Industry insider: “The era of the cheap car is over”

Industry insider: “The era of the cheap car is over”


“The era of the cheap car is over: it has to be,” said Luca de Meo, president of the Renault Group.

What the Rising Cost of New Cars Means for the Industry and Buyers

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

Data on car buying champions What car? revealed earlier this year that the average new UK car was priced at £42,054, up by almost 7% in just 18 months with a combination of rising prices and falling discounts.

We shouldn’t be entirely surprised, of course; The cost of living crisis is as real for those who run factories as it is for our homes; Rising energy prices, rising raw material costs and more can always cause pressure. But what caught the eye was that, with demand outstripping supply, especially from the chip crisis, the increase could be combined with reduced discounts to generate previously unimaginable profits.

In the last few weeks, we have seen a lot of financial results in the first half and, in general, it is a good read for the automakers. Whether from traditional or premium brands, profit margins are typically double what they were before the pandemic (although Jaguar Land Rover and Aston Martin are two domestic sellers that remain in the red). When I asked Renault Group chairman Luca de Meo about this a few months ago, it’s no wonder he had reason to smile.

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

Renault is among the winners at the moment, recently raising its profit expectations despite the losses incurred from the withdrawal of its Russian business.

But will it really last, as de Meo says it should? Faced with shrinking incomes, a recession that is wreaking havoc on consumer confidence, will people really continue to pay more for their cars, especially as they watch companies that make them rich, reward CEOs and top managers with record pay?

This is probably an extreme comparison, but the observation that oil, gas and electricity companies are subject to reaping huge profits when raising their prices gives a clue as to the public’s attitude towards these matters.

De Meo’s approach is clearly based on the need to build a sustainable business; which records reliable profitability and therefore has the resources to continue investing in research and development and innovation for the future. Since we are in the age of electrification, someone has to pay for the development we want and need – and that someone is the buyer.

But it ignores the fact that buyers have a choice: stay current with used ICE cars, or switch allegiance to one of the many Chinese companies that are using field balancing and electric batteries and motors to gain space. We may be highly regarded by brands, but as these amazing days pass, the post-crisis reality may reveal that our limits are far below where the market has moved.

“The era of the cheap car is over: it has to be,” said Luca de Meo, president of the Renault Group.

What the Rising Cost of New Cars Means for the Industry and Buyers

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

Data on car buying champions What car? revealed earlier this year that the average new UK car was priced at £42,054, up by almost 7% in just 18 months with a combination of rising prices and falling discounts.

We shouldn’t be entirely surprised, of course; The cost of living crisis is as real for those who run factories as it is for our homes; Rising energy prices, rising raw material costs and more can always cause pressure. But what caught the eye was that, with demand outstripping supply, especially from the chip crisis, the increase could be combined with reduced discounts to generate previously unimaginable profits.

Over the past few weeks, we’ve seen a lot of first-quarter financial results and, overall, it’s a good read for automakers. Whether from traditional or premium brands, profit margins are typically double what they were before the pandemic (although Jaguar Land Rover and Aston Martin are two domestic sellers that remain in the red). When I asked Renault Group chairman Luca de Meo about this a few months ago, it’s no wonder he had reason to smile.

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

Renault is among the winners at the moment, recently raising its profit expectations despite the losses incurred from the withdrawal of its Russian business.

But will it really last, as de Meo says it should? Faced with falling incomes, a recession that is taking its toll on consumer confidence, will people really continue to pay more for their cars, especially as they watch companies that make them rich, reward CEOs and top managers with record pay?

This is probably an extreme comparison, but the observation that oil, gas and electricity companies are subject to reaping huge profits when raising their prices gives a clue as to the public’s attitude towards these matters.

De Meo’s approach is clearly based on the need to build a sustainable business; which records reliable profitability and therefore has the resources to continue investing in research and development and innovation for the future. Since we are in the age of electrification, someone has to pay for the development we want and need – and that someone is the buyer.

But it ignores the fact that buyers have a choice: stay current with used ICE cars, or switch allegiance to one of the many Chinese companies that are using field balancing and electric batteries and motors to gain space. We may be highly regarded by brands, but as these amazing days pass, the post-crisis reality may reveal that our limits are far below where the market has moved.