As gas prices rise, Detroit Focuses on Selling Smaller Cars

After crises, small cars are big business.

After years of being outgunned by Japanese rivals, the American auto industry has now made small cars which are a central part of its strategy that is seeking to capitalize on a fundamental shift in the preferences of consumers in an era of fast-rising gas prices.

General Motors Co. and Ford Motor Co. are preserving jobs and positioning themselves to prosper by refocusing on small cars and deemphasizing the gas guzzlers that had long sustained the industry. Their efforts are paying off in the marketplace. Except the segment-leading Honda Civic, Ford’s tiny Fiesta is the best-selling subcompact in US and G.M.’s Chevrolet Cruze outsold every other compact car in America.

Jeremy Anwyl, the chief executive of the auto research site Edmunds.com said “There is a less-is-more mentality. The market demand and receptivity for these vehicles just didn’t exist four or five years ago.’’

Nearly one in four vehicles sold in the US in April was a compact or subcompact car, compared with one in eight a decade ago.
The transformation in Detroit was sparked by the worst financial crisis in generations assisted by an unusual set of circumstances.

The United Auto Workers made steep concessions on wages and benefits. The Obama administration used the opportunity of the bankruptcies of Chrysler and G.M to prod them on fuel efficiency. Japanese carmakers like Toyota and Honda became complacent about their frontrunner status and the psychology of car buyer underwent a stunning change.

In the past, Detroit automakers neglected small cars because they could not make money on them. It has changed for several reasons as labor costs are lower since the UAW agreed to concessions on health care for retirees and a 50% wage reduction for new workers.

The emphasis on smaller vehicles has proven to be a necessity for recovering auto companies. Industry analysts and company executives say the shift is probably a permanent one as consumers flock to small cars packed with features like heated leather seats, Internet access and voice-activated entertainment systems.

The signs of change are apparent in the industry’s home state of Michigan where Ford has converted a former SUV plant to build small cars that will be available in hybrid and electric versions. GM is also preparing to make the first subcompact model it has ever produced in the US.

Mark L. Reuss, president of GM North America said, “We focused our resources where the market was before. You have got to spend money to do great small cars.’’

“The most important thing we had to do was restore our reputation as a fuel-economy company without that we couldn’t get a wide group of people to even consider these new products,” said James D. Farley Jr., Ford’s head of global sales and marketing.

After decades of turning out embarrassingly uncompetitive small cars G.M. and Ford have devoted their vast global resources to producing new models that are fuel-conscious with technology and attractive features. Chrysler which is the smallest of the Detroit car companies; has been slower to make the changes but with the help of Fiat its Italian partner it is headed in the same direction, with a new compact model which is expected next year.

Christopher L. Garcia-Rivera of Northborough, Mass., who averages nearly 40 miles to the gallon in the Ford Fiesta he bought for $14,900 in April, said “This car has changed my impression of Detroit, big time.” Derrick M. Kuzak, Ford’s global product chief said, “The way we work now is to use the teams that know the markets the best.”

Ford is building variations of its new Focus at factories across the world. The car’s basic design and engineering was done in Europe where consumers have long appreciated the value, fuel efficiency and performance of smaller models.

Mr. Reuss said, “Our Company has been changed forever, we’ve got a window to get it right this time.”

He knew G.M. was on the right track when he parked one of the first new Cruzes off the assembly line at a supermarket in suburban Detroit, and a store employee rushed over to check it out. “She said, ‘I can’t believe Chevrolet is building a car this size that’s this good, he added.

The companies still earn far bigger profits on trucks and SUVs but small cars are commanding better prices. A year ago, G.M.’s previous small sedan, the Chevrolet Cobalt sold for an average price of $18,400. While, last month the typical Cruze sold for $20,600.