November 9, 2010

Confession #14: Small is in, whether we like it or not

OK, I have some sympathy for product planners who have some pretty cumbersome schedules.

Just when gas prices reached around $4.50 per gallon in the summer of 2008 – months before the economy crashed and burned – people were scrambling to sell their SUVs and V8s that took two credit card swipes at the pumps to fill. The same people took huge losses on trade-in values too when they swapped them in for things like the VW Jetta, Mini, Smart, Ford Focus, and especially the Honda Civic, which became the best-selling car in the US for a few months that year.

Fuel prices have precipitously fallen since then and are still mostly in the low-to-mid $3 range. But a wave of small cars automakers, hurried into production when they thought gas prices were going to keep escalating, have arrived.

Ford launched the Fiesta over the summer after a year of social media fanfare and teasing customers with the European version of the car.

Granted, Ford watered the now-Mexican-built Fiesta hatchback and introduced an ungainly looking four-door to the mix, but reviews have been fairly positive. What’s more, the company packed it with toys like a dual-clutch transmission (like the one VW has been putting in their cars) and the SYNC voice-control-Bluetooth software.

Chevy is doing something similar with the Civic-Corolla slayer Cruze. No longer is the General going cheap with small cars. Most versions come with a six-speed automatic and turbo 4-cylinder that gets around 40 MPG. Critics are raving about the interior quality, some, like The New York Times’ James Cobb, say it could be best-in-class. And remember, that class includes the former interior beauty queen Jetta.

Ford likely as another ace up its sleeve with the new Focus, due early next year. The design teams have made some sort of peace with the accountants as even the American cars get the same basic suspensions and interior pieces as the pricier European models. Options like blind-spot warning, backup cameras and fancy parking radars will be available. The Blue Oval also promises somewhere around 40 MPG.

Of course, the consequence for these better small cars comes in the form of price. Small cars felt cheap because they were. These new ones have better quality, space and performance, but Ford wants more than $16,000 for the cheapest new Focus. It’s easy to spec a Fiesta hatchback with automatic, alloy wheels and the SYNC system with a price of more than $19,000. Add leather and sunroof and other (non-essential, granted) niceties and you’re looking down the barrel of 21 grand.

Chevy has a similar issue with the Cruze, as the top-spec LTZ cars run more than $24,000. That can get you a well-equipped, if not opulent, Malibu, which has more space and is still relatively fuel-efficient.

An exception to this trend comes from Mazda with their tiny 2. It’s a five-door hatchback in the same vein as the Fiesta. It even shares some unseen mechanical bits with the Ford.

But Mazda chose to stick to basics and gave the car a tiny 100-horsepower engine and low-tech five-speed manual or four-speed automatic. The downside of all of this is a cheap-feeling car, according to Dan Neil.

The upside though, is that it’s impossible to spend a Fiesta-level of cash on one.

Americans have been overspending for small cars for years, evidenced by the Mini for one. Ford has been selling a decent number of Fiestas since summer (around 3,800 in October alone) but the bosses in Dearborn probably want to sell more.

But it still remains to be seen whether Americans will get over their big-car addictions this decade and start migrating towards smaller motors. Government fuel economy standards may force some, but the economy is also probably convincing more people that it’s not a good thing to be driving a large flashy car when nearly 1-in-10 Americans can’t get a job.

So even if gas prices don’t hit the long-rumored/feared $5 in the near-future, small cars in this country might have a big future.

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