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Carmakers' hopes ride on minis

GM unveils the Spark at the Detroit auto show, another sign the industry is thinking small.

January 12, 2009|Ken Bensinger and Dan Neil

DETROIT — With the economy crashing, Americans are tightening their belts and automakers are ready to sell them smaller pants.

On Sunday at Detroit's auto show, General Motors Corp. revealed the Spark, a tiny two-door hatchback that the company says will get 40 miles a gallon and will be in the market by 2011. Toyota Motor Corp. announced plans to introduce, by 2012, its own pint-sized hatchback, the FT-EV, based on its iQ model, that will run entirely on battery power.

Add those to a host of other recently announced, city-oriented mini-cars, including offerings from Ford Motor Co., Nissan Motor Co. and Mitsubishi Motors Corp. that are expected to arrive in the U.S. in the next few years. All together, it's a clear indication that the move toward smaller cars that first emerged last summer, when gasoline prices peaked at more than $4, is picking up speed.

The idea, auto executives say, is to bring consumers a vehicle ideal for urban audiences, and, not coincidentally, beef up fuel-efficiency numbers to meet increasingly tough government regulations. The trend is emphasized by the success of the SmartCar and especially BMW's Mini, which was one of the only brands to show a net sales gain in 2008.

But some analysts suggest that betting on tiny transportation has significant risks.

Although undersized cars have found great success in markets such as Europe and Asia, where gas prices are high and city streets congested, the bulk of the U.S. market has a long-standing tendency to choose larger vehicles whenever possible. The littlest cars, some fear, may appeal to very few consumers.

"The issue here is that there hasn't been a lot of demand for these vehicles," said Jeremy Anwyl, chief executive of, arguing that the success of such vehicles depends heavily on gasoline prices rising again. "These are vehicles that will sell only 10,000 or 20,000 units unless we see $4 gas again."

Many in the industry disagree, saying that the time is almost ripe for such vehicles. Tastes for cars shifted dramatically last summer, and the small-car category was the only one that saw growth in U.S. sales last year. And with federal fuel-economy requirements set to push average fuel economy up to 35 miles per gallon by 2020, getting highly efficient cars on the road is big priority.

What's more, automakers can bring microcars to market at relatively low cost, since they already have developed the platforms for foreign markets, where they often sell extremely well.

"We've been thinking about dipping our toe into this market for a while now," said Troy Clarke, GM's president of North America. He predicts that the Spark, which will go on sale in Europe next year prior to coming stateside in 2011, could be a big success.

"It could be a 90,000 or more volume vehicle," he said, adding that the company could consider an electric version.

Other carmakers are thinking along those lines. Chrysler, which has emphasized trucks and sport utility vehicles, is now scrambling to get into small cars. Frank Klegon, Chrysler's head of product development, said the company was in negotiations with Nissan to create a subcompact or smaller car for the U.S. market that would probably come in an electric version.

Klegon says that although such a car would help it comply with regulations, the decision is more about meeting what it views as a growing customer demand for small cars. "We're trying to create a portfolio of cars that pull the market, not push it," Klegon said.

Ford, too, is preparing to jump into the impish end of the market. It's smallest offering in the U.S. is the Focus, a compact car. But next year it will bring the Fiesta, a sport subcompact that will be made in Mexico.

The automaker won't be delivering its tiniest cars, such as the Ka, popular in Latin America, however. Jim Farley, head of sales and marketing at Ford, said market studies suggest U.S. consumers don't easily differentiate between very small cars and tiny cars.

"The Fiesta and Ka have very different consumer profiles in the rest of the world, but in the U.S. they have similar profiles," Farley said.

The company considers selling just one tiny car to an audience accustomed to behemoth Expedition and Explorer SUVs enough of a challenge, he said. He's already beginning to market the Fiesta, more than a year before its U.S. launch. "It's important we have time to prepare for this," he said.

Foreign automakers, too, are jumping on this tiny bandwagon. Toyota's FT-EV announced this week is based on the iQ, a small car that it began selling in Europe and Asia last fall. Almost as small as the SmartCar, it still manages to provide seating for four.

The FT-EV will join ranks with an as-yet unnamed electric Nissan mini-car and a battery powered version of the Mitsubishi i, another miniaturized version of an automobile popular in the crowded streets of Japan. While most mini-cars are targeted to the lowest price points, these are expected to be quite costly because they rely on expensive battery technology. The electric Mitsubishi, for example, is set to sell in Japan this year at roughly $45,000.

Price aside, Toyota is convinced that Americans are on the verge of a small car revolution. Few in the industry expect gas prices to stay low in the long term, and population trends seem to favor, at least for some consumers, city-oriented cars.

"What we've seen is a growing trend to urbanization," Toyota spokesman Irv Miller said. More city dwellers spell more congestion, and that is a recipe for small cars. "We expect that to continue."


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