Detroit finds there’s big demand for small cars

SOUTHFIELD, Mich. - When the engine blew on his eight-year-old Toyota Matrix last year, Shane Wilson needed a new car fast but wanted something good on gas. He shopped the usual suspects: small Honda and Toyota models he had owned in the past. Then he surprised himself by buying a Chevrolet Cruze.

“I thought American cars were pretty horrid and that they tended to fall apart,’’ said Wilson, 36, an accounts manager for the Internal Revenue Service in Seattle. “But the Cruze was fun to drive and the interior was light years better than American cars used to be.’’

Small cars, once the Achilles’ heel of US automakers, are becoming a strength. Sales of General Motors’ Chevy Cruze compact are up 10 percent this year, while Ford’s Focus compact sales have soared 90 percent. Last year, GM, Ford, and Chrysler Group’s share of the US compact and subcompact market rose to a four-year high of 26 percent, from 20 percent in 2010, according to the researcher LMC Automotive.


After losing a generation of car buyers to Japanese automakers, US-based companies are building their comebacks on cars they once dismissed in favor of high-profit sport-utility vehicles. Small cars from Detroit are no longer utilitarian econoboxes. They have high style and high-tech features, such as voice-activated stereos, previously found only on bigger, more expensive models.

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“Remember when smaller cars used to be cheap and cheerful?’’ Ford’s chief executive, Alan Mulally, asked at the recent Geneva motor show. “Now the consumers want the finest quality, the finest fuel efficiency, safety, and design.’’

SUVs and pickups still have higher profit margins, but Detroit has discovered that small cars are the foundation of a successful automaker. Since compacts are often a buyer’s first car, they represent the initial step in building brand loyalty. Toyota, Honda, and other Japanese companies used small cars as their wedge into the US market in the 1970s, while GM, Ford, and Chrysler spent more development dollars on bigger models that burned more fuel.

The weakness of that strategy was exposed in 2008 when the average US price of unleaded gasoline peaked at $4.11 a gallon. The lack of competitive compacts accelerated the collapse of US automakers. Ford posted a record loss of $14.8 billion for 2008; GM and Chrysler entered bankruptcy the following year. “That was a defining moment for Detroit,’’ said Jessica Caldwell, at auto researcher

As US fuel prices return to those levels, small-car sales are rising, too. Compacts and subcompacts will account for 19 percent of US auto sales this year, up from 13 percent in 2005, LMC forecasts.


Without the Cruze and Sonic subcompact that have debuted over last two years, GM wouldn’t weather the rising gas prices as well, said Don Johnson, the automaker’s US sales chief.

“We wouldn’t be in as good a shape as we are today,’’ Johnson told analysts and reporters on a March 6 conference call. “Cruze continues to be a more and more important part of our portfolio.’’

US automakers see rising fuel prices as an opportunity to poach car buyers from Toyota and Honda, which have just fully restocked showrooms after natural disasters in Asia cut inventory in 2011. “With more competitive models from the Detroit brands, they’re positioned to benefit from the rise in gas prices,’’ said Jeff Schuster, senior vice president of forecasting at LMC. “Who would have thought that?’’

Some of Detroit’s competitors acknowledge the change.

“The steady increase in gas prices over the last few years has forced many competitors to finally get serious about cars again and, for the first time ever, some of them are bringing credible small cars to market,’’ John Mendel, executive vice president of US sales for Honda.


The Cruze, Ford Focus, and Fiesta are each rated to get 40 miles per gallon or better in highway driving.