Will they sell?
Recent small car revival raises the big question
By LINDSAY CHAPPELL | AUTOMOTIVE NEWS
AutoWeek | Published 01/24/06
The Honda Fit arrives this spring. Honda CEO Takeo Fukui says the company expects 33,000 U.S. sales this year.
DETROIT -- Theeeyyy're baaaaack.
Small cars -- snubbed by Americans since Ronald Reagan was president -- are being queued up as the next big thing to hit the U.S. market.
The North American International Auto Show here had new small cars or concepts from Ford, Toyota, Honda and Nissan.
For now, the new small cars are targeted for relatively modest volumes. But the popularity of small cars could grow if all the kids who grew up in living room-sized SUVs embrace smaller dimensions.
Honda CEO Takeo Fukui said in Detroit that he expects his little Japanese-built Fit, due here in April, to sell just 33,000 units in America this year. Toyota officials forecast that this year they will sell about 50,000 units of the Yaris, which is also coming here in the spring. For comparison, Honda sold 308,415 Civics in 2005.
Stephen Goodall, president of J.D. Power and Associates, says he believes the return of small cars is not a sudden reaction to higher American gasoline prices but simply another example of the industry's ongoing product proliferation.
"Small cars are the last little piece of their portfolios," Goodall says. "They've already created all the other important products -- now they're filling in the last hole with a small car.
"They're not envisioned to be big sellers," Goodall says. "But automaking is different today than it was back in the '80s. They've figured out how to make a profit selling 30,000 units of something today. They used to view 30,000 sales as a failure."
Toyota's Yaris replaces the Echo, a weak seller in the United States.
Young buyers coming
The underlying cause for the small-car re-awakening is Gen Y -- the echo boomer generation -- a demographic bubble of 75 million Americans aged 11 through 29. Planners see them as unable to afford SUVs and crossovers.
The industry's new question: How do you satisfy young buyers accustomed to engine power and legroom when they can't afford them?
Toyota has two solutions. The first is its already roaring Scion brand, which offers inexpensive small cars with lots of accessories.
The second is the Toyota Yaris. Created for international markets and built in France, the Yaris will reach U.S. dealerships with a $10,950 base price on its hatchback model and a $12,550 base on its more plush sedan. The prices do not include a destination charge.
Nissan's Versa, which is built in Mexico, will sell in the same price range when it debuts this summer. Nissan also has indicated that it will introduce its small, quirky Scion-fighter, the Cube, in the United States.
Honda's Fit offers a different solution: ample head and legroom. By maneuvering the fuel tank into the center of the car, Honda gives the Fit almost as much interior space as its family-oriented Accord and almost as much cargo space as its boxy Element.
"The segment isn't what it used to be," says Michael Robinet, head of forecasting for CSM Worldwide in Farmington Hills, Mich. "They're not penalty boxes anymore. The manufacturers have solved a lot of old issues with better design and accessories."
CSM has forecast a rise in so-called B-segment sales in the United States, from 178,783 last year to more than 400,000 in 2008. The B segment is a loose term for cars about the size of the Chevrolet Aveo.
Nissan's Versa is built in Mexico. It arrives at dealerships this summer.
More profit in small cars
John Mendel, senior vice president of automobile operations at American Honda Motor Co., says he believes the segment will be more lucrative for automakers than it used to be. "In the past, many manufacturers tried to enter that segment, and the result was not very good," Mendel says. "The good news is the market is ready for it, and a lot of people are coming in."
That has other companies -- notably the Chrysler group and Ford Motor Co. -- eyeing the segment with interest. At the Detroit show, Ford unveiled a B-segment concept called the Reflex, which focuses on sportiness over space. The back seat has room for one.
This is the fourth straight year that Ford has exhibited a U.S. small car concept, but a production entry is still years away. Mark Fields, Ford Motor Co. president of the Americas, suggests it will be three or more years before Ford's B car arrives.
Fields says Ford changed its direction on small cars. The company had been on a path "to out-Korean the Koreans," he says. Now Ford intends to create a small car with bold design and upmarket content.
Ford is considering more than one B-segment car for the U.S. market, Fields says.
"We think that segment is going to grow over time," he says. "I see lots of opportunity."
Ford unveiled its Reflex concept at the Detroit auto show.
Partner for Chrysler?
General Motors, which already sells the Korean-built Chevrolet Aveo in the United States, has an even smaller car, the Spark, available from GM Daewoo Auto & Technology Co.
"I see a market for the Spark platform," says GM Daewoo CEO Nick Reilly, although he has not been able to persuade GM executives in Detroit. He says: "As fuel prices continue to get higher, it would have a market on both coasts in the United States. I can't see why it wouldn't come here."
Chrysler is coy about its intentions.
Joe Eberhardt, Chrysler group executive vice president of global sales, marketing and service, says the company has discussed the idea of teaming up with another automaker for a B-segment offering.
"We have discussed with a lot of companies, including VW, a lot of projects. There is absolutely no decision on anything," Eberhardt says. "We are looking at opportunity in many areas. We all realize there are certain things we cannot do on our own."
It's a small world
These new small cars are coming to the United States this year.
Honda Fit coming in April: Mid-car gasoline tank provides extra interior space.
Toyota Yaris coming in Spring: It replaces the unsuccessful Echo.
Nissan Versa coming in Summer: This is the U.S. version of a Japan-market car.
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