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Small cars are back in action

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Small cars are back in action

Japanese models to hit the market starting in March

February 16, 2006

BY MATT NAUMAN

KNIGHT RIDDER NEWSPAPERS

Forget Pinto, Vega and Gremlin. Get ready to learn Yaris, Fit and Versa.

Not since the oil tensions of the 1970s have subcompact cars gotten such attention.

The three big Japanese automakers will introduce new small cars this year, and the best-selling model, the Chevrolet Aveo, gets a redesign soon.

Researcher J.D. Power and Associates expects sales of the smallest, cheapest cars to zoom 94% from 2005 to 2010 as new vehicles hit the market.

"I think you can say they're back," said Mike Dawson, manager of global forecasting analysis at Power's Troy office. "During the '90s, it was SUVs. In the '80s, it was minivans. So people had moved away from the small cars. It's definitely, since the '70s, the most new small cars on the market."

The most frequently mentioned reasons for the small-car boom are sustained higher gas prices and higher sticker prices for such popular compact models as the Honda Civic and Toyota Corolla.

The Honda Fit promises fuel economy up to 38 m.p.g. in highway driving. Nissan says the Versa will get a combined 38 m.p.g. And Toyota said the Yaris with a manual transmission will be rated at 40 m.p.g. on the highway.

Also, the popularity in recent years of higher-priced, but equally small models, such as the Scion xA and xB and BMW's Mini Cooper, has paved the way for the new wave of small autos.

"There are 64 million Gen Y buyers coming into the marketplace," said Jim Lentz, Toyota's group vice president and general manager. "We know when they come to market to buy a vehicle, new or used, they will spend on average about $15,000."

But the average compact sells for about $17,500, he said. "So you've got this hole underneath now that you can attract buyers with these $13,000 to $14,000 cars."

Toyota's answer is the Yaris, which will replace the Echo. The 2007 Yaris will sell for $11,000 to $14,000 as a four-door sedan or three-door lift-back when it goes on sale in March. Toyota's Corolla sells for $14,000 to $18,000.

A 2006 Honda Civic sells for $14,360 to $23,350. The 2007 Honda Fit goes on sale in April for $13,000 to $14,000. It is designed to appeal to empty-nesters looking for an affordable, maneuverable car as well as to younger buyers, said Christina Ra, a Honda product planning manager.

"It will be their first new vehicle," Ra said. "They're kind of in the first stage of adulthood." Yet, they're not interested in the econoboxes of yore, she said. They expect standard features such as cruise control, power windows and mirrors and split and folding rear seats.

Nissan will bring out its Versa as a five-door hatchback in July and then as a four-door sedan in December.

The Versa will sell for $12,000 to $15,500. It will arrive shortly after Nissan updates its Sentra compact.

Jed Connelly, Nissan North America's senior vice president of sales and marketing, said he expects Versa buyers will be young people getting a first new car and young families in search of a second car.

"I like the fact we're coming to market the same time as the Fit and the Yaris," said Connelly. "I think that is going to help everybody expand that segment, create a lot of attention, and then it's going to come down to product."

New subcompacts already are popular in Asia, Europe and South America, based on their better fuel economy and easy-to-park size. Honda said it has sold more than 1 million Fit -- or Jazz, as it's known in Europe and Australia -- models since 2001. The Nissan Versa is sold as the Tiida in Japan, while Toyota uses both Yaris and Vitz nameplates for its subcompact.

While small cars are cheaper and more fuel-efficient, a government study released last week showed that compacts had the highest fatality rates per 100,000 vehicles, and subcompacts ranked third.

Other challenges exist, too, for subcompact makers.

"The struggle is going to be to get the American consumer to spend that $11,000 to $13,000 for this vs. going out and buying a 2-year-old Accord or a 1-year-old Corolla," said Mark McCready, director of pricing strategy and market analysis at carsdirect.com. He also questioned whether Americans would be "comfortable in a car of that size."

The Honda Fit measures 157.1 inches, nearly 18 inches shorter than the Civic coupe and nearly 20 inches shorter than a Civic sedan. However, Honda says the Fit can be configured to carry a bicycle or a surfboard inside the vehicle.

"The large interior adapts to people or cargo like no other car in its class," said John Mendel, senior vice president of American Honda.

McCready pointed out that Japan's Big Three are introducing new small cars while the domestic Big Three are embracing crossover-utility vehicles.

"You see two very different tactics, each betting that one is going to be the winner over the other," he said.

Until the Fit, Yaris and Versa arrive, the subcompact segment includes such offerings as the Chevy Aveo ($9,305 to $13,050), the Hyundai Accent ($12,455 to $13,305) and the Kia Rio ($10,570 to $13,295). All are built in South Korea.

The Aveo is the segment leader; its sales grew 20% in 2005 to about 68,000. Coming in the summer is a redesigned 2007 Aveo sedan with a new exterior and added features.

McCready notes that recent subcompacts, such as the Toyota Echo, haven't been market successes.

Toyota's Lentz said the Echo "was just not what younger people wanted to buy."

But Toyota's youth-oriented Scion brand has been a success. It went on sale, only in California, in 2003. Last year, as Scion expanded nationwide and added a third model, it sold more than 156,000 cars -- up 58% from 2004.

Link: http://www.freep.com/apps/pbcs.dll/article.../602160561/1014

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