Wednesday, February 16, 2011 | Edited by Daniel Moores

Small Car Competition: Japan Faces Challenge from U.S., Korea The small-car wars are on with a vengeance. New models from Ford and General Motors will challenge decades of Japanese dominance this year. Meanwhile, fast-growing Hyundai ratchets up the pressure with the stylish and advanced Elantra compact and the upcoming Accent subcompact. And buoyed by its partnership with small-car specialist Fiat, Chrysler promises to join the 40-m.p.g. club with a replacement for the Dodge Caliber late this year. "Small car sales have risen every year since 2004 except 2009 and 2010, when the recession affected everything," said Ford vehicle development chief Derrick Kuzak. "We're convinced there's an ongoing march to higher small-car sales in the United States." The newcomers target the Toyota Corolla and Honda Civic, America's No. 1 and No. 2 selling small cars in 2010, and benchmarks for value and reliability. "The age of the Toyota Corolla and the underwhelming Civic concept Honda unveiled at the Detroit auto show open the door to growth by Ford, Chevrolet and Hyundai," said independent marketing consultant Gordon Wangers of Las Vegas Lakes, Nev. "The Civic and Corolla have seldom been vulnerable, but they both are now. Hyundai, Ford and Chevrolet can take advantage." Small cars: Big times ahead The 2012 Ford Focus clung to the curves like an Audi, racing through the canyon roads above Malibu. Better-equipped, better looking and potentially more expensive than anything that came before it, the 2012 model Focus exemplifies a flood of cars that could reshape the American auto market this year. Longtime leaders like the Honda Civic and Toyota Corolla face unprecedented challenges. Perennial laggards Chevrolet, Ford and Hyundai have vastly improved new compacts. More competition is coming. The new-product blitz amounts to a multibillion-dollar bet on an untested hypothesis. Thousands of jobs from Michigan and Ohio to Mexico depend on the veracity of automakers' belief that Americans are about to buy more small cars and pay more for them. Last year, U.S. sales of small cars gained just 0.3%, while the overall market climbed 11%. Yet in the automakers' favor, betting on higher gas prices has always been a good long-term play. Weighing against a boom in small-car sales are Americans' preference for larger vehicles and the steadily rising fuel economy of midsize cars and crossover SUVs. "If Americans have a choice of a high-m.p.g. midsize versus a compact, they will always pick the bigger car," said Jim Hall, managing director of consultant 2953 Analytics. Small cars for America The new compacts hitting the road have more features and better fuel economy. Chevrolet offers a version of its roomy Cruze compact the EPA rated at a best-in-class 42 m.p.g. on the highway. The stingiest versions of the Ford Focus and Fiesta both promise 40 m.p.g. Hyundai counters with the sleek Elantra, which hits 40 m.p.g. The change began at GM and Ford several years ago. The automakers tapped their global engineering expertise to develop better small cars for America. Their previous attempts were half-hearted at best. "We had small cars, but we weren't competitive," said Bill Perkins, president of Perkins Automotive Group, which includes Taylor Chevrolet and Merollis Chevrolet. "GM restyled, reengineered and re-priced, and they added electronic features young buyers want. "We've got the right car at the right time at the right price," he said of the Cruze. "For the first time, we're not afraid to compete with the Civic head to head." Cars of a new generation Some researchers say they believe Generation Y, the millennials whose peak earning years were postponed by the credit crash, learned a lesson about frugality from the borrow-big '00s. The 68 million millennials have the power to create and collapse whole vehicle segments, just as the baby boomers created the minivan and SUV booms and marginalized the station wagon, Ford analyst Erich Merkle predicts. "The small-car segment will continue to grow throughout this decade. Affordability and utility matter more to millennials than size." Their high fuel economy notwithstanding, the new compacts are bigger and roomier than the cars that preceded them. "The Cruze, Focus and Elantra have gotten bigger over time," said Stephanie Brinley, analyst with EMC Strategic Communications of Troy. "They're closer to the mainstream U.S. vehicle than ever before. The traditional ceiling on how many people will buy compacts may no longer apply." What could go wrong? New subcompacts such as the Fiesta, Sonic and Accent are closer to the old definition of a compact car. That -- and the fact that some compacts offer higher fuel economy -- may limit their sales potential. "I don't think we know the size of the market for subcompacts," said Michelle Krebs, senior analyst with Edmunds.com. The fuel economy of midsize cars and crossover SUVs also is increasing rapidly enough that they may challenge the new compacts. As they approach 40 m.p.g. and more, the financial incentive to switch to a small car dwindles. "Fuel economy is a moving target," said John Sousanis, analyst with Wards Auto. "It's going up in all segments. You don't have to buy a really small car to get good mileage." More than gas mileage Fuel economy alone is unlikely to be enough to shift Americans toward smaller cars. That's why Ford, Chevrolet and Hyundai equipped their new models with more features and comfort. "We have to change people's minds about our small cars," Ford's Kuzak said. "We have to make them exciting to look at, with better technology and higher quality than the competition." (Source: Detroit Free Press, 02/14/11)