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For the first time since the late-1970s, Americans are taking a serious look at small cars. The reconsideration is for usual reasons: the one-two punch of exorbitant gas costs and low sticker prices on nice, fresh models. And although the first quarter of this year didn't see a rampant hybrid or small vehicle buying frenzy -- trucks still outgun hybrids 23-to-1 after all -- the small car market is trending upwards.
Admittedly, the entry-level small car market is as petite as the vehicles that populate it, making up a mere 0.8% of the 17 million cars sold in the U.S. last year. But analysts see a boom coming. J.D. Power & Assoc. predicts the segment will nearly double, to 1.5% in the next four years. That would make it one of the fastest growing sectors in the industry.
Having felt the tremors, the major auto makers have started getting their "small" game ready. The model horizon is brimming with new entries from nearly every notable brand. Japanese auto makers have prepared a trifecta of tiny cars, all new this year.
SHRINK TO FIT. Toyota (TM) ditched the poorly selling Echo for the edgier Yaris, which is selling briskly. The company -- which rarely makes a losing bet -- has big hopes for the Yaris, forecasting 70,000 models will be sold next year. Sales of Toyota's youth-oriented Scion sub-brand are up an average 8% this quarter over last year. Sales of the smallest of these, the Scion xA, are up a whopping 18%.
Honda is countering with a new small entry, the Fit, which has been a phenomenal hit for the brand all over the world, except in the U.S. Honda's (HMC) hopes are a bit more modest than Toyota's, forecasting 50,000 Fit models will be sold in 2007. Nissan (NSANY), meanwhile, will introduce a new Versa this summer, replacing the aging entry-level Sentra. All three manufacturers are fitting these new cars in the lineup under what were once the smallest models available in the U.S., such as the Honda Civic and Toyota Corolla, which have grown considerably with age.
Ford (F) has the European-designed Focus, and General Motors (GM) is having great success with the Chevrolet Aveo -- introduced two years ago and the least expensive car on the market. The Chevrolet Cobalt, meanwhile, was one of the top 10 best-selling cars during the first quarter of this year, moving over 50,000 new vehicles. And many see Dodge capturing the small and fun-to-drive aesthetic of Volkswagen's past GTIs with the new Caliber hatch -- better, some say, than even VW's own recently renewed efforts.
MORE THAN A BADGE. But the most convincing evidence of changing habits may be the introduction in the U.S. of small luxury cars, such as the recently released Audi A3. In Europe, where gas can cost as much as $6.60 a gallon, small luxury cars are a market staple, with miniature models from the likes of BMW, Mercedes, and Alfa Romeo. Mercedes has been on again, off again in bringing smaller models Stateside, but the phenomenally popular BMW 1 Series is coming this fall.
Not everyone is convinced the trend to minimize size is the way to go. Milton Pedraza, CEO of Manhattan's Luxury Institute, says the move to smaller vehicles can have a negative impact on luxury brands. "People want pure-breeds," he says. "Not just luxury badges on cars created to fill a niche."
Safety remains an issue as well. In 2004, for instance, compacts made up only 13.4% of the cars on the road, according to R.L. Polk registration data. That same year, however, the National Highway Traffic Safety Administration reported that 30% of all crash fatalities occurred in such vehicles. And it's not just that small cars fare poorly when they collide with larger sedans and SUVS: Half of all compact car fatalities occur in accidents involving only small vehicles.
HERE TO STAY? It's by no means clear that Americans are ready to abandon their big cars forever. That fact was sardonically underlined last month when, a mere minutes after a press conference on renewable energy, Congressional leader Dennis Hastert (R-Ill.) was photographed bailing from the tiny, fuel-sipping vehicle he had left the press event in, bound for a environmentally unfriendly GMC SUV.
Indeed, America may never genuinely love small cars, but will make the best of the situation, agreeing to a marriage of convenience. Then again, the environmentally-conscious children of baby boomers -- "echo-boomers" as they're being called -- are beginning to buy their first cars. And growing public debate combined with continually rising fuel prices and a raft of new models could add up to the perfect recipe for the permanent revival of the small car. The major auto makers, at least, are counting on it.
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