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Indeed, J.D. Power & Associates 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. The model horizon is brimming with new entries from nearly every notable brand. Japanese automakers have prepared a trifecta of tiny cars, all new this year. (Like BusinessWeek.com, J.D. Power is a division of McGraw Hill (MHP).)
Toyota (TM) ditched the poorly selling Echo for the edgier Yaris (see BusinessWeek.com, 6/14/06, "The Judgment of Yaris"), which is selling briskly. The company has big hopes for the new model, forecasting 70,000 will be sold next year. In fact, according to Automotive News, the company has already sold 32,822 of them in the first seven months of this year.
Honda (HMC) is countering with a new small entry, the Fit (see BusinessWeek.com, 8/21/06, "Nice Fit"), which has been a phenomenal hit for the brand all over the world, except in the U.S. Honda's 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 (see BusinessWeek.com, 6/7/06, "Civic Virtues") and Toyota Corolla, which, with age, have grown considerably in size.
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. In the first seven months of the year, the company sold 35,078 of the tiny cars despite growing competition from foreign manufacturers.
The Chevrolet Cobalt (see BusinessWeek.com, 8/9/06, "Back to School Cool"), meanwhile, was one of the top 10 best-selling cars during the first quarter of this year, moving more than 50,000 new vehicles. And many see DaimlerChrysler's (DCX) Dodge division capturing the small and fun-to-drive aesthetic of Volkswagen's past GTIs with the new Caliber hatch (see BusinessWeek.com, 8/29/06, "Full Caliber")—better, some say, than even VW's own recently renewed efforts.
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 (see BusinessWeek.com, 7/13/06, "Rowdy Audi"). 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.
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."
So which one should you buy? BusinessWeek.com's reviewers have put many of the hottest small cars through their paces, reviewing each extensively. For a look at some of the best on the market today, click here.