Car Makers Try to Make Bigger Profits on Smallest Models; They Share Some Costs, Offer Customized Features Castonguay, Gilles . Wall Street Journal (Online) ; New York, N.Y. [New York, N.Y]. 07 Mar 2014: n/a. ProQuest document link FULL TEXT GENEVA-Big auto makers are taking a fresh crack at solving the problem of how to make money on the tiny cars that European regulators, and many consumers, want them to sell. Profit margins on what are commonly known as city or mini cars are water-thin. Many of them sell for less than [euro]10,000 ($13,860), barely more than the cost of making them. Eric Hauser, automotive analyst at ISI in London, reckons that margins on city cars can only be 3% at best. Auto makers committed to the European market are under pressure to change that math if they are to avoid losing money on this type of car, which will be required to help meet the European Union's tough new emissions standards for 2021. What's more, they hope city cars can attract younger buyers to their brands for future growth-even if many current buyers in the segment are middle-aged. France's PSA Peugeot Citroen SA says that far and away the main buyers for its Peugeot 108 car are young, professional women who account for more than 70% of the purchasers in the segment. Analysts say customers are attracted by the car's tight turning circle that makes parking in small spaces easy City cars also attract first-time buyers on tight budgets who prefer not to buy a used car. Also, many middle-class urban households have such a car as a second vehicle. Anil Valsan, lead automotive analyst at Ernst & Young, expects most of the future growth in demand for city cars to come from Eastern Europe. He projects a rise to 280,000 units in 2020, from 86,000 units in 2013, citing industry data. "That's a 17.7% average annual compound growth rate," he said. Overall sales in Europe could reach 1.6 million by 2020, up from 1.2 million today, he said. Executives from mass-market brands such as Renault SA, Toyota Motor Corp., PSA Peugeot Citroen and others point to their latest city cars, which are being showcased at the Geneva motor show this week, to argue that they can make money in this market segment, as long as certain conditions are met. First, manufacturing has to be located outside Western Europe. That locks in lower labor costs-a more critical factor for low-price models than a German-built luxury sedan.Second, the development and production costs have to be shared. Renault developed its new rear-engine Twingo with Germany's Daimler AG, which is using the same underpinnings for its new Smart ForFour city car. Both cars will be made on the same production line at Renault's lower-cost plant in Slovenia. Beneath the body shape and interior, the new version of the Toyota Aygo is essentially the same car as the Peugeot 108 and the Citroen C1. One plant in the Czech Republic builds all three, at production costs that are much lower than those in Western Europe. The new generation of these cars gives each model a distinct appearance to distinguish one from the other. Dider Leroy, president and chief executive of Toyota in Europe, said the company wouldn't make any money on the Aygo if it had to build it by itself. Ford Motor Co. builds its Ka car at a plant in Tychy, Poland, where Fiat Chrysler Automobiles NV churns out its Fiat 500 city car. A third element is offering more customization and technology to lure buyers on a budget with the promise of a car that is at least somewhat tailored to their style. Car makers are offering a variety of bright color combinations for the bodies and roofs of their respective models, as well as replaceable plastic trim parts to allow for low-cost variations in the look of the cabin, exterior and wheels. One recent fad is fold-back canvas roofs for drivers who like to feel the wind in their hair, without having to buy a luxury convertible or roadster. To avoid slowing up assembly lines, the add-on items are being installed by dealers, who welcome the newfound source of revenue to supplement relatively low margins on the sale of the basic car. Dealers also benefit when customers, tired of one color scheme, pay the dealer to change the look of their car. Martin Golka, group product manager at the Opel brand of General Motors Co, which unveiled a crossover version of the car called Adam Rocks, said the goal is to make people spend their money on personalization options. "We sell very few base models and a lot of richly equipped vehicles, and that's where we make the profits," he said. With a base price of around [euro]11,500, the sticker price for a top-end Adam model with a full toolbox of options can be double that. Opel is particularly pleased because about 50% of Adam buyers have never owned an Opel before. "It's a marketing campaign on wheels," Mr. Golka said. Rivals agree, portraying their city cars as accessories to the lifestyles of young, upwardly mobile consumers and stressing the concept of "fun." Toyota, a brand known in most markets for solid, reliable cars, is taking a crack at humor in its campaign for the Aygo. The catchphrase: "Go fun yourself." Credit: Gilles Castonguay