Small Car Sales Aren’t Booming

2007 Toyota Yaris, Los Angeles Auto Show

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Contrary to some analyses, Americans aren't flocking to small cars, the chief economist for the National Automobile Dealers Association said as the North American International Auto Show got underway inDetroit.

Paul Taylor, NADA's chief economist, told a seminar for journalists attending that show there certainly was growth in the subcompact segment in 2006. But the growth was driven in large part by the introduction of new models such as the Honda Fit, Toyota Yaris, and Nissan Versa, he said. Traditionally segments with the newest products do the best.

At the same time, the auction price for smaller, used cars has dropped during the autumn, suggesting many buyers have decided on other slightly more fuel efficient vehicles, he said.

"What it tells me is that people are not expecting $4 and $5 per gallon gasoline," Taylor added. ""They've become somewhat less concerned about fuel prices in the last four to five months," he said. Demand for used hybrids also has stalled.

Moreover, motorists appear to be adjusting to the run-up in gasoline price in the past two years without the migration to small cars seen after the 1973 oil shock. "People make adjustments," Taylor said.

Fewer motorists are using pickup trucks for commuting to work every day and more motorists, particularly in the used car segment, have begun switching to from six-cylinder to four-cylinder motors. In fact, the auction prices for four-cylinder models have increased dramatically in the past several months.

Taylor added he expects gasoline prices in the $2 to $3 range to prevail in the U.S. for most of the year.

Taylor said overall he expects new car sales to stay flat this year largely because the industry has enjoyed several years of solid sales and the market is saturated. With the Dow Jones Industrial average reaching record levels, sales of luxury cars, however, might spike this year on the heels of the run-up in the stock market, he said. Luxury cars typically follow the stock market.

Demand for used cars, particularly newer used cars, is very strong, he added. "People are reaching out for better and newer vehicles," he said.

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