In the current economic landscape, the automotive sector is facing a series of challenges, with the most significant being the rising costs of production and selling. This article analyses the recent price hikes by car manufacturers in the European market and scrutinises the affordability claims related to the forthcoming Euro 7 emission standards.
Last year, the European Commission announced a new initiative known as Euro 7, aimed at reducing pollution levels from various forms of transport, including cars, vans, buses, and lorries. This move was heralded as a significant step towards improving air quality across the continent and potentially saving countless lives from the detrimental effects of air pollution.
However, the automotive sector, particularly renowned brands such as BMW, Mercedes, Stellantis, Renault, and Volkswagen, has been vocal in its opposition to these measures. One of their main arguments is centred around affordability, claiming that the implementation of Euro 7 standards would be too costly, leading to significant price increases, especially for smaller, more affordable models.
Contrarily, recent data by T&E indicates that these manufacturers have already significantly increased the prices of their most economically priced models since 2019, with increases of up to 41%, nearly doubling the average EU cumulative inflation rate of 21%.
Impact of Inflation on Car Prices
The common perception is that the recent surge in car prices is due to the rising costs associated with high inflation rates and the geopolitical unrest in Ukraine. However, it appears that car manufacturers have taken advantage of the inflationary market to raise prices beyond inflation, thereby significantly boosting their profits while making cars less affordable for the average consumer.
According to estimates by J.P. Morgan, only half of the new vehicle price increase can be attributed to higher input costs, such as raw materials. This suggests that the remainder of the price hike has directly contributed to the manufacturers’ record profits, which have more than doubled from €28 billion in 2019 to €64 billion in 2022. These unprecedented profits have, in turn, enabled a record pay-out of €27 billion to shareholders this year.
Euro 7 and Affordability Concerns
Despite the car industry’s argument that the implementation of Euro 7 standards would result in a significant price increase, making cars unaffordable, recent evidence suggests otherwise. The data shows that Europe’s five largest car manufacturers have already substantially raised car prices since 2019, resulting in record-breaking profits.
The Euro 7 emission standards, which are estimated to cost only €200 per car, pale in comparison to the thousands of Euros these manufacturers have already added to their vehicle prices. This discrepancy, according to NGOs, raises questions about the industry’s commitment to prioritising public health over profits.
The Next Steps
The European Parliament will convene in Plenary on 8th November to vote on its final position on Euro 7 before entering into trilogue negotiations with the European Commission and the European Council. This will be the last opportunity to increase its ambition for the Euro 7 project; a project which campaigners have criticised for being continuously ‘watered down’ by green groups in light of industry opposition to stricter testing and emission standards.