Detroit's Compacts Win Raves—But Lose Buyers

The domestic carmakers still suffer from a "perception gap" compared to foreign rivals.

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Dodge

The Dodge Dart has arrived in car showrooms like a long-lost friend. Car and Driver Magazine called it "a remarkable feat." "Surprisingly agile," cooed the New York Times. In my own weeklong test drive, I was struck by the number of fellow motorists who stopped to ogle the frisky-looking compact. "Wow," said one. "The Dart is back!"

[See photos of daredevils throughout history.]

Score one for Dodge and its parent company, Fiat-Chrysler. But the trick for General Motors, Ford and Chrysler these days isn't just launching new cars that capture attention and impress reviewers. It's keeping the romance fresh. And if recent patterns hold, enthusiasm for the Dart will wear off within a year or so, as it has for other compacts from Detroit.

The bigger question is whether the domestic automakers have the attention span to stay focused on one of the market's most demanding segments—a key test of how much has really changed since all three automakers restructured. Tough new government mileage requirements—and gas prices that seem likely to continue drifting upward—make the smaller end of the market more important than ever. But Detroit has often viewed small cars as a kind of necessary evil, with bland, unrefined products proving it.

In the 1990s and early 2000s, the Detroit 3 focused mostly on pickups and SUVs, which were their biggest profit generators. They continued building compacts—largely to help meet fleetwide fuel-economy requirements—but put few resources into them, and often stretched the life span of the models they did have beyond the point of obsolescence. Also-ran vehicles like the Chevrolet Cavalier, Ford Escort and Dodge Neon became rental fleet staples, while careful car buyers flocked to Japanese and European brands.

[See why the SUV era is officially over.]

Detroit's overdependence on big gas-guzzlers backfired in 2008, when gas spiked to $4 per gallon and a brutal recession set in. Buyers wanted reliable, high-quality compacts and hybrids, and Detroit had little to offer. As GM and Chrysler wound through bankruptcy proceedings, and Ford revamped its foundering operations while skirting a Chapter 11 filing, all three automakers vowed to double-down on compacts and fill the biggest hole in their lineups.

They've followed through on those promises. General Motors has won acclaim for the Chevy Cruze compact and the smaller Chevy Sonic, while managing to avoid the heavy incentive spending that made earlier compacts money-losers. Ford's Focus and Fiesta sit at or near the top of their categories in the U.S. News car rankings. The Dart, which just went on sale this summer, is the first Chrysler compact since 2005, when the Neon bowed out of the market. That alone is sparking renewed interest in Dodge.

But sales of Detroit's compacts have been erratic, suggesting that buyers lose interest once the novelty wears off. Cruze sales, for instance, are down 12 percent so far this year, compared to 2011, even though overall car sales are up 14 percent, according to data from LMC Automotive. Sales of the Ford Focus are up 31 percent, but that may be eating into sales of the slightly smaller Fiesta, which are down 25 percent so far in 2012. And Focus sales fell sharply in July.

[See a defense of the Chevy Volt.]

Detroit's strong showing in 2011 had a lot to do with the earthquake and tsunami in Japan, which disrupted supply lines for most Japanese carmakers. So models like the Cruze and Focus faced hamstrung competition, which probably lifted sales to artificially high levels that couldn't be sustained. With Japan back online, sales of the Honda Civic, Toyota Corolla and Mazda 3 have all risen by double digits this year. Other competitors, like the Hyundai Elantra and Volskwagen Golf, are also up.

Some analysts aren't surprised that Detroit's compacts are now lagging. "There's a lingering perception gap compared to their Japanese counterparts," says Alec Gutierrez of car-research site KBB.com. "Compacts like the Cruze and Focus deliver, but it will take a while before buyers realize they can put 150,000 or 200,000 miles on the odometer without excess repairs."

A few competitors, meanwhile, may be cruising on reputations they don't fully deserve. Gutierrez points out that the Honda Civic, which was redesigned for the 2012 model year, was panned by reviewers who felt Honda cut corners on things like a cheap interior and a dated five-speed automatic transmission, compared to six- or seven-speed transmissions on other compacts. Yet the Civic remains the best-selling compact in America, outselling the Focus by 35,000 units so far in 2012, and the Cruze by 54,000, according to LMC. The Japanese competition will only get tougher. Honda says it's revamping the Civic in response to criticism. Meanwhile, a new Nissan Sentra and Toyota Corolla will debut for the 2013 model year, probably enjoying the same spurt of interest that other compacts do when they're new.

But Detroit has some fresh moves, too. A high-performance version of the Focus is rolling out this summer, with an all-electric model becoming available at select dealerships over the rest of the year. Two performance variants of the Dart are one the way, one later this year and one next year. And Chevy will soon launch the diminutive Spark, a "B car" meant to take on the popular Honda Fit. So Detroit's small cars still seem like a big priority. Detroit just needs car buyers to notice.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.