linked to high inflation and the war in Ukraine, carmakers have used the opportunity of an inflationary market to raise prices beyond inflation to substantially bolster their own profits while making cars less affordable for consumers. J.P. Morgan estimates that only half of the increase in new vehicle prices is due to higher input costs such as from raw materials. Since Europe’s five biggest carmakers more than doubled their profits from €28 billion in 2019 to €64 billion in 2022 as shown in T&E’s earlier publication, this means that at least part of the rest of the price increase has directly contributed to the carmaker’s record profits. These have allowed them to announce a record payout of €27 billion to shareholders this year.
Most interestingly, prices of BMW’s and Stellantis’s entry level cars have fallen by €1,300-€3,830 since they peaked earlier this year, likely due to a larger supply of new cars on the EU market driving greater price competition between carmakers. It also suggests that a substantial share of the higher price seen in May was due to carmakers pricing cars purely to boost profits. This is supported by statements from Stellantis’ CEO forecasting that carmakers will have to go back to more conventional pricing and profit models (i.e. one based on higher volumes and lower profit margins as seen prior to the Covid-19 crisis rather than the high profit, low volume model seen over the last few years).
The large price increases seen for cars in recent years, even for entry level models, coupled with carmakers’ extraordinarily high profits, raises an important question. Why are carmakers prepared to raise prices by thousands of euros, making cars significantly less affordable for European consumers, to make record profits, but fight tooth and nail against life saving anti-pollution technologies costing only €200 per car? This shows that even after the dieselgate scandal Europe’s carmakers prioritise profit ahead of people’s health.
It is up to European policymakers to ensure that the health of European citizens is protected. It is imperative that in the upcoming vote on the Euro 7 pollution standards, Members of the European Parliament support a more robust Euro 7 than the weak position agreed within the Parliament’s Environment Committee, which weakens key aspects of the Commission’s Euro 7 proposal including on emission limits and testing, which are critical for reducing the large amount of toxic pollution still produced by new cars today. This is Europe’s last chance to cut toxic pollution from internal combustion engines, MEPs should not squander it.