Renault's recent decision to axe UK sales of the Laguna and Espace (and the fact the company still hasn't decided how to replace these models), reminded me of something that Richard Parry Jones, Ford's retired engineering guru said at Autocar's 5000th issue bash earlier in 2011.

Parry-Jones said that a car manufacturer either builds budget cars in huge volumes or it heads upmarket. There's no middle way. For mainstream car makers, 'upmarket' might not amount to a huge sum. A decade ago, the then-boss of Renault told me that his biggest headache was the fact that Volkswagen managed to get a showroom price of around £1500 more for a Golf than he could achieve with a Megane.

That might not sound much, but over annual sales of, say, 400,000 vehicles, that's an extra £600m in the Wolfsburg bank account each year. Car makers are loathe to reveal the margins made on individual models, but I found out that a certain compact premium German saloon car returns an average profit of £5000 per sale, which is regarded as impressive in the industry.

For those makers that are in the mainstream, fighting for every sale can mean never getting anywhere the near the quoted brochure price. Other industry commentators say that Europe's car industry is also suffering from 'over-capacity' - the ability to turn out far more cars than the market can comfortably absorb, forcing everybody who isn't a premium maker to discount heavily. Supermini profits can be as little as £600 per unit, which shows you just how much the car maker would like buyers to tick a few options boxes.

Cold industrial logic would suggest that more mergers are needed among European manufacturers, creating super-makers all using the same basic platforms. Fiat Auto certainly lacks critical mass as does GM Europe, which is still losing money on an operating basis.

Even Ford's European arm has been losing money, showing just how hard it is to make profits with even the best mainstream cars. And I don't think you could accuse most car-makers of being badly run.

Truth is, I can't see how this situation can continue (outside of VW which can both leverage huge volumes and demand premium prices). Either we all stump up more for our non-premium motors or the makers will start stripping out content, learn to love hard plastics and beam axles again and price the result to sell. Renault's introduction of the budget Dacia brand to the UK will be very interesting.