A coming-of-age daughter means I have recently been forced into the small car market. You’d think finding something small, safe, insurable and inexpensive wouldn’t be an unreasonable ask or an impossible task. Well, you’d be wrong, and probably a little surprised at the limited choice and eye-watering prices being offered up by most car brands. A lot of the leading manufacturers have recently ceased production of their entry-level models. Volkswagen Group have stopped making the VW Up, Skoda Citigo and Seat Mii, Ford no longer manufacture the ever-popular Fiesta, and Volvo have decided to focus on selling only SUVs to us Brits.

So why is this happening? The paucity of affordable, small ICE (internal combustion engine) vehicles is the result of strategic portfolio choices by the manufacturers. They have committed to stretching EV growth targets and to be less reliant on ICE vehicle sales by 2030. Indeed, legislation in many markets is expediting this transition. As a consequence, they have chosen to turn their back on the readily available revenue from lower-margin petrol and diesel hatchbacks in order to manage the tension between financial targets and sustainability goals. This move allows them to focus on selling fewer, more profitable, bigger ICE cars whilst also freeing up production capacity for making more EVs. As such, it is a great example of how businesses are having to think about good growth rather than embracing any growth. Profit and margin are taking precedence over unit sales, and sustainability targets are driving strategic portfolio choices.

The implication of this for any business is to consider two questions: what does good growth look like for us, and are we focused on selling the right things? In the old days, you would focus on the highest-margin products or brands in the portfolio, but now you may need to focus on the higher-impact-reduction products – even if they are lower margin. In an ideal world, you would have a portfolio of higher-margin and higher-impact-reduction products, but for most businesses it will take some time to make this transition.

The limiting of consumer choice in this way is obviously for the greater good, so it would be churlish to complain – but if any of the greater good out there fancy contributing to the monthly payments on a Nissan Leaf, please feel free to get in touch.

In this week’s news

Justin Wright
Managing Partner
Mangrove