Automakers think big by thinking small

Bush Bernard
Tennessean Jan. 26, 2007 12:44 PM DETROIT - The next big thing in the new car market might be small.

Growing consumer interest in subcompacts, and rumblings that China may be able to make a small car that sells for less than $10,000 stateside, have major automakers evaluating the feasibility of making U.S. versions of the tiny vehicles they already sell in Europe and Asia.

Analysts predict that sales of low-cost compact cars will rise 40 percent to 60 percent in the next six years in the United States amid increased demand from cost-conscious consumers.

"I think that's an area where we have to keep our eyes open and see what kind of market could develop," said Brad Bradshaw, head of sales and marketing for Nashville-based Nissan North America.

Nissan has no immediate plans to unveil another subcompact in this country, but the introduction of the Versa last summer has surpassed even the automaker's sales goals for its new entry-level model.

Nashville-area resident Lou Palet, 63, who drives an Isuzu pickup now, said he's eager to see what sort of low-cost products the world's automakers can offer.

"We just returned from an 11-day holiday in Italy; the small cars such as the Smart and many models by Renault and Toyota were stylish and comfortable," Palet said. "I think if they can produce a similar-size vehicle for $10,000, the demand would be limitless."

The subcompact segment is a relatively small part of the overall car market, accounting for around 300,000 vehicles, less than 2 percent of all U.S. new car sales last year.

But DaimlerChrysler has stirred up the industry with recent announcements that its Chrysler Group has a preliminary agreement with Chery Automobile Co. of China to build a small car for the U.S. market sometime after this year. And its Mercedes unit plans to introduce the Smart ForTwo, a version of its popular European car, to the U.S. early next year.

While the Smart ForTwo will sell for around $15,000, Chinese-made cars could sell for between $6,700 and $10,000, says a recent study by Roland Berger Strategy Consultants.

There are fewer than a dozen subcompacts sold in the U.S. today. Base models range in price from around $10,000 to more than $15,000, depending on brand.

While the little guys are a tiny percentage of sales in the U.S., small cars are a dominating force elsewhere on the planet. By 2012, sales of new cars valued at less than $10,000 will reach 18 million units, the Roland Berger study says.

"The key driver for growth is that consumers globally are looking for better value for their money," said Wim van Acker, managing partner of Roland Berger's Detroit office.

Price would be a motivating factor for Sam Davidson, 26, a Nashville resident who drives a 1997 Nissan Altima with 118,000 miles on it.

His wife bought the Altima as a used car before they were married, and it's holding up well. But he said he wouldn't mind getting a new small car if the price is right and it comes with radio, a CD player and air conditioning as standard equipment.

"I don't need a big car," said Davidson, who owns a part-time Web-based business. "I don't spend a lot of time in my car. For me, it's just not a priority."

Chief competition for small cars in the U.S. comes from used car sales, said Michael Robinet, vice president for global vehicle forecasts for CSM Worldwide, a consulting group.

"It's all going to come down to perception of safety," Robinet said. "Cost will be important, but I think what you'll find is that the used car market will sub in here."