"People are buying cheaper and cheaper cars," Pischetsrieder said ahead of an annual motor industry dinner in London.
In fact, the average spent by Europeans on their cars has been sliding since the turn of the century after having risen steadily until the late 1990s, Pischetsrieder said at the Society of Motor Manufacturers and Traders (SMMT) event on Thursday.
"This doesn't really contribute to the profitability of the car industry," he pointed out.
Making matters worse for car makers, Pischetsrieder insisted, is the ever-increasing mass of red tape the industry is having to cut through before it can bring cars to market.
"When it comes to Brussels, it is not creeping, but explosive legislation," Pischetsrieder declared, singling out EU emission legislation in particular as being too ambitious.
The EU wants cleaner diesel engines which release less harmful particles and nitrogen oxides, or NOx, which have been linked with lung diseases, including cancer.
Although Pischetsrieder is in favour of cleaner diesel engines, he said the EU criteria were too strict.
Reducing emissions from 200 NOx to 150 NOx, as the European Union commands, does not sound much, but the effect would be to make diesel powered cars much more expensive, he argued.
"The difference in the cost of a motorcar is going to be in the region of €600 (£419)," said Pischetsrieder, who is also president of ACEA, the European Automobile Manufacturers Association.
The European Union must chose between excessive regulation of the car industry and its desire to become a globally competitive entity, he insisted.
But solely blaming tight-fisted consumers and Eurocrats in Brussels for the car industry's difficulties would be churlish, and this, say industry observers, is particularly true for Volkswagen.
The group - which owns Audi, Volkswagen, Seat and Skoda, as well as Bentley, Bugatti and Lamborghini - has seen its profits slide since Pischetsrieder took over at the helm in the spring of 2002.
Last year, the group reported a 48% fall in operating profits for 2003 to 2.5bn euros (£1.75bn).
Then, after a more than 20% fall in profits during the first half of this year, the group issued a profit warning, slashing expectations for 2004 as a whole from 2.5bn euros to 1.9bn (£1.33bn) euros.
Many challenges remain on Pischetsrieder's horizon, though: he is still battling with German ownership rules which give local government a say in how the business is run, and he has to reform the group's corporate structure.