• Mar 22nd 2011 at 3:00PM
  • 58
With rising gas prices, cars like the Chevy Cruze could... With rising gas prices, cars like the Chevy Cruze could be in high demand very soon (GM).
Detroit has never much liked selling small cars to U.S. consumers. But all that is changing.

While Japanese carmakers are facing likely shortages of the small, fuel efficient cars they export from Japan because of the Earthquake and tsunami, and gasoline prices are rising, consumers looking for smaller, thriftier cars this year are going to find themselves, by necessity, checking out new offerings from Ford and Chevy and even newcomer Fiat, whose operations are based in Detroit with Chrysler.

How times have changed. In the 1960s, Detroit started making smaller cars under duress when the American automakers started seeing the success of the Volkswagen Beetle and later, in the 1970s, the new Toyotas, Nissans and Hondas showing up on U.S. shores. Then, the gas crunch of the mid 1970s moved Detroit to quickly bring out small cars like Dodge Omni, Ford Pinto and Chevy Chevette.

Those small cars sold in big numbers, but the companies weren't happy about it. Because of their low sticker prices, and high labor costs in the U.S., the cars were unprofitable. Automakers gained a customer, but lost money, on practically each one sold. The situation was so bad that Detroit abandoned trying to make their own small cars and outsourced it to Asian companies. Toyota, Suzuki and Isuzu made small cars sold under the Chevy and Geo badges in the 1980s and 90s and into the new century. Kia made the Ford Festiva for the Dearborn, MI automaker in the 1980s.

In 2011, though, federally mandated fuel economy regulations have forced automakers to develop new smaller, more fuel efficient cars to balance out the gas guzzling SUVs and pickup trucks they prefer to sell. And while sales of small fuel efficient cars tailed off last year from surges in 2008 and 2009, rising gas prices and a coming shortage of Japanese small cars should drive up demand for Detroit's new small cars.

"When it [gas] starts getting over $4 a gallon or gets to triple digits when you fill up your tank, that catches people's attention," says Ford president of the Americas Mark Fields at a press event to launch the 2012 Ford Focus, one of the company's redesigned small cars that seems perfectly timed to the market.

Demand for small and thrifty rising

In January and February of this year, according to industry analysis done by Ford, retail demand for small cars had matched what it was in the Fall of 2008 when gas prices were $4.00 and above. Total demand is not as high, because rental car agencies' demand for the small cars has not fully returned.

Ford began selling the Ford Fiesta last Fall, as well. Both the Focus and Fiesta get more than 40 mpg on the highway.

Chevrolet's new Cruze sedan has already been selling well. Later this year, it is introducing two more small cars, the Sonic, that replaces the Chevy Aveo and a new even smaller car, the Spark. It is likely, though, that Japanese auto production will be resumed by the time those cars start rolling to Chevy dealerships.

The principal small fuel-thrifty cars among the Japanese automakers are the Toyota Prius and Yaris, Honda Fit, CRZ and Civic Hybrid, and the Nissan Versa. All of those models are built in Japan, and will see delays in production, according to the automakers. Honda dealers in the U.S. sensing the problem, have already been scrambling to get hold of used Honda Fits to try and meet expected demand, while Toyota dealers are doing the same for Yaris.

Honda has said it may not be able to resume full production at its Japanese plants until May because of damage to facilities and ports, as well as the island nation's electricity shortage due to its damaged nuclear power plants. Toyota is facing similar delays with its cars.

U.S. regular unleaded gasoline prices rose 27 percent from a year earlier to an average $3.55 a gallon last week, according to AAA. But it is already above $4.00 per gallon in many parts of the country. Continued unrest in the Middle East, notably Libya, has been driving prices higher.

Small cars have meant small profits

Small profit or no profit from selling small cars made Detroit understandably unenthusiastic about selling them. Too, when gas prices stayed reliably under $3.00 per gallon for years, consumer demand was scant. Ford, Chrysler and General Motors, though, have dramatically cut down their costs so that the Focus and Fiesta, for example, are profitable for the company on a global basis. Ford has cut costs by selling the same cars in the U.S. that it sells in the rest of the world without re-engineering them for every continent. "Losing money on small cars is no longer an option," says Ford's Fields.

"Small used to be a dirty word in Detroit," says marketing consultant Dennis Keene. "But fuel regulations and the bankruptcies of GM and Chrysler that lowered labor costs has created more balance in what the companies are producing...they no longer have to sell big gas guzzlers and pickups to make all their profit, though those vehicles are still more profitable than small cars."

Chrysler doesn't have a strong fuel economy story with lineup post bankruptcy yet. But its corporate partner, Italian automaker Fiat, is in the midst of reintroducing its brand to the U.S. and the first model is the 500 minicar, which gets 30/38 mpg for the manual transmission. "Gas prices are going higher and we believe we are timed perfectly for the market," says Chrysler marketing chief Olivier Francois. New small and more fuel efficient cars from Chrysler are due in in late 2012.

U.S. automakers so far say their production of small cars is not as affected by the Japanese Earthquake. But stay tuned. General Motors has warned employees to eliminate unnecessary costs in case they have production interruptions. Production of GM's small pickup trucks have already been impacted, but those are slow sellers anyway. The main source of concern with Detroit's Big Three, say industry experts, is that they are sourcing sensors and semiconductors for key models from Japanese suppliers that can't be replaced quickly. If even one part out of 5,000 that it takes to make a modern automobile is not available, it could bring an entire assembly line to a halt.

History shows that rising oil prices will mean more consumers looking at smaller more fuel efficient vehicles. There is even a thought among many marketing experts that not only will these cars be popular among first-time car buyers, but also with retiring Baby Boomers made more frugal by their crushed home values and decimated nest-eggs.

The small car that caused such a revolution in the U.S. was the Volkswagen Beetle, attracting buyers of every economic stripe because of its unique styling and fashionable practicality. It is is ironic, then, that the German carmaker will be introducing an all new design of the Beetle this Fall to be followed in 2012 by an even smaller car, the VW Polo.

This time, though, Detroit is ready for the change.

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    • 1 Second Ago
      • 4 Years Ago
      If the American car makers can not compete with the low maintenance, gas efficiency, and the ability for their small cars to last over 150 - 200 thousand miles that the Japanese Auto makers have perfected, then it will still be a loss of income as the old american small cars were like the article wrote about. i would not give up my Japanese import for nothing in the world, my Nissan pathfinder lasted me for 230 thousand miles on the original motor. the only reason why i got rid of it, is i did not want to put a new transmission in it, it was a 4x4, and the gas went up, and my pathfinder only got 17 miles to the gallon, but would out pull a chevy 1/2 ton pickup with 4 wheel drive, my 6 cylander moved a 40 foot mobil trailer in the mud with 4 wheel engaged, and the chevy 1/2 ton couldn't pull it with its compound 4 wheel drive, no my transmission didn't go bad because we pulled that trailer, it didn' go out untll a year later after pulling that trailer. And my toyota corolla automatic sedan has 100 thousand miles on it and it is still running excellent, no sign of needing a serpant chain either, but we are putting one on anyways, getting ready to put second set of tires on it, no other adjustments or repairs had to be done except for 1 recall, and my car hadn't acted up from what they were calling it back for. The transmission is in great condition. all lubricant maintenance we have kept up with, no malfucntions on my car yet. And the old small american cars never held up that well. you need a good product .
      • 4 Years Ago
      It's about time someone in Detroit came to their senses. I bought a no nonsense car in 2000 that had mpg of 34/40. I still have it, and you know *************** gets 40 mpg or better on the highway, in fact I took it on vacation and got 500 miles out of it on a 10 gallon tank of high test gas on my way back from North Carolina. We were 3 women with all our gear, and I still got 50 mpg. Take that Detroit! GM and the other so called car makers got into trouble and cried bankruptcy because gas prices were high and no one wanted to buy the cars they were selling! Doesn't this tell them anything?? How can they NOT LISTEN to what people want? I say let them go under. GM discontinued the best line of cars they've ever built, Saturn. What car did I buy in 2000? A Saturn. I got over 200,000 miles and it's still going strong! If GM can't give me what I want I will buy something else, it's MY BOTTOM LINE. How d'ya like them apples GM?
      Robert Cape
      • 4 Years Ago
      I am amazed at the obviously too-young-to-remember, or too-old-to-have-any-memory-left comments on here. I'm old enough to remember "American small cars". They were generally garbage. You couldn't get in the small doors, the seats were uncomfortable in one mile, and parts fell off as you drove. Early Volkswagen cars used so many sources for parts that you almost had to drive your car in to get a replacment part by comparing what you had on your car. My first car was a used 56 Chevy w/V8. You changed oil and wheel bearings every couple of months. Customers and "unions" didn't cause the death of the "Big 3", bad design and sloppy engineering, along with corrupt management (I worked in Detroit, so I know how much was "under-the-table" and just downright crooked there..) was compared to honest value in foreign cars. Now, "Detroit" buys transmissions and electrictronics overseas for nearly all models. A long history of "sexy garbage" will take a long time to work off.. and that's true for any company that makes junk!
      • 4 Years Ago
      These stories would be much more convincing if they weren't pushing pictures of Chevy cars and trucks like they are using subliminal advertising ala Liberal publication and Obama Motors !!!!!
      • 4 Years Ago
      Detroit always had the ability to make small cars, however with the union wages, benefits and non-flexible work rules, to stay competitive, they had to purchase vehicle from overseas. Believe it or not, some people in Detroit still wonder why their jobs left.
      • 4 Years Ago
      Small cars are the next thing to car pooling, especially when you live where car pooling will not work. Small cars should be advertised as the going to work car,or the getting groceries car. Those times when there is only one person driving to work. Everyone can still use their larger cars for weekends and family travel. I believe there is a more demand for those cars,except we were never given a choice. I drove a swift for years and it only cost me $4.00 to drive clear across the state.
      • 4 Years Ago
      I drive what I need to drive on our ranch. And just a footnote, the Unions don't have a thing to do with my wage.
      • 4 Years Ago
      Larry- I have no idea where you got your information, but I can guarantee you that my aunt's ex-husband did not make $57/hr even when he retired. I would guess that his pay per hour would have been $25-35 maybe 40/hr, but not $57/hr. And he worked for Ford Motor Company also known as FoMoCo, but he wasn't an assembly line worker, he did something with computers and that kind of stuff. Ford has been doing very well in this recession, GM and Chrysler have not. I have to say that Chevrolet's Cruze is very sexy and seems like I would love that car. However, that's jsut me. My aunt's ex husband retired within the last 10 years and he is 59 in August. Apparently he saved a lot of his funds to live off of after he and my aunt divorced back in the mid 80s, that was before I was born,
      • 4 Years Ago
      To correct the article, in the 60's and 70's the US customer refused to buy the small American made cars. The US mfgs did not hate to make them. The Corvair was a cool car. Ralph Nader destroyed it. Americans felt it was lowering themselves to purchase a small car. The Japanese took advantage of the situation to stick it to the American Auto mfgs.
      • 4 Years Ago
      Its so un American to buy union made cars. Iets face it. GM can't compete with BMW, Mercedes,and Toyota to name a few. If they made good cars they would not have needed to steal tax payers money. When it comes to buying American liberals think thats okay EXCEPT WHEN IT COMES TO DRILLING FOR OIL ON OUR SOIL. Funny how that works. Since there are many small cars they should be taxed more than the larger vehicles. and If you buy large amounts of fuel you should get it cheaper.
      • 4 Years Ago
      what a joke .1st ,at any price auto workers are over paid. 2nd, as said it cost millions to tool a plant. 3rd automakers have warehouses full of non production cars,protol types.4th american automakers never refined their small cars or persued them. 5th parts are built all over the world and put together at plants. 6th most parts are now inter changeable door handles for toyota and dodge inter change is 1 example. how i know this i've been to and delivered to all the plants
      • 4 Years Ago
      there is another article about wages leveling off ********* which is about right if you do not work for the gov or a union which most of the gov is union so there you got any way enjoy it while you can.The fun starts when you turn 50 so how many people are going to be able to buy these great cars when the soup lines are goingto be going around the block but we will have plenty of money for evry where else...................................The wages are not realistic but the idea is about right
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