Small Cars Making a Comeback?

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“If we’d listened to the market research, we’d have never done the MINI,” says the British brand’s U.S. boss, Jack Pitney.

The fact is, for most American motorists, bigger is better. So how explain the success of the pint-sized import, which despite its diminutive dimensions proved one of the hits of 2003? That’s the question a lot of automakers are asking as they rethink their own small-car strategies.

Before the decade is out, an assortment of domestic and foreign makers, including General Motors, BMW, Mazda, and Mercedes-Benz, are expected to weigh in with their own MINI and microcars. The question is whether these new products will tap into a new market niche or prove fanciful failures.

Small is hot

While the U.S. market takes matters to the extreme, buyers around the world traditionally link size with price. The traditional rule of thumb says that the smaller the vehicle, the smaller the premium a carmaker can command. MINI breaks that rule with a mixture of styling, performance and packaging, but is it a unique exception or the blueprint for the future?

“The challenge other carmakers have to accept is that they need to develop small cars that people actually want to buy,” stresses George Peterson, president of the California consulting firm, AutoPacific, Inc. Traditionally, he says, small cars have been viewed by manufacturers as a necessary, if often unprofitable, part of the business.

Take the aging Chevrolet Cavalier. GM might have dropped this money-loser years ago, but it helped the automaker’s broader — read larger and less fuel-efficient — product line meet federal fuel economy standards. And the Cavalier helped win over lower-income and first-time buyers, most of whom, says Peterson, “are simply looking for the small price tag. But there’s a portion of the market willing to pay a premium for the right small car.”

That’s become more obvious in Europe and Japan, where the motorist’s reality of tight streets, high taxes, and expensive fuel has driven many buyers to downsize, albeit grudgingly. But while buyers who’ve traded out of a Mercedes E- for a C- or even an A-Class might be willing to accept a smaller space, they aren’t necessarily looking to give up on creature comforts. So, many of the new European and Japanese small cars pack in extensive lists of standard features.

True, traffic is a problem in many major U.S. cities, but as long as fuel prices are running well under $2 an American gallon, there’s little financial incentive for drivers to switch. But while the data isn’t yet clear, some manufacturers say they’re seeing signs of a cultural shift among young buyers. Some are looking for more environmentally friendly vehicles, while others simply don’t want to be seen driving the same big cars and trucks that their parents own.

Will it work here?

Is that enough to create a real market for minicars? That’s a question General Motors is struggling to answer, says “car czar” Bob Lutz, but the automaker is set to test the waters. Two years ago, GM rolled out the tiny Pontiac Solstice show car to unexpected acclaim. At this year’s North American International Auto Show, the roadster returned in production form.

2006 Pontiac SolsticeWith a starting price under $20,000, it wasn’t easy to build a profitable business case, especially as it required GM to develop the all-new Kappa “architecture.” That’s industry speak for a highly flexible platform which, says Anne Asensio, executive director of Advanced Vehicles, was critical to make the project work since, “it is very important to use (Kappa as a base) for a larger range of vehicles.”

At the Detroit show, GM rolled out two other Kappa prototypes, the sporty Saturn Curve 2+2 and the Chevrolet Nomad, a minicar/sports car/wagon hybrid. Both vehicles, insiders report, will likely go into production.

All three Kappa designs deliver what Peterson calls, “a magical combination of styling, package, and performance.” Hitting the target won’t be easy, and even for those makers who find the right formula, success could prove fleeting, Peterson cautions. Successful small cars often prove to be short-lived “fashion statements.”

Volkswagen discovered that with the New Beetle, while Chrysler experienced the same boom-and-bust cycle with its once-hot PT Cruiser. Analysts say both automakers waited too long before rolling out new variants. Chrysler is struggling to regain momentum with its Turbo Cruiser and the PT Cruiser Convertible version launching this year.

Swimming upstream

MINI’s Jack Pitney says he’s well aware his brand is “swimming upstream,” and needs to stay fresh. As with the original, the British marque aims to remain relevant with alternatives like the new John Cooper Works and an upcoming cabriolet. Over its long life, there were dozens of versions of the first MINI.

Success is a relative term. Last year, Americans bought 36,010 MINIs, barely a tenth the volume of market leaders like the Toyota Camry. AutoPacific analysts predict that barring a big shift in demand, perhaps due to another oil shock, the U.S. microcar segment will grow to around 250,000 vehicles annually, or less than two percent of the U.S. market. Of course, it depends on where you drew the segment’s precise boundaries. Include the new entries from Toyota’s Scion division, and some analysts expect the numbers to surge past a half million.

Either way, there’s enough potential to perk the interest of an industry seeking new niches and “halo” products that help a brand stand out. The list of planned or possible MINI and microcars is growing fast. On the import side, Mercedes will bring the next-generation A-Class to the U.S., while launching an American version of the Smart brand. BMW is likely to import its new 1-Series. Nissan would like to develop a U.S. version of the little March, while Mazda is tinkering with the Micro Sport concept unveiled in Detroit this January.

Chrysler and Ford are considering ways to counter GM’s Kappa-based products. Chrysler showed one possibility at the NAIAS in the form of the Dodge Sling Shot, based on a platform borrowed from DaimlerChrysler’s Smart lineup for Europe. Chrysler Group Design Director Trevor Creed cautioned that the Sling Shot would be “pretty hard to certify to meet safety regulations for the U.S.” But that’s based on the current generation Smart cars. All-new platforms are under development in order to bring more Smart models to the U.S., and Dodge could benefit from that as well.

Considering that the super-small market segment essentially didn’t exist just two years ago, there could be a staggering array of alternatives in the very near future. Whether they’ll all succeed — indeed, whether any will match MINI — is unclear, but the industry is betting that while most Americans believe bigger is better, there are plenty who prefer to think small.

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