Time is Right for Small Cars - As Long as Somebody Else is Driving Them

By Karl Brauer September 22, 2010

2011 Chevrolet Cruze parked - 270.JPG

You've heard the phrase, "Not in my back yard." It's usually used to extol the virtues of nuclear power plants and halfway houses - righteous things as long as it's somebody else who has to live with them.

The auto industry might have to get ready to adapt the tenet to "Not in my driveway," to apply to the arriving wave of new compact and subcompact cars. The government and its regulators effectively have decreed their increased use. Environmentalists want us to drive them. Even Wall Street's done its best to encourage a little, ah, downsizing.

But unless something drastic happens to make American consumers markedly more altruistic in their vehicle choices, recent history suggests small cars are going to remain a hard sell.

Answering the Call for "Small"2011 Ford Fiesta parked - 270.JPG

With several all-new or redesigned compact cars entering the market this year and next, along with recent CAFE mandates to achieve 35.5 miles per gallon by 2016, there's more focus on small, fuel-efficient cars than ever before.

The list of all-new, high-profile economy cars launching now or in the next few months include the Chevrolet Cruze, Chevrolet Volt and Chevrolet Spark, Chrysler's Fiat 500, the Ford Fiesta and Ford Focus, the Honda Civic, Hyundai Elantra, the Mazda2, the all-electric Nissan Leaf and the Toyota Scion tC.

Is it an overstatement to say these companies are betting their future on U.S. small car sales, (despite minimal signs of growth in the market)? Some auto execs have used almost those exact words when speaking to us about future product plans. At the very least, these companies must recoup the sizable investments in their new compact cars. They'll need to sell enough of them to help live up to those rising CAFE numbers.

But does any of that matter to the U.S. car shopper? Will this fleet of all-new small cars convince them to change their purchase patterns of the last three decades, or will they shrug and continue buying the biggest, most powerful vehicles they can afford? Small-car sales over the next 12-24 months should answer the question, though history suggests it's an answer automakers, government officials and a number of special-interest groups might not want to hear.

Added together, these models represent billions of dollars in R&D, plant resources and government certification efforts. A few, such as the Cruze, Civic and Focus, will sell in high volumes. But they nonetheless comprise a market segment that has made minimal strides in market share over the past 20 years. CompactMarketShareSince1991FINAL.JPG

Can The New Generation Of Small Cars Change Everything?

The call for small isn't new. It began with the first oil crisis of 1973 and opened the door for struggling import brands like Honda, Nissan and Toyota. But while small, fuel-efficient models were the foundation of these brands throughout the 1970s, an undeniable trend has taken place over the past few decades. All cars (not just those from U.S. brands) have grown considerably larger and more powerful, while fuel efficiency improvements have been modest at best.

Stable Corporate Average Fuel Economy (CAFE) requirements and (relatively) stable fuel prices over the past 30 years have likely contributed to the physical growth in vehicle size and a corresponding increase in power. Essentially, advances in engine technology allowed carmakers to meet the EPA's longstanding fuel-efficiency requirements (27.5 mpg for cars) while producing ever larger, more powerful models. CarSizesSince1990FINAL.JPG

Just because technology meant cars could get larger and more powerful over the past 30 years didn't mean they should, right?

Not according to market forces, at least. Bigger cars mean bigger profits, so when it comes to selling large sedans and SUVs or small, fuel-efficient economy cars, automakers always have had an incentive to go big. And although fullsize trucks  and SUVs typically are associated with American auto companies, size creep has been the business plan for nearly all automakers - at least for the models they sell in the U.S .

Everything Must Change - Not

Take consistently low fuel prices, advances in drivetrain technology and combine them with automakers' profit motives and these market forces almost inevitably led to larger, more powerful vehicles for a two-decade period from 1985 and 2004.

But starting with Hurricane Katrina in August, 2005, the price of fuel has been anything but stable. The national price fluctuated between $1.70 a gallon at the beginning of 2005 to $4.12 a gallon in July of 2008, with several peaks and valleys in between. It currently sits around $2.68 a gallon and, perhaps to the chagrin of every automaker pushing a new fuel-efficient model, has been relatively stable for nearly two years, prices and demand damped by the recession.

But shouldn't three prior years of big-time price fluctuations convince Americans to abandon their large, gas-guzzling vehicles in favor of smaller, more fuel-efficient models? Our national fixation on gasoline prices (and oil spills) has been higher over the past five years than in the previous three decades.

Shouldn't recent passion and worry about the stability of gasoline prices be reflected in new-vehicle buying patterns? Not really - the majority of consumers are right back to assuming gasoline will always be cheap and continue buying vehicles without much concern about fuel efficiency. TradesVsGasCostFINAL.JPG

When the price of fuel does spike, it can affect consumer buying behavior, but the impact typically is short-lived. With the exception of the fuel-price spike during the summer of 2008 and the five weeks encompassing the government's Cash for Clunkers program in July and August of 2009, the number of people trading in a larger vehicle for a smaller vehicle has remained within a few percentage points of those trading a smaller vehicle for a larger model.

Even more telling, today the market penetration of large and small vehicles remains almost exactly as it was five years ago. Simply put: there's been no quantifiable or longstanding uptick in U.S. car buyers' demand for smaller, more fuel-efficient models.

And for now, at least, no reason to expect one.

Bill Visnic, AutoObserver senior editor, edited this post.

Data and analysis provided by Edmunds.com analysts Ivan Drury and Jeremy Acevedo.

Mark Holthoff, Edmunds.com manager of customer support, created the graphics

Photos by Manufacturers

1 - The Chevrolet Cruze went on sale in early September. (Photo by GM)

2 - The Ford Fiesta went on sale in June. (Photo by Ford)

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pushrod says: 7:19 AM, 09.22.10

Therein lies the problem in trying to put the onus on the manufacturers to sell more fuel efficient cars: they cannot control in any meaningful way what people will buy. If the US and Canadian governments really do want to "make" people buy more fuel efficient cars, then they have to influence the consumer. What CAFE does is try to tell the manufacturers "make your customers buy more fuel efficient cars". They can't. People will buy what they want to buy, based on what they need, what they actually want and what think they can afford.

European countries have put the decision in the lap of the consumer by taxing fuel, particularly gasoline, at a very, very high rate. Why are nearly half the passenger vehicles in Germany diesel? Because the taxes on gas make diesel more attractive, and the prices of both are quite high. Why do more small cars sell in Europe than the US? Part of it is geography, but a big reason is the level of taxation on fuel.

The buying trends during the 2008 price spike and the C4C program show what good marketing people already know: consumers are driven by self-interest. If governments truly want people to buy smaller (or at least more fuel efficient) cars, then they need to appeal to that self interest, either by artificially raising the price of fuel (through taxes) or putting significantly larger surtaxes on vehicles that don't get the desired mileage. Neither will be popular, and during an election would be political suicide. But the current approach using CAFE will only work to a very limited extent.

maitlandking says: 9:00 AM, 09.22.10

Compare the price of a Ford Fiesta (subcompact) to a Hyundai Sonata (midsize or even large). Sticker price is a lot closer than you'd think. Now look at the highway mileage of both ... again, a lot closer than you think. For most people, the Sonata is a pretty compelling deal compared to the Fiesta.

neverdull says: 10:04 AM, 09.22.10

According to http://usnews.rankingsandreviews.com the price difference between the Fiesta (14k-18k avg price) and the Sonata (19k-25k avg price) is 6k; I don't know about you but 6k is not close in my check book. Also the gas mileage, based on information from http://usnews.rankingsandreviews.com, is 4mpg better on the Fiesta, again, not close in my book - maybe you should try walking 4 miles than you'd have a better understanding of how far that really is, and if you think the costs are close, how about sending me 6k and I'll send you nothing, that's seems pretty close to me. I agree with pushrod on this one.

greenpony says: 10:55 AM, 09.22.10

Let people buy what they want to buy. Everyone has different priorities when shopping for a vehicle. The "biggest, most powerful" label doesn't apply to all consumers. "Cheapest, most fuel-efficient" or "highest-tech, most luxurious" could easily apply to many consumers.

I think the point of this article is that if people truly value the environment they will say so with their wallets. Over-taxing vehicles or fuel is one way to artificially adjust peoples' values, but I fear it will become a long-term solution much like it has in Europe. But why should the average consumer have to foot the bill for a political environmental adgenda?

mlh says: 12:10 PM, 09.22.10

greenpony, I believe the answer to your question -- "But why should the average consumer have to foot the bill for a political environmental agenda?" -- is that because, unfortunately, we all live on the same planet.

whoosierdaddy says: 9:05 PM, 09.22.10

Pure self-interest, that's the way it is in the real world, and that's fine. Americans prefer big thirsty vehicles, until gas prices go way up as they did in '08. Reality: most people's vehicle choice considers gasoline prices only the week they go into the dealer to purchase a vehicle. Americans will never embrace small cars until we are incentivised to do so by continued high gas prices. Much higher gas taxes will accomplish this AND reduce our horrible deficit, but Americans will throw out of office any politicians who vote to raise gasoline taxes. That puts us at the whim of middle-east oil sheiks who hate us, and commodities traders who only seek to maximize their profits at our expense.

95civic says: 10:26 PM, 09.22.10

Consider the 2010 2.0CDTi (160PS) EcoFLEX M6 diesel Insignia 5 Door Hatchback VCA rated 41.5/54.3/67.3 mpg(Imperial) urban/combined/extra urban or roughly 35/45/56 mpg(US) city/combined/highway.
http://www.vcacarfueldata.org.uk/search/vehicleDetails.asp?id=24826

The Insignia is the basis for Buick's new Regal. The US Regal is fueleconomy.gov rated 19/23/30 mpg(US) city/combined/highway.

That is decent FUEL FRUGALITY for the diesel ... and I would NOT consider a Regal a "small" car. In fact as a diesel, it can tow almost 3,800 pounds.

Now, EXPLAIN to me why WE are always discussing "small" cars as the solution?

BTW this diesel "Regal" offers an opportunity to save 17 to 19 barrels of crude oil plus about 55 million Btu in thermal emissions [enough to boil roughly 187 tons of water or thaw 190 tons of ice] per vehicle year for the life of the vehicle (20 to 25 years) when compared to the current US domestic light vehicle fleet fuel economies. AND ... those savings will probably remain about 80% better than the results expected from 2016 CAFE induced fleet average.

greenpony says: 10:45 AM, 09.23.10

mlh, I get it now. Since we're all on the same planet, we all need to have the same political views. Thanks for the clarification.

Even if "global warming" is happening, even if it is ultimately due to the tiny effect of mankind acting over many decades, you must admit that there are a lot of scare tactics circulating. Melting icecaps putting whole cities underwater? Sudden weather disasters and ecological catastrophes? The extinction of millions of species? Mass desertification? Any changes that happen are going to be gradual... decades-long... centuries-long... millenia-long. Maybe if you live to be 100 and can remember what the climate was like when you were 10, you might notice a difference. That gives cities time to either build barriers (the Low Countries), embrace the water (Venice), or relocate (Valmeyer, IL). Increased CO2 means plants respirate more easily, flourishing. And historically, warmer periods in Earth's history have been accompanied by increases in biomass (and conversely, cooler periods have been accompnied by extinctions). I hope people get over this fad soon.

95civic says: 10:47 AM, 09.23.10

I think the atricle's fundament approach is faulty.

My question is:

WHY are SMALL CARS the ONLY answer to fuel frugality?

Lighter, I can understand!

I accept the fact that the new Buick Regal is NOT a large car. But, is it considered a SMALL CAR? I think not.

Just suppose that Regal could get about 35/45/56 mpg(US) city/combined/highway with 136 g/km CO2 and 107 mg/km NOx with an ability to tow almost 2 tons?

Well, that is what the Regal's European sister, the Insignia, already does!

The Insignia 2.0 CDTi 160 ecoFLEX Exclusiv M6 diesel is VCA rated 41.5/54.3/67.3 mpg(Imperial) urban/combined/extra urban or about 35/45/56 mpg(US) city/combined/highway with 136 g/km CO2 and 107 mg/km NOx with an ability to tow almost 2 tons.
http://www.vcacarfueldata.org.uk/search/vehicleDetails.asp?id=24826

COST: "on the road" in the UK £21,370 when Exported GBP £17.12k or approximately USD $26.81k. Don't forget, that export price of $26.81k already includes PROFIT.
http://www.autocar.co.uk/SpecsPrices/SpecsAndPricesEdition/Vauxhall-Insignia-2.0-CDTi-160-ecoFLEX-Exclusiv/57248/

I would argue "IT" is power train ... NOT ... vehicle size that matters.

IF ... GM had a US Regal with the 2.0 CDTi 160 ecoFLEX Exclusiv M6 diesel power train delivering 45 mpg(US) combined, it would BEAT ... ALL ... US fuel economies expected to be available in the US through mid 2011 ... EXCEPT ... the Prius.

That alone should take a few $10s of millions out of the advertising costs ... simply because it is clearly something to "brag about", free advertising.

The only CHANGE ... I would make would make to this vehicle configuration would be a "medallion" (or some other distinctive feature) that is readily visible at least 60 feet away that identifies it as a "clean diesel" ... a rolling "billboard" ... allowing the technology to advertise itself to the "doubters" ... very INEXPENSIVE advertising and consumer EDUCATION!

Of course this puts the responsibility on the OEM to deliver!

95civic says: 11:04 AM, 09.23.10

REPLY to greenpony,

IF the US allowed small displacement (below 2 liter) Euro type turbo diesel in LARGE and SMALL passenger vehicles (maybe pickups/vans/SUVs etc) the potential benefit would be an opportunity to save 17 to 19 barrels of crude oil plus about 55 million Btu in thermal emissions [enough to boil roughly 187 tons of water or thaw 190 tons of ice] per vehicle year for the life of the vehicle (20 to 25 years) when compared to the current US domestic light vehicle fleet fuel economies. AND ... those savings will probably remain about 80% better than the results expected from 2016 CAFE induced fleet average.

And, STILL ... be cleaner than "ZERO EMISSIONS" plug-in EV/PHVs running in EV mode when recharged from the US power grid ... simply as a result of their induced emissions from coalfired power generating fleet running at an average 33% efficiency in the US (2007 best case 36% efficient). And that is before considering the contributions of the US NGfired generating fleet that is 50% efficient at BEST.

iskch says: 12:34 PM, 09.23.10

Agree with the article & pushrod.

greenpony says: 10:25 AM, 09.24.10

@95civic: Your "35/45/56" in misleading, since Europeans have different test cycles than Americans. Their "combined" number is *roughly* what the US EPA window stick would say for highway mileage.

95civic says: 8:22 PM, 09.24.10

I agree that the "Monroney combined" (fueleconomy.gov combined mpg) would be about 16% to 20% below the "45" US ... calculated for the "EU" diesel.

However, after studying "EU" diesels on fueleconomy.gov for a couple of years, it appears that EPA's value for "MPG Estimates from Drivers Like You" MPG(US) COMBINED ... SEEM to be generally within 1%~3% of the VCA "combined" values converted to mpg(US). It may require a "light footed" US driver to hit the number ... but obviously they DO!

Apparently the current EPA protocol (including analysis models) puts diesels at a disadvantage ... just like it can not adequately recognize the benefit of stop/start.

These shortcomings will become increasingly apparent with "plug-in" EV/PHVs.

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