Small cars make gains in U.S. market
DETROIT – Robynne Raye has a two-mile commute, a tiny garage and a tight budget, so when she was looking to buy the first new car she’s ever owned, she wanted the smallest she could find. After test-driving eight cars, the Seattle resident settled on a Honda Fit.Raye is one of a growing number of buyers hopping into small cars. U.S. sales of subcompacts such as the Fit and compacts such as the Honda Civic reached a record 2.7 million in 2006, according to George Pipas, Ford Motor Co.’s top sales analyst. Small car sales are expected to set a new record this year despite an overall weakening in the U.S. auto market.”The things that have fueled the growth of these (small) cars are really not going away: Gas prices, the housing market, the fashion aspect of these cars,” said Jesse Toprak, senior analyst for the Edmunds.com automotive Web site. “The segment is really hitting at the right time.”The boom has left some automakers scrambling. Foreign automakers control 76 percent of the U.S. small car market, Pipas said, a sobering statistic for Detroit since small cars help capture young buyers and keep them for life.The Toyota Yaris was the best-selling subcompact in the first seven months of this year, while the Toyota Corolla was the most popular compact car, according to Autodata Corp. The Chevrolet Aveo is the only domestic subcompact in the U.S. market right now.”Your share of the small car market predicts your later share,” Pipas said.Chrysler LLC recently announced it will develop a small car with China’s biggest automaker, Chery, that will be exported to North America in 2010. Ford, which sells subcompacts outside the United States, will unveil a concept car next month at the Frankfurt Motor Show that likely will be the basis for a global subcompact that will come to the U.S. market by 2010. General Motors Corp. plans to bring a redesigned Aveo hatchback to North America in June, spokeswoman Nancy Libby said.U.S. automakers have historically given short shrift to small cars because of their weak margins. With a starting price of $10,000 to $15,000, small cars can’t give automakers the kind of five-digit profits they can get from a fully loaded sport utility vehicle.But Laurie Harbour-Felax, managing director of Stout Risius Ross, a financial and operational advisory firm, said Honda and Toyota Motor Corp. showed the industry how to make money off small cars. Both Japanese companies use common platforms and parts on a wide variety of vehicles, Harbour-Felax said. For example, every Toyota and Lexus vehicle in the world might have the same horn, so the company can save money by having one supplier make 9 million horns.”That is not something the domestics have traditionally done very well,” she said.Libby wouldn’t say whether GM makes a profit on the Aveo, but said GM intends to make money on every product it sells. Toprak said most automakers probably break even on their subcompacts.Toprak said there’s another reason automakers need to have small cars in their lineup: Government fuel economy standards. Small cars help automakers bring down their fleetwide fuel average, balancing big fuel guzzlers like SUVs. That’s a hot issue now that Congress is debating an increase in fuel economy standards.High fuel prices have prompted much of the shift to small cars, but they now are safer and have far more style than in the past, said Aaron Bragman, an auto industry analyst with the consulting firm Global Insight.BMW’s Mini showed that small cars can have deluxe features despite being tiny, he said.”The Mini was not cheap. That started people thinking that size doesn’t necessarily equate to how good something is,” Bragman said.Now competitors have upgraded small car interiors and safety systems, and U.S. buyers are responding because the cars are far safer than their predecessors, he said.”The small cars are featuring tons of airbags,” Bragman said. “You can option one out to have just as many safety features as a large vehicle.”Demographics also are driving the small car boom, as Generation Y grows older and buys their first cars. Dave Terebessy, a market analyst with the automotive forecasting firm CSM Worldwide, said if buyers feel good about a vehicle’s quality and reliability, they’ll stick with the brand.”If you get the consumer in at a younger age and they like your product, they’re more likely to stick with your brand over time as they make more income,” Terebessy said.But Toprak said the market is getting so full and competition so fierce that automakers can’t count on keeping small car buyers as much as they could 10 or 20 years ago.”Loyalty in the car business isn’t what it used to be,” Toprak said. “There are more vehicles in a given category competing than at any other time in history.”Raye, 43, who owns a graphic design company and teaches at a local college, said the jury is still out on her Honda Fit, but she would buy another Honda if she doesn’t have major problems and can drive the Fit for 10 or 15 years.Raye, who checks in regularly with other owners on an Edmunds.com driver’s forum, said the Honda Fit is so popular in her area that she waited six weeks to get one. Toprak said the Honda Fit is one of the hottest sellers on the market, with an average time on the lot of 13 days compared to 63 days for the industry.Raye said she gave up some luxury perks she would have wanted, like a sunroof and leather seats, for a car that would be easy to park and fuel efficient.”I call it a poor man’s hybrid,” she said. “I just don’t find it acceptable anymore that a car could come on the market if it gets less than 30 miles per gallon.”—Auto Writer Tom Krisher in Detroit contributed to this report.—On the Net:Chrysler LLC, http://www.chrysler.comFord Motor Co., http://www.ford.comGeneral Motors Corp., http://www.gm.comHonda Motor Co., http://www.honda.comToyota Motor Corp., http://www.toyota.com
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