Why the price of new cars is rising again

The formation of new regional and federal governments continues. What we already know is that new cars will become more expensive again. Here’s why.

Who will reach a compromise? With whom? Discussions with a view to forming new governments, at all Belgian levels, are continuing. Same for Europe. Will all decisions of the outgoing Commission remain in force or will they be revised? This is not without importance. If policies remain unchanged, new cars will become more expensive again.

Mobility is a delicate subject

Mobility was little discussed during the past electoral campaign. This is probably due to the fact that the opinions of the population, that is to say voters, diverge greatly on this subject, and that there is a great tangle of skills between the different levels of power.

Political parties fear falling into a trap. A seemingly well-intentioned proposal can have the opposite effect and cost its author more votes than it brings in. Especially since a proposal generally involves new additional rules and obligations.

Everyone wants traffic to be greener and safer, but no one wants additional speed limits. The same goes for more fuel-efficient engines that emit less harmful CO2… without costing more.

Mobility also has a very significant socio-economic impact

In major automobile countries like Germany and France, the automobile industry employs hundreds of thousands of people and is the largest employer. If this engine starts to run out of steam, it immediately has harmful consequences on employment and prosperity.

This explains why Norway views the transition from combustion engines to electric motors differently compared to Germany, and why populist parties are more likely to venture down a slippery slope than parties that exercise or want to exercise governmental responsibilities. Most populist parties have no interest in the Paris Climate Agreement anyway and devote little or no attention to environmental issues in their platforms.

A powerful automobile lobby exerts pressure

The recommendations of the aforementioned agreement constitute the common thread of the Green Deal of the European Commission. They have translated concretely into strict European objectives in terms of CO2.

Short term, this forced European automobile brands to transform or replace their engines combustion pollutants by completely new engines which consume less and emit less CO2. Both options cost a fortune, which explains why new cars are getting more and more expensive for several years.

Combined with rising energy and raw material prices, the price of small cars has increased by more than 40% since the start of the coronavirus pandemic, according to the independent organization Transport & Environment (TE). Thus, new cars are gradually becoming unaffordable for people with average incomes.

In the long term, CO2 emissions must be reduced to zero. This objective can only be achieved by switching from thermal engines to electric motors, using hydrogen or e-fuels, the development and implementation of which are still evolving.

Currently, car manufacturers are mainly focusing on electric propulsion, under pressure from the European Commission which is focusing entirely on electromobility. This was done without consultation or agreement with European manufacturers, who found themselves faced with a fait accompli.

Implementation of the European GSR2 directive costs 3,000 euros

To improve road safety, Europe decided before the elections that new cars should be equipped with additional driver assistance and safety systems, ADAS systems. The new European directive GSR2 (General Safety Regulation), which will come into force next month, provides for a black box to record all vehicle data, for automatic adaptation of speed limits to be implemented, as well as a traffic detection system when reversing and a system warning the driver in the event of drowsiness or loss of attention. The directive also states that new cars must brake automatically in an emergency. From July 2026, new cars must also be equipped with pedestrian and cyclist detection systems.

These adjustments increase not only road safety, but also the price of new cars. We are talking about an additional cost of 2,500 to 4,000 euros, depending on the model.

Tariffs on Chinese cars don’t solve the problem

As the European elections approach, the President of the Commission Ursula von der Leyen announced last May that she had ordered an investigation on illegal subsidies from the Chinese government to Chinese car manufacturers, which distort competition and disrupt the European market.

She cited figures from Eurostat, the European statistical office, according to which in 2018, 20 million euros of Chinese electric cars were imported into Europe. In 2023, this amount had increased to 9.7 billion euros. Market analysts do not rule out a tenfold increase in this amount in the years to come.

Last year, one in five electric cars sold in Europe was made in China. In total, this represented 290,000 units, or almost 3% of car sales in Europe. Most electric cars imported from China bore the logo of Tesla and Dacia.

In response to the findings of the investigation commissioned by the European Commission, President von der Leyen proposed to introduce additional customs duties on electric cars from China. Under pressure from the German car lobby, she postponed the introduction of these rights until after the European elections.

German automobile executives have warned against the harmful consequences of a trade war with China. BMW, Mercedes and Volkswagen generate 30%, 36% and 40% of their turnover and profits respectively from the Chinese market. They also source 70% of their parts from Chinese manufacturers. “Without parts made in China, the European Green Deal is impossible to achieve“, said Mercedes CEO Ola Källenius.

Furthermore, tariffs do not solve the fundamental problem. This lies in the fact that European car manufacturers have fallen behind technologically compared to Chinese brandswhich also produce more efficiently and at lower cost. This is due to the different socio-economic conditions in Chinato the fact that Chinese brands produce up to 90% of their parts themselves, and to the difference in working conditions in China.

Their cheap cars for the Chinese domestic market also do not meet European safety standards and cannot be sold here. In addition, Chinese manufacturers can easily circumvent customs duties by producing their cars for the European market directly in Europe. Recently, Chery bought an old car factory in Spain and BYD is building a new factory in Hungary.

What to do now?

Now that the voters have spoken, the president von der Leyen will announce his decision in the coming days or weeks regarding customs duties on new cars manufactured in China.

She has linked her political destiny to the implementation of the Green Deal, but has been criticized in recent weeks by her own EPP group in the European Parliament. German Christian Democratic MPs have given in to pressure from the German car lobby.

We know that French and Italian MEPs in the outgoing European Parliament support the introduction of customs duties. French and Italian automobile brands are not present on the Chinese market and therefore do not fear Chinese reprisals in the form of customs duties on cars manufactured in Europe.

For von der Leyen, the situation is delicate. She aspires to a second term and is counting on the support of France and Italy for this, but will she dare to oppose the German MEPs of the EPP? I doubt. I don’t think it will take into account the concerns of European citizens. For them, a new car will soon become more expensive again, or even unaffordable for a growing number of them.