Econoboxes No Longer

Please don't call them And don't design and market them that way either. There's a new wave of small cars coming to the U.S., and for the smart players in the sector it won't be all about fuel economy and frugality. Forever, it seems, auto makers have struggled when it comes to selling small cars in America. During oil shocks, U.S. consumers have been willing to pay a fair price for fuel-efficient

Please don't call them “econoboxes.”

And don't design and market them that way either.

There's a new wave of small cars coming to the U.S., and for the smart players in the sector it won't be all about fuel economy and frugality.

Forever, it seems, auto makers have struggled when it comes to selling small cars in America.

During oil shocks, U.S. consumers have been willing to pay a fair price for fuel-efficient subcompacts. But more often than not, small cars have been hard sells, and U.S. auto makers long have equated small with inexpensive and unprofitable.

Small-car sales peaked most recently in 1988, and that's been just fine with manufacturers, which have been more than happy to sell higher-margin SUVs and pickups.

But the industry is ready to try its hand at subcompacts again, and this time the winners may be those that see the market in a different light.

J.D. Power says annual small-car sales should nearly double between now and 2010, and judging by the number of new entries arriving over the next few months, the segment will get very crowded, very fast.

BMW's Mini, Toyota's Scion and Audi's A3 were the leading edge of the revival, all proving U.S. consumers will buy small cars if they are stylish, innovative and performance-oriented.

Now arriving is the second wave, including Toyota's new Yaris, the Honda Fit and Nissan Versa, and more of these microcars are their way from Ford and others.

Many will come packed with features. Honda's Fit boasts a 5-speed automatic transmission, power everything and an innovative flexible interior.

Chrysler's Dodge Hornet concept, shown in Geneva in March, is aggressively styled and offers fold-flat seating and a top speed of 130 mph. Like the Yaris, Fit and Versa, the Hornet concept is designed to appeal to markets outside North America — in this case, Europe — to maximize volumes.

But with rising gas prices, the temptation surely once again is to focus small-car engineering and marketing solely on fuel efficiency and affordability.

And that could be a losing strategy in the long run.

Eventually, lower-cost producers will enter the market, making it tough for the more established car makers to compete on price alone. Roland Berger Strategy Consultants says that when the Chinese land here, they'll bring cars priced as low as $6,600. That could be tough competition for models built in North America, Japan, Korea and Europe.

Instead, the long-term winners will be those that can best marry fuel economy — of interest to all buyers no matter what vehicle size or price — with performance, style and upscale, innovative features.

They'll also need to think in terms of lower volumes. It is much easier to command a higher price when you're not flooding the market. That means finding ways to produce in less than 50,000-unit allotments for this market rather than 200,000 or more.

Only when auto makers break free of the econobox mentality will they end the curse of the subcompact — and its longtime drain on the bottom line.

David Zoia is editorial directory of WardsAuto.com.

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