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Detroit making big bet on small cars

Image: Chevrolet Cruze
With the 2011 Chevrolet Cruze (show here) and the all-new Ford Focus, the two biggest domestic makers are both staging significant introductions in the compact segment this year.Paul Sancya / AP

Can Detroit finally be thinking small is beautiful?

In the decades since the twin oil shocks of the 1970s, Detroit automakers have staged a steady retreat from the passenger car market, seemingly content to focus on the more profitable light truck side of the business while letting their Asian rivals divide and conquer the various sedan and coupe segments.

Nowhere has that been more apparent than in the compact class, where the sales charts are dominated by such players as Toyota, with the Corolla, and Honda, with its Civic. But at a time when demand is ebbing for traditional truck products, and upcoming emissions and mileage regulations — never mind shifting social trends — favor car-based vehicles, Detroit is seeing the folly of its ways.

The two biggest domestic makers are both staging significant introductions in the compact segment this year, General Motors with the all-new 2011 Chevrolet Cruze, and Ford with the next-generation Focus. Both are based on products that have already scored well with consumers in other parts of the world, and the Big Two are hoping that strong, initial reviews will translate into solid sales in the U.S. too.

“It’s very possible that, by the end of the year, Detroit could have the two best products in the midsize segment,” proclaimed analyst Joe Phillippi, of AutoTrends Consulting, after getting his first ride in the new, U.S. version of the Chevy Cruze.

Gaining ground
Gaining ground in the compact segment is crucial, analysts and industry leaders agree. Sales of light trucks have fallen significantly since their peak mid-decade. Though there’s been a bit of a resurgence in some segments, such as full-size pickups, trend charts all point to a continuing shift to passenger cars or car-based crossovers.

The importance of the compact segment cannot be understated. Sales slipped, like the rest of the market last year, to 2.26 million, from a 2007 peak of 2.78 million. But AutoPacific, Inc., forecasts that will surge to 3.32 million in 2015.

By comparison, the once-dominant midsize segment is becoming steadily less significant. From 1988’s peak of 4.35 million, it dipped to 1.75 million last year. AutoPacific predicts it will recover, but only to 2.37 million.

Among reasons for the shift, many midsize buyers have migrated to other segments, including SUVs and crossovers. But going forward, compact models could chip away at the midsize segment’s remaining share. That’s because new offerings like the Cruze and Focus are larger than traditional compacts even though they deliver steadily improving fuel economy, as much as 40 mpg Highway for the Chevy with a 1.4-liter turbocharged EcoTec engine.

“GM and Ford are taking a serious approach to the segment for the first time in decades,” says AutoPacific chief George Peterson, and are not “dumbing down” their new products. Nor, he adds, have they “cost-reduced” Cruze and Focus to the point where they are little more than “tin boxes,” only appealing to cost-conscious fleet customers and retail buyers on a tight budget.

Domestic offerings traditionally cut corners when it came to interior design and materials. With its new compact, Chevy has gone in precisely the opposite direction, the 2011 Cruze featuring a lavish and well-executed cabin, with textured metal surfaces and a very appealing instrument cluster with a backlit chrome bezel. Most surfaces, meanwhile, are soft to the touch. That’s a sharp contrast to the compact segment’s dominant player, the Toyota Corolla, where the cabin is largely a jigsaw of hard plastic surfaces.

Will buyers notice?
As good as they are, however, “It’s going to take Detroit some time before buyers start to notice,” contends a senior product planner with one of the top-tier Japanese brands, asking that he not be quoted by name. Analysts like Peterson and Phillippi agree. Their products have long been ignored by Baby Boomers in the passenger car segments, especially along the coasts.

It will be difficult to get on those buyers’ radar, never mind actually win over their business, Detroit officials admit. But it won’t be for lack of trying. “This is as important a launch as we’ve ever had at Chevrolet,” says Alan Batey, Vice President — Chevrolet Sales and Service.

That’s one reason new General Motors marketing czar Joel Ewanick, who used to perform the same duties at Hyundai, is shaking up the company’s staid and moribund sales and marketing operations. Almost immediately after joining GM last March, Ewanick fired long-time Chevrolet ad partner Campbell Ewald. Last week he replaced Chevy general manager Jim Campbell with a colleague from Hyundai, Chris Perry.

GM, still tarnished as “Government Motors,” may be less able to take advantage of its new product than Ford, which has gained stature as the only domestic maker to skip a government bailout last year. Ford’s sharp gains in the quality charts also helps;  the maker was fifth overall, and the top-ranked mainstream brand in the recent J.D. Power and Associates Initial Quality Survey. Toyota plunged to 21st.

There are signs that Detroit is, collectively, gaining ground. Chevy’s new Equinox crossover is generating an average $3,400 higher transaction price than the old model got. Ford, meanwhile, is seeing a sharp rise in its projected residual values, a factor many dollar-savvy shoppers consider closely. Add a steady wave of supportive reviews and Detroit’s new push into the compact segment could put the long-dominant Asians on the defensive.