Last Update on : March 3, 2008
Tougher fuel rules push Ford and GM to look at subcompacts for U.S.
.jpg) General Motors Corp. and Ford Motor Co. have made cool, smartly equipped little cars such as GM's Opel Tigra and the Ford Ka for Europeans for years, but Detroit executives were reluctant to offer them at home.
Sophisticated small cars may be ideal for Europeans living in old cities with narrow streets, the thinking went, but Americans associate luxury with spaciousness.
Now that's starting to change. At the Geneva auto show this week, GM and Ford will display two stylish small cars that are aimed at European audiences but are likely to find their way into U.S. showrooms, too.
Ford will introduce the production version of its new Fiesta subcompact, which was designed in Europe and which, aside from the name, bears no relation to the Fiesta econo-boxes sold briefly in the United States in the late 1970s.
GM will unveil a concept for a compact Saab that seems slated for production. It would be sold in Europe, Saab's main market, and in the United States, GM executives say.
"If we go back in time, people in the United States bought cars by the pound," said Steve Shannon, general manager of Saab Automobile USA. "There was almost a perfect correlation between bigger and more expensive, and that obviously is changing."
The shift is due partly to the rise in gas prices to more than $3 a gallon that has prompted many people to consider buying smaller vehicles.
Booming sales
High gas prices have fueled a surge in U.S. sales of subcompacts, or B-cars, a small category dominated by inexpensive Asian-built or Asian-brand cars, such as the Toyota Yaris and Chevrolet Aveo. In 2007, subcompact sales rose 20 percent in the United States to around 350,000 cars.
Auto experts say there is even more demand for premium, or what they call aspirational, small cars that offer more than just affordability and fuel savings.
"We're seeing a lot of people interested in fuel economy or in adding a secondary vehicle to their household fleet," said Art Spinella, president of CNW Marketing Research Inc. in Bandon, Ore. "The problem with B-cars is that they've tended to be cheap."
Young Web-savvy customers often complained that snappy little cars, such as Mercedes-Benz's Smart two-seater, were marketed in Europe and other countries but not available in the United States.
Attitudes shifted in 2002, however, after BMW brought a flat-topped Mini to the U.S. that turned out to be a hit.
"Americans had equated size with luxury, and that perception is changing largely due to Mini and the concept that they brought with them, that you can have premium and a small package," said Aaron Bragman, an analyst at forecasting firm Global Insight.
Since then, Ford's Volvo has brought the C30 compact to the United States, Daimler is selling its Smart car, and BMW is bringing its 1 Series car, the smallest model in the BMW-brand lineup.
Ford originally planned to bring an inexpensive subcompact from its Latin American lineup to the United States, but its executives changed course recently and selected a more refined small car from their European operations. The new two-door Fiesta, which is based on the acclaimed Verve concept car and offers innovations such as Bluetooth connectivity, will be sold first in Europe and will come to the U.S. market in 2010.
"We see the 'image' small cars having more volume than the economy small cars like the Hyundai Accent," said George Peterson, president of the consulting firm AutoPacific Inc. in Tustin, Calif.
Premium, and image, small cars, such as the Audi A3 and the Chevrolet HHR, account for 3 percent of the market, he said, compared with 2.5 percent for the more affordable mainstream subcompacts. Both segments are expected to grow.
Green appeal
No one expects the B-car segment to evolve into anything like what it is in Western Europe, where it accounts for 25 percent of the market, according to British research firm JATO Dynamics.
Americans will continue to prefer larger cars, auto executives say. But they detect a counter-cultural shift among some customers.
"If cars ultimately say something about you," Shannon said, "a small car says something about you as being a little more sensitive to the environment, a little more concerned about fuel economy."
Automakers normally don't want to see customers moving into smaller vehicle segments, but this trend will benefit Detroit's carmakers in one way -- by helping them meet strict fuel economy standards coming into force. Besides, BMW's experience with the Mini suggests that a successful small car can be a money-maker.
Mini buyers typically load up on options, resulting in an average transaction price of $28,889 for a Mini Cooper S, according to auto research site Edmunds.com, or $7,000 more than the sticker price.
"The challenge manufacturers have," Peterson says, "is to make small cars that people want to buy, and that can be priced higher and recover some of that money people say they never make on small cars."
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