Autosignal | Wednesday, April 27, 2011
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'Value Cars' Find Growing Niche It would be easy to overlook amid the shiny cars, fashion models, exotic lighting and other hoopla that attend an auto show, but one of the most significant trends at the current New York International Auto Show is the emergence of "value cars." It's a nascent segment, to be sure. Underpopulated, too, but growing less so. Edging into a new space in the auto market, aiming at a sweet spot as much hoped-for as yet realized, are a handful of cars that have in common lower prices than you expect but more features than you'd think. Value cars usually are small, but not always the absolute tiniest or cheapest. They surely aren't the premium small cars -- such as Mini Cooper, Volkswagen Beetle, Honda Civic -- that car companies favor for their higher potential profits. Makers of those premium lines argue those cars provide lots of "value for the dollar," but that often means paying top dollar in their class. The new value cars are defined by being both low in price and well-furnished relative to rivals -- and also when contrasted with the cars they replace in a manufacturer's lineup. The poster car for the new category is the 2012 Nissan Versa, unveiled in New York for a starting price of $10,990 (plus what Nissan decides to charge for destination when the car goes on sale this summer). The new Versa is about $1,000 more than the lowest-price Versa it replaces, but this new one has standard air conditioning, electric power steering and a stylish design, all missing from its forebear, as well as stability control. And the $13,000 2012 Hyundai Accent, also introduced in New York, likewise is more stylish, is rated a desirable 40 mpg on the highway and is a pioneer among small cars for its advanced gasoline direct-injection engine technology that boosts power, cuts emissions and improves mileage. Until now that's been limited to bigger, pricier machines. Accent is also roomier than presumed for its trim outside dimensions, and covered by Hyundai's guaranteed trade-in-price program, launched at the same time as the car -- emphasizing that not all the value-added items need to be hardware. Kia, a corporate affiliate of Hyundai, showed its Rio in New York, a version of the Accent with direct injection. Rio standard features include an AM/FM/CD/MP3/stereo with three months of free satellite radio service -- a deal usually found among bigger, more expensive models. Rio also plans to offer idle-stop technology. The engine stops running at stoplights to save fuel, then restarts instantly when the driver releases the brake pedal. Though common on conventional engines overseas, idle-stop has been in the U.S. only as part of gas-electric hybrid powertrains. "Normal small cars have grown up," leaving room in the size and price spectra for trimmer, less-expensive models, notes David Champion, senior director of auto testing at Consumer Reports magazine. "There is a market for a small car about the size of a (Honda) Civic or (Toyota) Corolla of a few years ago, but not a bare-bones stripper that makes you feel impoverished every time you get into the car." Starting a trend You could date the modern value-car movement to the 2011 Volkswagen Jetta, launched last October at a starting price of slightly less than $16,000 (plus shipping). It was VW's first new model designed for its battle to triple U.S. sales, and the redone Jetta was enlarged, priced some $1,700 lower and given more standard features, such as remote-control locks, defrosting outside mirrors, generous rear legroom and trunk space for a small car, and VW's free maintenance. Critics -- including Consumer Reports -- vilified it, citing lower-class trim and older brake and suspension technology on low-price versions, among other objections. But buyers, ultimate judges of success, seem happy with the value. Jetta's sales the first quarter were 62% better than a year ago, according to sales tracker Autodata. Other automakers hope they're as on-target in showrooms as Jetta seems to be. To automakers, value cars mean cars that might be nice enough to bring owners back for another, instead of shunning the brand because it reminds them of their barely livable cheap cars. Chevrolet's 2012 Sonic small car -- not yet priced but a possible value car if it undercuts rival Ford Fiesta's $14,000 base -- is "intended to be the entry point" into the Chevrolet brand, and leave customers satisfied enough to stay with GM for life, says Margaret Brooks, Chevy's marketing director for small cars. Chevy says Sonic "will feature unexpected amenities and safety for the class, and will be a great value." To buyers, value cars no longer mean $10,000 new cars, but rather cars a bit pricier that at least don't scream "cheap." In fact, prices of the well-optioned versions might be more important than the base price. Hyundai Motor America CEO John Krafcik, at the Accent unveiling, emphasized not only the low base price but also that the price with every factory option would be about $17,000. "If you're going to sell an inexpensive car, it still can't be 'cheap,'" says Don Levin, spokesman for the Dave Mungenast dealerships in the St. Louis area. Buyers are "going to want as much as they can get." Instead of basic transportation, buyers now want "to look at it and say, 'That's a really cool car,'" says Michael Sprague, vice president of marketing for Kia. "You want to be proud of your purchase." Nissan sees two main groups of buyers for the redone Versa: • Young adults. Hit hard by the recession, some are underemployed, still live at home to cut expenses and are eyeing new, fuel-efficient cars. Others just now got a decent job and want a credible new car. "They should appreciate affordable, multi-passenger vehicles," such as Versa, says Larry Dominique, vice president in charge of product planning for Nissan North America. • Older adults. Boomers trying to cut costs but unwilling to buy a car that lacks basic amenities, such as air conditioning and power windows. And "not many in the middle," Dominique says. Other buyer groups prefer bigger cars, or better-equipped vehicles, and can afford the payments. Showing that all car companies don't share the same vision of value-car buyers, Kia says its redone Rio won't appeal just to students and pensioners. "We're going to be able to show that it has broader appeal," Sprague says, because the design was intended to be more stylish and emotional. For car companies, moving up to value cars and away from cheap cars -- which allow a low price in ads but which almost nobody buys -- upgrades the image and reduces hostility between customers who want that sub-$10,000 car they saw advertised and dealers who don't stock the cheapies or try to talk buyers out of those low-profit models. "We don't want to be in the $9,995 business," says Krafcik, referring to the stripped version of Accent the company previously offered. The sub-$10,000 Versas and Accents never drew many buyers, and not many were built, says Jack Fitzgerald, whose Fitzgerald Auto Malls stores in Maryland, Pennsylvania and Florida sell a variety of brands. "There weren't many available, and by the time they added stuff on, it went over $10,000," he said. A balancing act The tightrope that makers of value cars must walk is to try to push more features and nicer trim into low-price cars while protecting profits. Nissan simplified the new Versa so much, it's been able to cut the number of parts by 20%, Dominique says. More important, the company is building Versa on a platform shared by several models that, combined, should total a million sales a year worldwide. Spreading development and manufacturing costs over such a large number of vehicles cuts the costs on each, leaving more headroom for profit even at a lower sticker price. Versa, "even at this ($10,990) price, is very profitable for us," Dominique says. "The lower the pricing, the more demanding you are on the cost competitiveness of your supplier base. That's the reason we selected Mexico, India, China and Thailand" to build vehicles on the same "V" platform used by the new Versa, says Carlos Tavares, head of Nissan Americas. "The cost basis is low, and the skills are very good." Versa illustrates some of the surprising value car features, as well as the tradeoffs or shortcomings. Nissan forecasts that Versa's combined city/highway mileage rating will be 33 miles per gallon. But that's the model with extra-cost automatic transmission, not the standard manual, expected to be rated 30 mpg combined. Only one engine is to be available, a 1.6-liter, four-cylinder rated 109 horsepower. No longer can buyers who want more power opt for a 1.8-liter engine. Air conditioning and stability control are standard, but power windows still are optional. As with all the soon-to-be-on-sale value cars, the final test -- how it drives -- hasn't yet been passed. Have automakers cut corners instead of just cutting costs? "The old Versa was a nice car, refined to drive. We're hoping Nissan hasn't pulled that refinement out of that car," Champion says. Whether value cars become hot items or just higher-price entry cars depends on how much value buyers place on small cars and new cars. Champion: "The big question is, how many people are going to downsize to this size of (subcompact) car?" In the expansive U.S., he says, "There's no downside to buying a (Chevy) Suburban except for the price of gasoline." Shoppers know they can get a bigger, possibly nicer, used car for the same price as a new value car, and might choose used because it's bigger, Champion figures: "To a large extent, the size of the car in the driveway shows your wealth." Source: USA TODAY, 04/26/11) Click here to email to client
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