Where's that Small-Car Shift?

By James M. Amend
Ward's Dealer Business

Detroit — With U.S. gasoline prices currently at $3 a gallon and growing consumer awareness of environmental issues, small cars should be the U.S. auto industry's hottest segment.

Not quite yet, says GM Chairman and CEO Rick Wagoner.

“It's been sort of surprising,” Wagoner says during an interview at the auto maker's headquarters here. “We haven't seen a radical shift.”

Sales of small cars in the U.S. through November were relatively flat, up 0.7%, or 16,403 units, to 2.3 million compared with year-ago, according to Ward's data. The segment accounted for 15.9% of the total light-vehicle market in the U.S., up from 15.4% in like-2006 but still fourth behind midsize cars, cross/utility vehicles and pickup trucks.

The lower small-car sub-segment, however, has been doing well. U.S. sales through November jumped 35.4% to 338,675 units from prior year's 250,072, Ward's data shows. But that was due mostly to an influx of new product such as the Honda Fit, experts suggest, and only accounts for 2.3% of total industry light-vehicle sales.

Meanwhile, the volume-leading upper small sub-segment, which includes vehicles such as the Toyota Matrix and Mazda3 5-door, saw deliveries fall 3.7% to 1.8 million units in the period from year ago's 1.9 million units.

Wagoner blames a weak economy, which has caused lower-income families to postpone new-vehicle purchases.

“You lose more sales at the bottom of the market because the people buying the smaller category of vehicle are buying it because that's what they can afford,” he says.

Should gasoline prices remain elevated for an extended period of time, the long-anticipated shift to small cars could occur, Wagoner admits.

Auto makers should begin building more compelling vehicles for the segment, says Brett Hoselton, an analyst with KeyBanc Capital Markets.

He points to Europe, where small cars draw buyers for their value and fuel economy but don't sacrifice features.

“In Europe, buyers don't have to sacrifice content,” he says. “In the U.S., as the euphemism goes, you're not going to get the heated seats.”

Wagoner says GM's options for building a premium small car for sale globally are becoming greater and more cost-effective than ever before.

The Saturn Astra is one example. GM will import the car from its Adam Opel GmbH subsidiary for sale in the U.S. next year as a test of how American drivers take to cars with a decidedly European flavor.

It also will demonstrate whether Saturn can compete with brands such as Volkswagen and Honda, rather than “more modestly positioned” names, Wagoner says. “It's an important step in that direction.”