DETROIT (Jan. 17, 2011) — Get ready for a bloody battle in the small-car segment.
Compacts and subcompacts grabbed the spotlight at the Detroit auto show. The wraps came off several Asian entries, including a redesigned Honda Civic, a downsized Toyota Prius and a small sporty coupe from Hyundai called the Veloster.
But this time those traditional small-car stalwarts face competition from the Detroit 3´s most serious offerings in decades.
"This is arguably the first time we´ve had a collection of smaller vehicles from the domestics that is truly competitive," said Jeff Schuster, head of global forecasting for J.D. Power and Associates.
General Motors Co. unveiled the subcompact Chevrolet Sonic, which will take on the Honda Fit, the recently launched Ford Fiesta and others.
Ford Motor Co. will put its redesigned Ford Focus up against the recently launched Chevrolet Cruze, Hyundai Elantra and others. Chrysler Group partner Fiat is rolling out its 500 minicar.
The domestic brands are putting down roots in a small-car segment that should grow faster than the broader market in coming years — especially if gasoline prices continue marching higher. And small cars will help with fuel-economy standards that get steadily tougher through 2016.
The entries also highlight automakers´ fresh view of small cars. These are no longer loss leaders that car companies tolerate so they can meet corporate average fuel economy standards, allowing them to sell higher-margin, gas-thirsty pickups and SUVs. High-end content on the latest small cars — think elaborate infotainment systems and heated steering wheels — are nudging prices and profits higher.
"It´s an area of the market that´s just exploding," said Margaret Brooks, Chevrolet´s small-car marketing director. "The ones doing best in the segment are much more upscale than anything that was available just one or two years ago."
Luxury brands also are seeking growth in small cars. Upcoming debuts include the Lexus CT 200h hybrid hatchback and BMW AG´s front-drive compact, code-named the UKL.
Buick will try to undercut most premium compacts on price with its new Verano, which goes on sale late this year.
Prices are climbing
Some mainstream brands are hoping the added content on small cars will command higher prices. The 2011 Chevrolet Cruze, for example, is priced at $16,995 including freight, 8 percent higher than the 2010 Cobalt it replaces.
It will go up against Hyundai´s redesigned Elantra compact, which went on sale this month starting at $15,625, including shipping.
Ford has no qualms about charging nearly $23,000 for a fully loaded 2011 Fiesta, which is smaller than the Focus. The Fiesta sedan, which went on sale in May, starts at $13,995, including freight.
Ford plans to be similarly aggressive with high-end 2012 Focus prices, Jim Farley, Ford´s group vice president of global marketing, sales and service, said in an interview last year.
"In the past, because of our uncompetitiveness in quality and fuel economy, we´ve been unfortunately discounted," Mr. Farley said. The 2012 Focus sedan will start at $16,995 and the hatchback will start at $18,790. Both prices include shipping.
"We intend to be deadly serious about competing for the small group of customers at the very high end of the segment by offering them features and series that they have never seen from Ford," Mr. Farley said.
Whether consumers will accept those higher prices remains a question. In more than six months of sales in 2010, Ford sold just 23,273 Fiestas.
Even with better powertrains and features, though, automakers will strain to stand out in a more crowded segment, Mr. Schuster of J.D. Power said.
The subcompact segment should grow to 7 percent in 2015 of the overall U.S. market from 3 percent last year, he estimated. Compacts should rise to 32 percent from 29 percent in that stretch.
Competing will require the Detroit 3 and their dealers to embrace a sales and marketing strategy that goes well beyond the more-profitable trucks that have dominated their efforts in recent decades.
Both Ford and Chevy want to use their upgraded small cars to penetrate the California market, which long has been dominated by Asian brands.
In November, 10 of Ford´s 25 top-selling Fiesta dealers were in California, said Ken Czubay, Ford´s vice president of U.S. sales, service and marketing.
Mark Reuss, GM North America president, said Chevrolet will tailor some marketing for the West Coast, which he said "doesn´t really know what GM cars are about."
Big shift for Chevy
The small-car strategy marks perhaps the sharpest shift for Chevrolet, a brand best known for trucks and muscle cars.
For decades, GM sold small vehicles "to use our capacity up and to provide CAFE credits for us to sell trucks, Corvettes, Camaros and CTS-Vs," Mr. Reuss said at the auto show.
Reuss said the Sonic, due in the fall, will be the first subcompact built by any automaker in the United States. Toyota Motor Corp., Ford, Honda Motor Co. and Nissan Motor Co. all import their smallest cars.
Crain News Service writers Jamie LaReau and Mark Rechtin contributed to this report, which first appeared in Automotive News, a sister publication to Tire Business.