Americans love to supersize almost anything, but in the U.S. automotive market small suddenly looks big as manufacturers race to introduce low-cost, gas-sipping subcompact cars.
While General Motors Corp. , BMW AG's Mini Cooper brand and Toyota Motor Corp.'s Scion division have seen success in the U.S. minicar market, they are about to get a lot of company.
Times have changed from the '70s, however, as low-quality econoboxes have been replaced by stylish cars — priced between $10,000 to $14,000 — that offer standard features such as air conditioning and air bags, auto executives and analysts said at the North American International Auto Show here.
"This segment was almost left for dead just five, 10 years ago," CSM Worldwide analyst Joseph Barker said. "Now there is large investment and the demand is there."
Among those who plan to roll out minicars for the U.S. market this year are Toyota, Nissan Motor Co. Ltd. and Honda Motor Co. Ltd. .
GM will redesign its Chevrolet Aveo, while South Korea's Hyundai Motor Co. Ltd. and its Kia unit are expected to freshen models. Down the road, Ford Motor Co. and DaimlerChrysler AG are eyeing the market.
"I guess you could say great minds think alike," joked Brad Bradshaw, a Nissan North America vice president.
Last year, the U.S. subcompact segment topped 180,000 units — only 1 percent of the overall market -- but is expected to surge to 290,000 this year and about 370,000 in 2007, CSM said.
High gasoline prices certainly play a role in those forecasts. A recent study by KPMG found 84 percent of 140 global auto executives surveyed believed consumers would base their purchase decision mostly on fuel efficiency, trailing only quality.
While the spike this year in gas prices was a factor for automakers, growth prospects also are being driven by the coming of age of Generation Y buyers, a group ranging from teenagers to those in their twenties that is as large as the baby boomers, analysts and auto executives said.
"There's a lot of young people that are coming of driving age," Toyota Vice President Ernest Bastien said.
"The other important social trend is that in a lot of cases there's an urban revival," he added, referring to growth in city drivers seeking smaller cars for tight spaces.
BMW's Mini and Toyota's Scion xA hatchback have proven that stylish and small can be profitable, while GM's Korean-made Aveo has used its low-cost, high-feature content to lure buyers, analysts said.
The Mini is a subcompact in size, but classified as a premium small car because most models sell for more than $20,000.
Mini sales last year were almost double BMW's initial plans for the car when it was first launched in the United States in 2002. Executives, who hear the competition's footsteps, said Monday they intend offer a wagon-like version within three years.
"We've always kept an eye on what the Japanese were doing," said Rich Steinberg, manager of product strategy for Mini.
Toyota will offer the Yaris starting in March and expects to sell 60,000 units in the first year. Honda will launch the Fit in April and expects to sell 50,000 units in the first 12 months at $13,000 to $14,000. Nissan's Versa, starting at $12,000, will be available in the summer.
Ford showed a concept subcompact at the show and said it intends to join the segment, although it has given no timetable. CSM expects the car next year.
"Small is big in America," Ford's Americas chief Mark Fields said.
Chrysler, which already sells Hyundai-made minicars in Mexico, is exploring the segment in conjunction with a partner. Meanwhile, DaimlerChrysler Chief Executive Dieter Zetsche told Reuters Television its Smart group will "likely" launch a two-seat version of the Smart minicar in the U.S. market next year.
Of course, GM does not intend to surrender in a segment it has dominated, with 68,000 in unit sales last year.
"We see the competitors coming. We're staying aggressive," said Jim Campbell, director of Chevrolet car marketing, who says about 75 percent of the car's buyers are new to the brand.
Drawing new buyers, especially younger ones who will buy more cars as they get older, is critical, analysts and executives said.
Skeptics, however, believe the minicar segment will never be anything more than a niche. Also, buyers looking for a small vehicle can opt instead for one of the subcompact sport utility or crossover vehicles being rolled out.
And with all the new competitors, profits could be squeezed in a segment not known for healthy margins to begin with. However, Nissan CEO Carlos Ghosn dismissed those concerns at the show.
"We don't sell products without a profit," he said.