Europe's carmakers walk tightrope between low cost and high spec

Carmakers are betting on style and recycling in the battle for Europe's burgeoning small car market, adding hi-tech safety and entertainment features while often using older vehicle underpinnings as a way to keep prices down.

Several new cars on display at this month's Paris auto show from Opel, Citroen, Skoda and Kia are based largely on modified components used in a previous generation vehicle, or taken from another model already on the road, as a way to save cash.

Analysts say the move makes sense, as austerity-scarred Europeans are in no mood to splash out on expensive, big cars.

While the region's auto sales are growing again after a six-year slump, they are still down around 20 percent from their 2007 peak and a full recovery looks years away.

The market for small, fuel-efficient cars, or so-called A-segment subcompacts, has been a rare bright spot. It has grown by 32 percent in the past 10 years to reach 1.12 million vehicles in 2013, at a time when the market for slightly larger B-segment cars, such as the Ford Fiesta, has slumped 33 percent to 2.89 million, according to forecaster IHS Automotive.

They predict further growth in the A-segment of 15 percent to 2020.

But competition is heating up, and so the pressure on carmakers to lower manufacturing costs by sharing ever more parts among their models is intensifying.

"The winners in the auto industry will be those who can attain economies of scale," said Wolfgang Bernhart, a partner at Roland Berger strategy consultants.

Volkswagen currently leads the European car market with its namesake brand accounting for just over 12 percent of new registrations in the first seven months of 2014. It is in the midst of introducing a new production platform aimed at sharing more parts between cars.

But the VW brand is closely followed by PSA Peugeot Citroen and Renault, with the latter growing at three times the rate of the market thanks in part to its budget brand Dacia. And others are fighting hard with their own strategies to keep manufacturing costs down.

Opel's fifth generation Corsa for example, a 10,500 euros ($13,200) compact runabout, is based on a rehashed version of Opel's old Fiat-GM underpinnings, used in the current Corsa, which has been on the market since 2006.

HIGH SPEC

Many of the savings in manufacturing are being put into new features previously only available in more expensive models as automakers strive to stand out from the crowd.

Citroen's Cactus Airflow 2L concept car, for instance, is a no-frills compact family car with a hybrid drivetrain, based on underpinnings from the Peugeot 208, according to Rémi Cornubert, partner at the Automotive Practice at Oliver Wyman in Paris.

"It's an example of cleverly combining elements from value brands with some upmarket features," he said.

Though the Cactus has two digital flatscreens as the dashboard, it has manual rather than electric rear passenger windows, does with a small engine and relatively simple and inexpensive suspension.

The focus on features over significant improvements in engine performance appears to chime with the priorities of European drivers. Currently 50 to 60 percent of all cars in the European Union are only equipped with the cheapest engine, according to consultants Roland Berger.

Skoda, owned by Volkswagen, is due to unveil an all new version of its Fabia compact at the Paris show which borrows extensively from the group's parts bin.

It offers an emergency braking function, intervening when necessary to prevent a collision. And yet, like most of the new subcompacts, it will cost almost the same as the model it replaces -- around 11,600 euros.

Even value brand Hyundai, which is unveiling its new i20 in Paris, will offer a rear-view camera integrated into the seven inch "infotainment" screen and a smartphone docking station in addition to high-end security features such as a lane-departure warning system.