Detroit: Suddenly, Small Is Beautiful

[moman]

*Another great article, courtesy of Business Week*

Detroit: Suddenly, Small Is Beautiful

NEWS ANALYSIS
By David Welch



Buyers are flocking to little cars -- and not just because of high fuel prices
It has come to this: even Texans are having second thoughts about their big trucks. In Fort Worth, deep in the heart of truck country, the Mortiz Kia used-car lot is packed with big sport-utes and minivans that buyers have traded in for cars that look pint-size by comparison, including the Sportage small SUV and Spectra compact.

During the big-SUV boom, many buyers stretched their monthly budgets to lasso one of the monsters. But as gas prices jumped 50%, sending the cost of filling up the tank of a large SUV north of $70, those gigantic gas-eaters stopped looking so alluring. Customers, says Kia new-car sales manager David Benker, "want something smaller to drive to work every day."

COOL AND CUTE. America is still a far cry from Europe, where the family car is often a compact. In the U.S., downsizing often means trading a huge SUV for a slightly smaller one. Still, for those willing to truly trade down, the good news is that a fresh crop of little cars is making small cool again.

While soaring prices at the pump are probably the single most important factor drawing buyers back, small cars are also benefiting from smart designs and youthful, edgy marketing.

The boldly styled Mazda 3 is one of the hottest cars on the market, with sales up 45% this year. High-end small autos such as the Mini Cooper convertible and the all-new Audi A3 -- as well as dirt-cheap Korean-made Chevys, Kias, and Hyundais -- pushed sales of small cars up 23% in September. They now make up 18% of the U.S. market, a major leap from the 13.6% they claimed a year earlier, according to Edmunds.com, a Santa Monica, Calif.-based auto research firm.

NO MORE ECONOBOXES. At the same time, car buyers are abandoning SUVs in droves. With sales off 33% in September, sport-utes grabbed just 14.5% of the U.S. market, down from 19.4% a year ago. Is this the big shift away from SUVs that has long been predicted? Tom Libby, an analyst with J.D. Power & Associates' Power Information Network, says defections from larger vehicles to compacts picked up last month.

Yet experts like Libby believe gas prices will have to stay at today's levels or even rise higher to force a wholesale change in what Americans buy. However significant the change, one thing is clear: Auto makers are moving swiftly to put renewed focus on their small-car offerings.

Gone are the days of churning out econoboxes. Now the push is on to add splashy styling and make downsized cars roomier and more fun to drive. Carmakers are betting that, by offering up sporty compacts, small wagons, and crossovers, they can get better prices and, ultimately, higher margins.

AGGRESSIVE STYLING. The PT Cruiser's success prompted General Motors (GM) Vice-Chairman Robert A. Lutz to develop the Chevrolet HHR, a rival retro compact wagon which hit the market in July. Lutz, who came up with the PT Cruiser back in his Chrysler days, is boasting strong initial sales numbers, saying the HHR is on a pace to beat its 60,000-a-year target. Insiders say GM dumped plenty into rental fleets. But Lutz claims GM sees enough demand to double production. "There used to be a view that no one cared about small cars, but that's a defeatist's strategy," Lutz says.

To make their pint-size offerings more profitable -- and to hedge against continued stratospheric fuel prices -- auto makers are putting more resources into small-car development. Take Chrysler, which is betting its trio of more aggressively styled cars will sell more for their fashion than their fuel economy.

Next year the Neon plant in Belvedere, Ill., will stop making tinny boxes and start building three new models: the Dodge Caliber, Jeep Patriot, and Jeep Compass. Chrysler figures all three can fetch fatter prices than the Neon ever did. "Conventional wisdom says you can't make money selling small cars," says Jeep Vice-President Jeff Bell. "We're defying conventional wisdom."

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FULL Article:
http://www.businessweek.com/bwdaily/...7775_db016.htm

[ibechip]

Love the picture of the riced out Aveo on there!

I really don't see all Americans dumping the SUV. There will be a swing towards cars again but SUV's will still be cash-cows.

[Mikkoo]

Time will tell if there is a fundamental change in buying habits
in the US. I would welcome a change to more practical
vehicles, verses bigger is better. Here in Finland, our
US built Honda Accord is considered to be a larger car
by European standards. I can also add that our family,
which includes one teenager, a small child and an infant
fit just fine, we had no need for a large SUV when we
lived in the US, and we certainly don't need one here
where gas is pushing $6.00 per gallon.

[CADILLACSIXTEEN]

we live in a different society than before. Last time there was a gas scare, all cars were ruined. This time, I think we adjust the cars to the current situation without ruining the whole auto industry.

[tgagneguam]

...the Mortiz Kia used-car lot is packed with big sport-utes and minivans that buyers have traded in for cars that look pint-size by comparison, including the Sportage small SUV and Spectra compact.

Talk about trading down! Those two Kia's are crap.

...prompted General Motors (GM ) Vice-Chairman Robert A. Lutz to develop the Chevrolet HHR... Lutz, ...is boasting strong initial sales numbers, saying the HHR is on a pace to beat its 60,000-a-year target. Insiders say GM dumped plenty into rental fleets.

I hope this is not true, for then the strong sales simply will be a hollow victory.

Some companies even think subcompacts can thrive in the U.S. Jed Connelly, Nissan North America's senior vice-president for sales, says the company's Versa subcompact, which is smaller than the compact Nissan Sentra and is built on the frame of the European Renault Clio, should pull in buyers who have been looking at used cars. Honda (HMC ), just launching its new Civic, will make a similar play with the Fit hatchback. Toyota also will bring out the Yaris subcompact. All three will sell in the $13,000 range.

Since Detroit, sans the Chevrolet Aveo, has been weak in this part of the market, I wonder if this will mean that the ever-rising Hyundai and Kia, who seem to own the bottom part of the market, will see their success stall a bit. It's a bit distressing that with the exception of the Aveo, Detroit seems to be lacking a significant presence in this part of the market (I assume the Caliber et al. will be more in the mid-to-upper teens price range).

[desmo9]

When I mentioned the death of the large SUV, people think I'm nuts because a) gas might go back down and b) many can afford to fill them up, even in $4/gal gas. Well, there's more to it than that.

Many of the people attracted to big SUVs in the first place are the "trendsetting" crowd. If large SUVs fall out of vogue, partly because it looks uncool to be gobbling alot of gas in this environment, then those folks will go small. The "utility" of an SUV, to them, is all about looking cool. Interior space and off-road ability is secondary. So if they stop looking cool, they'll stop buying. It's that simple.

Also, as I mentioned elsewhere, even if gas *does* go back down, people won't trust that it'll stay there.

[dufus22]

Suvs will not be used for the average family of 4 or less though. I belive they will shift to small wagons, hhrs, etc. i just makes sense in the days of 3.00 gas. I mean most of us never needed a suv to begin with.

[chevystevemqt]

The big SUV is like anything else. People will still "need" to have it - gotta have the 4WD for snow, gotta take the kids to play hockey. They will still justify why they have to have it. I have seen a boost in small car sales - but mostly are going to people who just want to have something to run around in for a grocery getter.

[SteveK364]

It's the '70s all over again: increasing gas prices, a shift to smaller vehicles. But alas ... larger models returned shortly thereafter.

[chev454ls]

At least the smaller, more fuel efficient cars are much more attractive than the crappers in the 70's and 80's.

[yoblues]

Unless your really into off roading or you need serious pulling power you don't need an SUV. Most people could replace their suv with a wagon and not even blink.

[SonicAerio]

Originally Posted by yoblues

Unless your really into off roading or you need serious pulling power you don't need an SUV. Most people could replace their suv with a wagon and not even blink.

EXACTLY!!!

[dindak]

Here in Canada, GM has the Optra, Epica and Pontiac Pursuit smaller cars. Very strong portfolio and sales on a market share basis have beat GM USA.

[paul3230]

Originally Posted by SteveK364

It's the '70s all over again: increasing gas prices, a shift to smaller vehicles. But alas ... larger models returned shortly thereafter.

But this time GM has actual good cars in place. The HHR, Cobalt and the Aveo. Even the new Impala

[moman]

Originally Posted by desmo9

When I mentioned the death of the large SUV, people think I'm nuts because a) gas might go back down and b) many can afford to fill them up, even in $4/gal gas. Well, there's more to it than that.

Many of the people attracted to big SUVs in the first place are the "trendsetting" crowd. If large SUVs fall out of vogue, partly because it looks uncool to be gobbling alot of gas in this environment, then those folks will go small. The "utility" of an SUV, to them, is all about looking cool. Interior space and off-road ability is secondary. So if they stop looking cool, they'll stop buying. It's that simple.

Also, as I mentioned elsewhere, even if gas *does* go back down, people won't trust that it'll stay there.

I agree Desmo. Trends wax and wane. The trend of looking cool driving a big SUV is on the downhill regardless of gas prices. We've grown used to them now so people are looking for something else to differentiate themselves.

The rise in gas prices is just forcing this trend to the "next level" a little faster than expected.