LexFather

http://www.msnbc.msn.com/id/34432828/ns/business-autos/

Will Detroit find buyers for new small cars?
They're lighter, more stylish and save gas, but market remains limited
Image: Ford Fiesta
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By Paul A. Eisenstein
msnbc.com contributor
updated 7:38 p.m. ET, Tues., Dec . 15, 2009


Image: Paul A. Eisenstein, msnbc.com contributor
Paul A. Eisenstein
After a nearly two-year wait, the public got a good look at Ford Motor Co.’s new small car, the Fiesta, at this month’s Los Angeles Auto Show. Indeed, the floor of Staples Center was filled with a variety of small cars and downsized crossover vehicles.

Ever since fuel prices soared to record highs last year, American consumers have been trading in their gas-guzzling trucks and full-sized cars for smaller, more fuel-efficient vehicles — or, at least that’s the conventional wisdom. In fact, while the small car segment of the market has gained some momentum, though, U.S. motorists have remained stubbornly attached to their pickups, SUVs and larger passenger cars.

So can a new generation of compact and subcompact alternatives move the needle? The jury is out.
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“We’re trying to change the mind-set with this car,” says Moray Callum, Ford’s North American design director.

Unlike the company’s stripped-down offerings of the past, such as the no-frills Escort, the Fiesta subcompact is both stylish and sporty. It offers a surprising array of features not normally found at the low end of the U.S. market, including a full complement of airbags, Bluetooth and a high-end, iPod-ready audio system.

In years past, that would have been difficult to justify considering Detroit automakers typically lost money on their smallest offerings. But with Fiesta, “we (had) to bring the global strengths we had as a company” to the project, says Ford President Mark Fields.

The underlying platform for Fiesta was developed as part of a joint venture with Ford’s Japanese affiliate, Mazda. Mazda is using it for a subcompact it’s also just launching in the U.S., the Mazda2 — with final engineering done in Europe. By spreading out development costs and sharing the platform, Ford has been able to improve its economies of scale, allowing it to offer more content for a lower price.

That’s a strategy that has long been used by the Japanese, with products like the Toyota Yaris and Honda Fit, which currently dominate the subcompact segment.

But that latest research suggests that approach might not be enough to shift the market.

“Our research shows that, despite what the U.S. government is telling us, few Americans want to downsize to smaller cars,” says George Peterson, president of the Los Angeles-based consulting firm AutoPacific, “Finding more buyers inclined to purchase smaller cars will not be easy.”

Exactly how much of the market today is made up of small cars depends on who you ask and how they parse their data. Ford claims the segment has grown from about 14 percent of the market in 2004 to almost 22 percent today. But other data show that small car demand has actually slipped since fuel prices hit their peak in July 2008.

AutoPacific says up to 25 percent of American motorists now in the market say they might consider a small car. But "many of those won’t actually wind up buying a small car,” says AutoPacific analyst Stephanie Brinley.

“Americans just aren’t in love with small cars," she says. "They’re seen as econoboxes and not as safe as larger vehicles.”


Of course there are other factors that can influence demand, such as fuel prices. Last year’s run-up to a record $4 a gallon definitely created a change in the market. Looking at the smallest products, minicars and subcompacts, demand surged from 10 percent of U.S. sales at the beginning of 2008 to 17 percent by May of last year.

But even before pump prices hit their peak in July 2008, consumers were shifting their buying habits again, according to a report by consulting firm Experian Automotive. “Consumers have short-term memory,” said Experian’s Jeff Anderson, noting that by the end of last year, the minicar and subcompact segment was back to around 10 percent.

Most experts predict fuel prices eventually will rise again. Former General Motors CEO Fritz Henderson based his company’s product strategy on the expectation that $4-a-gallon gas will become the norm.

But the industry can’t wait for that reality. It faces the challenge of meeting tough new fuel economy mandates from the federal government, which has set a corporate average fuel economy, or CAFE, standard of 35.5 mpg by the middle of the coming decade.


Getting there will require downsizing, according to most industry leaders. But AutoPacific’s Brinley said that message is lost on the typical motorist. “People want technology to solve the problem of fuel economy," she said.

That’s not entirely out of the question. Makers hope to achieve significant mileage gains by adopting lighter materials and new powertrain technologies, such as diesels, hybrids and advanced gasoline systems like Ford's EcoBoost powertrain. But few observers believe that will be enough to achieve new CAFE standards.

The challenge, said Brinley, is to appeal to various buyer groups, such as one that AutoPacific dubs “affluent progressives,” who are more open to shifting their buying patterns.

There are some signs that this can work. The British-made Mini has attracted a core of buyers who normally would never have opted for a small car before. Ford is hoping to achieve something similar with Fiesta by emphasizing both style and fuel economy.

mmarshall

That, right there, is the problem. The American public, pre-occupied right now with jobs, the economy, and health-care issues, doesn't truly realize (yet) what the Obama Administration and their allies in Congress did with the new 35-MPG CAFE mandate.....and what the consequences are going to be. When they see, in a couple of years, how much the choice in new vehicles is going to shrink (along with vehicle size), and what will actually be available on the American market, there will be two consequences. First, a mass public protest....probably leading to a new and different Congress. Second, a big increase in the sale/value of used cars.

Perhaps my argument is better suited for the debate forum, but, I think it pertains to the topic at hand here.

joe80

IT'S ABOUT TIME PEOPLE GET SICK OF MINI'S!! man, i really hate mini. i have a friend who drives one, and i just hate it. i thought it was out of style 2 years ago.

anyway, small cars just aren't meant for americans. roads are huge, people are fat, and frankly there aren't many attractive small cars out there.

LexFather

If a Hybrid Camry/Fusion can get over 35 MPG and stay a pretty large size, there is no reason why others cannot. I look forward to more efficient larger vehicles.

I just had a thought. What is hardly any company meets the 35MPG mandate? I can see the govt TAXING people based on their cars MPG? Ughh....

I8ABMR

I think this is surprising . People need to realize that gas prices will get back up there again. I think they are more worried about making their mortgage payments on their homes that are not worth what they owe on them

IS-SV

At $6 per gallon, see what car choices the average American will make, no government legislation required.

mmarshall

If that's the case, then why are people still lined up to order the Smart-for-Two? There is still a waiting list for them.....even with their stingy two-year warranty.

mmarshall

Though the past, of course, is not necessarily a prediction of the furure, what usually happened was that average Americans still chose driving over other activities. They simply kept filling their tanks, and, to compensate, ate hamburger instead of steak for dinner and cut back on entertainment, gifts, etc.....

Of course, we have never had $6 a gallon gas (except for some localized spot-shortages/price-gouging after Hurricane Katrina). Gas reached $4-5 last year, in the summer of 2008, but even then, though the public, for the first time, made some noticeable changes in their car-buying habits, they were not of the extent that people in other societies have had to make.

IS-SV

The article, is about selection of small cars, not driving habits. As a side note, when gas prices spiked, the average American did reduce miles driven, they did fill tanks less often.

And at the higher gas prices, the average American did make different car choices.

Yes I was not making a prediction about gas prices, it's just a matter of time before it hits $6.00.

IS-SV

Sorry, that's old information. To keep CL members up on the latest facts:

Tiny Smart cars are stacking up at some of the 75 U.S. Smart dealers because people who ordered them are refusing to take delivery.

Cheaper fuel prices blunt the appeal of Smart's 36 mile-per-gallon rating, and the recession has scared off some who ordered.

The $99 deposit a buyer must put down to order a car is refundable, so it's easy to say "no."

mmarshall

There is still somewhat of a wait in my area, although some people have had second thoughts about the car's potential safety....more so than the recession.

mmarshall

I have to disagree with your reasoning her, at least to an extent. Driving habits often determine the type of car one selects. In most cases, one is not going to choose a Dodge Viper for stop-and-go, big-city driving. Nor, in most cases, will one choose a Smart-for-Two for long trips.


You just MADE a prediction....right here.

IS-SV

No timing window identified. Doesn't take much knowledge to predict $6.00/gallon within an infinite number of years

IS-SV

I don't disagree, I was just referencing the article.

IS-SV

Yes.

The easy money is over for Smart in the US.