Drivers Try Downsizing
A new wave of small-car models could soften the sting of $3-a-gallon gas
For all the moaning about gas prices, Americans have remained surprisingly committed to spacious sedans, big SUVs, and V-8 engines. But an influx of petite, enticing imports--some of the smallest cars on U.S. roads since the tiny Honda Civic debuted in the early 1970s--is about to muscle a few gas guzzlers off the highway.
The timing, obviously, couldn't be better for drivers--or for manufacturers like Toyota, Honda, Nissan, and even ailing General Motors, which are rolling out the high-mileage vehicles just as gas is cresting $3 a gallon. And these aren't the utilitarian boring mobiles many people think of when considering an economy car. The Toyota Yaris turns heads in midtown Manhattan, its perky, bubble-shaped chassis distinguishing it from BMWs and Jaguars. The forthcoming Nissan Versa will have a sporty six-speed manual transmission and 15-inch tires comparable to those on larger sedans. The Honda Fit has an advanced electronic throttle and a lightweight aluminum-alloy engine that make for brisk, if thrifty, motoring. "It's really fun to drive, and there's a lot of pep to it," says Scott Miller, 36, of Indianapolis, who traded in his '05 Chevy Suburban SUV for a Fit last week. "It's pretty cool looking, too."
Shifting gears. With or without such new alternatives, rising gas prices finally seem to be driving consumers toward more economical choices--and ringing out the era of the SUV. After relatively minor changes in buying habits over recent months, even after the Gulf Coast hurricanes sent gas prices soaring, car sales in April finally showed a definitive shift from big to small. Sales of SUVs and other light trucks dropped 7.7 percent, while sales of passenger cars--which had fallen to less than half of all vehicles sold--rebounded by 0.5 percent. Midsize SUVs like the Ford Explorer and Chevy TrailBlazer tumbled by nearly 13 percent, while smaller SUVs like the Toyota RAV4 came on strong.
As has typically been the case lately, the shift in consumer tastes is benefiting the Japanese automakers at the expense of Detroit. Domestic automakers' market share slipped to 53.3 percent in April, down 3 percentage points from a year earlier. Toyota's market share hit 15.2 percent--eclipsing that of Chrysler for the first time ever. Honda and the twin Korean manufacturers, Hyundai and Kia, inched upward, too. The big winners were mostly modest sedans like the Toyota Corolla and the Hyundai Sonata--along with several of the diminutive new entries from overseas.
It's not just gas prices that make the new small cars appealing. Manufacturers think that car buyers--20-somethings, especially--are tiring of big, garish vehicles. Miller, for instance, wanted to improve his fuel economy and lower his gas bill, but he also wanted a car that would be easier to park in his tight driveway. The Honda--more than 3 feet shorter and a foot narrower than the hulking Suburban--fit the bill. The arrival of appealing gas misers may draw buyers away from gas guzzlers. Ford Motor Co. sales analyst George Pipas predicted last week that passenger cars will outsell SUVs and other light trucks for the rest of the decade, reversing the trend of the past 15 years.
Right now, automakers sell about 200,000 small cars in the United States, barely 1 percent of the roughly 17 million new cars purchased each year. But expensive gas, changing tastes, and trendy new offerings like the Yaris and Versa will probably drive that up. "There's definitely some growth ahead for this segment," says Jeff Schuster of J.D. Power & Associates. "Younger buyers want affordable vehicles that aren't completely gutted and have some style and uniqueness."
If the automakers seem prescient--bringing compelling, economical cars to market just as gas prices are starting to make drivers squirm--well, they're not quite that good. The domestic automakers still have their big money riding on a new stable of SUVs, like the Chevy Tahoe, the Explorer, and the Jeep Grand Cherokee. And the Japanese are beneficiaries of lucky timing as well as good planning. Toyota's Yaris has been slated to replace the underwhelming Echo since gas prices were half what they are now and SUVs were still king of the road. Most of the other small cars have long been in the pipeline, too.
What's new, however, is a more seamless globalization of the auto industry, which makes it easier for manufacturers to quickly adapt vehicles from one market to another. The Yaris, Fit, and Versa are virtually identical to models sold in Europe and Asia. Retrofitting those cars to meet U.S. safety and environmental standards requires relatively few modifications. In the past, efforts to build such "world cars" have stumbled for various reasons. For one thing, Americans have long shunned the itty-bitty vehicles that have been popular in Europe, Asia, and Latin America, where gas is far more expensive and streets narrower. But that is clearly beginning to change. Even though the Yaris has a meager 106-horsepower engine--puny by U.S. standards--Toyota has sold nearly 8,000 since it went on sale in mid-March.
Automakers have also gotten better at using their far-flung resources to figure out commonalities in global tastes and identify what types of cars are likely to sell in multiple markets. The new Chevy Aveo coming out this summer was designed in Detroit and at GM's Daewoo subsidiary in South Korea. It will be built in Korea and exported to America, as well as to Europe, a curious counterpoint to Chevy's all-American image. "This will be happening more," says Brent Dewar, head of sales, service, and parts for GM's North American operations. As long as the cars are cool and the gas gauge falls gently, consumers probably won't complain.
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This story appears in the May 15, 2006 print edition of U.S. News & World Report.