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Small cars causing big headaches for carmakers

Small cars causing big headaches for carmakers

Ralph Hanson April 7th, 2008 Ralph Hanson By Ralph Hanson Author April 7th, 2008
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December 31st, 1969 With fuel prices continuing to spiral northwards and consumers around the world adopting a new wave of environmental consciousness, sales of small economical runabouts are skyrocketing and carmakers unaccustomed to building and selling such models are starting to feel the heat. Finding it hardest to adapt to the changing trend is the Detroit 3, which are not only losing sales but are also seeing profit margins shrink. Nowhere is this more evident than in the U.S. where vehicle sales have consistently been falling except for small cars. Also confirming the changing trend were sales of four-cylinder models, which last month accounted for 40% of the market in the U.S. – eclipsing V6 models and showing the highest monthly share since at least 2002, according to J.D. Power and Associates. The major problem for America’s carmakers is that even if they can increase sales of small cars, they still lose out on revenue and margins from lower truck and SUV sales. "We fully understand the days of selling 900,000 F-series trucks and 400,000 Explorers and 200,000 Expeditions are a distant memory," Ford sales exec George Pipas told Automotive News. "It will never happen" again. Some solutions the Detroit 3 have in store include boosting their small car offering, selling more optional extras, and discounting less, but with strong competition, especially from Asia, American carmakers still face an uphill battle. Ford, for example, only has one small car in its U.S. lineup, its Focus compact (pictured), while Toyota has six such models in its lineup.
Small cars causing big headaches for carmakers

Small cars causing big headaches for carmakers

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With fuel prices continuing to spiral northwards and consumers around the world adopting a new wave of environmental consciousness, sales of small economical runabouts are skyrocketing and carmakers unaccustomed to building and selling such models are starting to feel the heat. Finding it hardest to adapt to the changing trend is the Detroit 3, which are not only losing sales but are also seeing profit margins shrink.

Nowhere is this more evident than in the U.S. where vehicle sales have consistently been falling except for small cars. Also confirming the changing trend were sales of four-cylinder models, which last month accounted for 40% of the market in the U.S. – eclipsing V6 models and showing the highest monthly share since at least 2002, according to J.D. Power and Associates.

The major problem for America’s carmakers is that even if they can increase sales of small cars, they still lose out on revenue and margins from lower truck and SUV sales.

"We fully understand the days of selling 900,000 F-series trucks and 400,000 Explorers and 200,000 Expeditions are a distant memory," Ford sales exec George Pipas told Automotive News. "It will never happen" again.

Some solutions the Detroit 3 have in store include boosting their small car offering, selling more optional extras, and discounting less, but with strong competition, especially from Asia, American carmakers still face an uphill battle. Ford, for example, only has one small car in its U.S. lineup, its Focus compact (pictured), while Toyota has six such models in its lineup.

Tags: Industry

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Comments (10 total)

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  1. By PJE #1, Posted: 4/7/2008

    What ford need to do is bring the European Focus to the US as a more premium model.

    They can't compete with the Koreans, Chinese and other emerging makers for price, but they can compete on technical merit if they aren't forced to match the lowest cost. All they can do to meet cost is to reduce the content in the vehicle, and stay with older cheaper designs (which make the imports look better value).

    In Europe Ford/GM/etc have a quality lineup of small cars, and they always seem to beat the competition in comparison tests.

  2. By Roy #2, Posted: 4/7/2008

    But the article fails to mention that Ford and GM have a veritable arsenal of small cars, courtesy of their European operations and global partnerships. The one with the biggest problems is Chrysler.

  3. By Gus #3, Posted: 4/7/2008

    Yeah, I've never understood why it would be so difficult to bring over some of the European designs, which really sell well over there.
    Odd. There must be some reason they don't do it. Euro-focus? Mondeo? Hello?

  4. By chris #4, Posted: 4/7/2008

    remember,.. the euro focus was sold here until 2005, and the mondeo was sold here as the contour. it was only in the last 7 or so years that you have seen this division. most of it has to do with the economics of the USA, and the other problem is the image.

    lets face it; most of the civics and corollas that you see on the road are not loaded with options. they may have a higher msrp, but people are foregoing more options for the same price, to get an import small car.

    remember, that euro spec focus ST would convert to $40,000 at todays exchange rate. why would you pay 40k for a ford focus that has 220 hp when you can have a mazda 3 (the same car) with 260 hp for 30k?

    euro cars are simply more expensive. PJE: there's no one except for a very small loyal following that would spend OVER the average MSRP for an american car. The clientel for american cars are the lower middle class. the "upper" middle class generally shops imports because of this brand image problem.

    personally i love the idea of smaller cars. I wish ford would make a Rally Spec focus that can actually compete with the STis and EVOs. These cars fetch a lot of money, and give a lot of sex appeal to the lower end items.

    It will be really interesting to see what ford does with the Mk III focus that we're supposed to get, and the fiesta as well. At the auto shows, Ford has been harping about how they will build a "quality" small car in the fiesta. I hope so. I'd love to be able to spend 30k on a sub-compact AMERICAN car.

  5. By Kyle #5, Posted: 4/7/2008

    Love to know what the six small cars in Toyota's lineup are:
    - Yaris
    - Corolla
    - Matrix (a Corolla wagon)
    But what are the other three - Scions?

  6. By Kevin #6, Posted: 4/7/2008

    Ford is bring its new fiesta over in 2010.

  7. By admin #7, Posted: 4/7/2008

    Kyle, yes Toyota's range includes its Scion models. The point was that in all three of Ford's brands, Ford, Mercury and Lincoln, there is only one small car.

  8. By vabou #8, Posted: 4/8/2008

    I work for a french car manufacturer which specializes in small and PROFITABLE cars. On top of that they build some of the most frugal cars in the industry, and the company's overall average CO2 emissions are the lowest in the world.
    That's why I do not understand how the big three got themeselves in such thick molasses. They saw this trend coming. People have been talking abvout the environment since the late 90s. but Noooooo, our big three stuck their heads in the sand and wished this trend away. They sold gaz guzzling dinausors which made them a lot of money, but they forgot to listen to the world and worst of all, all those million dollar execs didn't plan for the future.
    Do not show any pitty for their demise. They simply asked for it. Period

  9. By chris #9, Posted: 4/8/2008

    vab; clearly you haven't been to america. no one really gives a rats lower back side about the environment. how many hybrids that ARENT priuses are sold in america? how many small cars? if gas was free, every american would drive an Expedition. the only reason why americans buy small cars is because of gas prices. the only reason why americans buy priuses is because they want to world to know that their crap doesnt stink.

    why would yany american company stop selling SUV's? people were buying them, the companies were making profits, everyone was happy. now gas has gotten expensive, and no one wants to drive them. people who used to have SUV's have gone to crossovers, those who were driving vans either went to crossovers or mid sized sedans, and those who liked their midsized sedans have started buying small cars. mind you, if you look at the size of a 1990's taurus and a 200x focus, you get the same car, so its not really like cars have stayed the same size. people have just "moved down".

    combined fleet anything is a crock of crap. who cares? really? not everyone wants small cars, and not everyone wants a slow car. if bentley bought out your company, you'r combined ratings would sky rocket and bently's would drop a little. but in the end, just as much gas is getting burned, just as much CO2 is going into the atmosphere. CAFE and combined carbon figures are exactly that. numbers. who cares.

  10. By Jim #10, Posted: 4/8/2008

    Vab, the US mfg view small cars as also being low cost and cheaply produced, and to an extent they've trained the consumer to see it the same way. It is also arguable that if it wasn't for the Federal Cafe standards, the big three would never bothered producing cars like the Focus, Neon and Cavalier.

    High build quality, higher margin small cars are entering the market, the Mini, BMW 1-series, the Honda Fit, even the Smart are all comfortable well finished cars that sell at premium prices.

    Ford & GM need to bring their European products to the US, but for exchange rate reasons they need to build them here and Chrysler needs a partner, PSA, Renault or Fiat are possibles as well as the Koreans. Lease the designs but build the car in existing factories.

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