Inside the industry: "The era of the cheap car is over"

It's a fine line between enough and too much.

Data from car-buying champions What Car? revealed earlier this year that the average UK new car cost a staggering £42,054, driven up by around 7% in just 18 months by a combination of rising prices and dwindling discounting.

We shouldn’t be entirely surprised, of course; the cost of living crisis is as real for those running vast factories as it is our homes; soaring energy prices, rising raw material costs and more were always going to lead to pressure. But what has raised eyebrows is that, thanks to demand far outstripping supply, as a result primarily of the chip crisis, the rises have been able to be combined with the reduced discounts to generate once unthinkably huge profits.

In the past few weeks, we’ve seen a flurry of first-half financial results, and on the whole, they make for pretty reading for the car makers. Be it from mainstream or premium brands, profit margins are typically twice what they were pre-pandemic (albeit with Jaguar Land Rover and Aston Martin being two homegrown outliers that continue to sit in the red). When I quizzed Group Renault president Luca de Meo on this just a few months ago, little wonder he had cause to smile.

“The era of the cheap car is over: it has to be,” he declared.

Renault is very much among the winners at the moment, recently upping its profit expectations, despite losses incurred from withdrawing from its business in Russia.

But will this really last, as de Meo says it must? In the face of squeezed incomes, recession wreaking havoc with consumer confidence, will people really keep paying more for their cars, especially while they watch the firms that make them get rich, rewarding CEOs and senior management with record payouts?

Perhaps it’s too extreme a parallel, but the scrutiny that oil, gas and electricity firms are coming under for reaping mega-profits while hiking their prices provides some guidance on the public mood on such things.

De Meo’s point is, of course, rooted in the need to build a sustainable business; one that records reliable profits and therefore has the funds to keep investing in research and development and innovating for the future. As we sit at the dawn of the era of electrification, someone has to pay for the progress that we want and need – and that someone is the buyer.

But it does overlook the fact that buyers have options: to stick in the interim with used ICE cars or switch allegiance to one of the raft of Chinese firms using the levelling of the playing field with batteries and electric motors to get a foothold. Brand-obsessed we may be, but when these peculiar days pass, the post-pandemic reality my expose that our limits are significantly below where the market has moved to.