ASTON MARTIN cancels the Cygnet at a cost of £8.1 Million.

Aston Martin will end production of its Cygnet minicar following poor sales of the Toyota iQ-based model.

"Cygnet production will end this year," Aston Martin spokeswoman Sarah Calam said.

The hand-stitched leather interior and Aston Martin badge was not enough to persuade customers to pay 31,000 pounds ($50,000) for the model, more than double the price of the iQ, which provided the engine, transmission and frame.

Demand for the Cygnet, which was developed in about 12 months, was well below the automaker's sales target. The Cygnet went on sale in Europe in 2011.

Aston had hoped to sell up to 4,000 Cygnets a year to environmentally conscious city dwellers thought to be keen on a small, easy to park, luxury vehicle. But buyers were put off by the Cygnet's high price, particularly since it lacked the characteristic performance of a brand that achieved fame with the DB5 sports car featured in 1960s James Bond movies.

"The Cygnet was intended to catapult the brand into a new market but at roughly double the price of many competing cars in that segment, it was misjudged by Aston Martin," said Ian Fletcher, an automotive analyst at IHS Automotive. "The premium supermini market is a good place to be at the moment but Aston got it wrong in thinking putting a grill and a fancy interior on what was basically a Toyota iQ would make people buy it."

BMW, Mercedes minicars

European carmakers have recently done well out of producing high-end minicars. Audi's upmarket A1 is selling well, while Mercedes is considering making a minicar to take on BMW's successful Mini. Research consultancy

IHS forecasts some 594,000 city cars will be sold across Europe in 2013 and expects this to grow to around 803,000 by 2020.

However the popular BBC program Top Gear and other car Web sites suggested that Aston ventured into the city car market to help it meet EU targets for fuel emissions and to justify the development of V8 and V12 engines for its high powered cars such as the DB9 and Vanquish models.

The luxury car maker, owned by Kuwaiti and Italian private equity groups, has struggled to grow since the economic downturn in 2008. Failing to find success when the luxury sector is growing rapidly does not bode well for Aston Martin, which also lacks a luxury SUV model - excluding it from another market that has defied Europe's recession.

Its weakness has been exacerbated by a lack of funds from its private equity owners, which include Investment Dar - a major Kuwaiti finance company which ran into trouble during the financial crisis and had to restructure $3.7 billion worth of debt.

By comparison UK rival Jaguar Land Rover has enjoyed more than 4 billion pounds of investment since being bought in 2008 by India' deep-pocketed Tata Motors.

Profit slide

As a result Aston Martin's sales and profits are on the slide. It reported 2012 adjusted pretax losses of 24.6 million pounds, down from the 21.2 million pound loss it posted a year earlier. It also took an 8.5 million pounds charge related to scrapping Cygnet.

Retail volumes fell to 3,800 units in 2012 from 4,200 a year earlier, but Aston is aiming to double sales by 2016, helped by new V8-engine versions of the Vantage and DB9 models.

Those numbers are in contrast to Bentley, which reported a 30 percent rise in 2012 sales, helped by new showrooms and growth in the United States and particularly China, with its large number of super-rich consumers as well as a fast-growing middle class eager for luxury western items.

Italian private equity fund Investindustrial agreed to buy a 37.5 percent stake in Aston Martin last year and raised hopes that its promise to invest $1 billion in new products and technology would boost the company's fortunes.

Aston also teamed up with Daimler's high-performance Mercedes-AMG GmbH division to develop a new generation of bespoke V8 engines. That move, taken earlier this year, aimed to help it better compete with the likes of Volkswagen's Bentley and Porsche units, as well as Jaguar Land Rover, which has achieved strong sales growth, especially in China, since 2008.

Both of those deals should help Aston Martin overcome its latest blow, analysts said.

"Investindustrial turned around motorcycle maker Ducati who were in trouble and have a similar history to Aston so their involvement is a huge positive, while the Daimler relationship can only help develop the technology under the skin, which is key," said IHS's Fletcher.

Next CEO

Meanwhile Aston's next challenge may be just around the corner. Media reports suggest its charismatic CEO Ulrich Bez is set to step down at the end of the year after 13 years at the helm and with no clear successor.

Bez will probably become a non-executive chairman, according to company sources.

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