Europe’s Shrinking Small Car Market: A Crisis of Regulation and Priorities
Small cars should be a natural solution to overcrowded cities, limited resources, and the climate crisis. Yet across Europe, they are fast becoming an endangered species. Stricter regulations and shifting consumer preferences have rendered their production economically unviable, while the market drifts toward bulkier, more powerful SUVs.
Once the birthplace of iconic compact cars like the Fiat 500 and the original Mini, Europe now finds itself in a paradox: the continent that mastered practical urban mobility is struggling to keep it alive. According to data from JATO Dynamics, the market share of A-segment city cars—such as the Fiat Panda or Hyundai i10—has dropped to its lowest point in at least two decades. Manufacturers are retiring their smallest models to protect profit margins and focus on larger, more expensive vehicles. As a result, younger and older drivers are being priced out of new car ownership altogether.
In Germany, the average price of a new car now hovers around €57,000—surpassing the country’s average gross salary. Other large European markets like Italy, Spain, and France aren’t far behind. Tighter safety and emissions rules have made vehicles more technologically complex and costly to build, even as they’ve delivered some public benefits, such as a 16% reduction in traffic fatalities over the past decade.
But policy is only part of the story. The rise of SUVs—with their higher ride height and perceived safety advantages—has reshaped consumer behavior. As more drivers switch to these larger vehicles, others feel compelled to follow suit simply to feel safer on the road, fueling a self-reinforcing cycle.
The broader consequence? A smaller overall market. Only 13 million new vehicles were registered across the EU, UK, Switzerland, and Norway in 2024—down by about three million from 2019. The European auto industry is a shadow of its former self, and the pressure is mounting. Manufacturers are either threatening to shut down plants or moving production to countries with lower costs. Meanwhile, consumers priced out of the new car market continue driving older, more polluting vehicles. The average age of a car on EU roads has now reached 12.5 years.
In a recent interview , Renault CEO Luca de Meo called for a regulatory rethink. He argued that the sheer volume of compliance requirements—many designed with larger, premium vehicles in mind—makes it difficult to produce small cars profitably. “Do we really need lane departure warnings in vehicles that spend 95% of their time in city traffic?” he asked, referencing the GSR-2 regulations. These rules, which came into effect last year, mandate features like automatic emergency braking and speed limit alerts—technologies that require costly sensors and cameras.
De Meo also pointed out the disparity in crash test expectations: small cars are now expected to perform like luxury sedans three times their size. The result is clear—overregulation, coupled with distorted market incentives, is strangling the very category of car that should be leading Europe’s green, urban mobility transition.
