The last thing anyone wants is for ’80s fashion to come back into style — unless we’re talking about automobiles. Fuel-efficient and thrifty, smaller cars are catching up to SUVs in popularity. And automakers are taking notice.

Forty years ago, as BusinessWeek recently recalled, Volkswagen of America ran an ad for its now-still-popular bug-shaped classic, the headline for which ad read: “Think Small.” Now, after years of an SUV and other-large-car blitz, small is again in vogue.

At the North American International Auto Show in Detroit earlier this month, automakers were busy hawking their itty-bitty offerings, reintroducing consumers to small cars and vice versa. Ford, Toyota, Nissan and Honda were among those making small-car noise to break the trend of bigger and thirstier SUVs and trucks.

Yes, small cars — snubbed by Americans since Ronald Reagan was president — are being queued up as the next big thing to hit the U.S. market, AutoWeek said just last week.

“Small cars, the boon and bane of the 1980s auto industry, are making a comeback as automakers rediscover how easy it is to sell good fuel economy and low prices,” according to a recent USA Today article lede.

Automakers’ new strategy comes from concerns about fuel efficiency, gas prices, demographic trends (i.e., eager so-called Gen Y buyers) and, yes, sexiness.

Will They Sell?
They already are.

The smallest, least-costly cars moved off dealer lots more quickly last year than they did in 2004, said J.D. Power’s Power Information Network, though overall sales have not yet boomed. For the first time in 25 years, last year trucks failed to gain market share from cars in the United States, Bloomberg News recently said. In addition, Ford estimates that U.S. demand for small cars will grow five percent annually through 2008 and will account for a third of new-car sales by then. (In fact, the company last week outlined its new strategy to bombard the market with small cars, as well as hybrids and crossovers.)

“For now, the new small cars are targeted for relatively modest volumes,” AutoWeek further acknowledged. “But the popularity of small cars could grow if all the kids who grew up in living room-sized SUVs embrace smaller dimensions.”

Fuel Efficiency
Humorist Dave Barry once wrote, “Admit it, sport-utility-vehicle owners! It’s shaped a little differently, but it’s a station wagon! And you do not drive it across rivers! You drive it across the Wal-Mart parking lot!”

Like all things Barry, there is some truth to that. Driving such massive and gas-guzzling vehicles on suburban streets and in city traffic costs money. A lot of money. According to a survey by auditing and consulting firm KPMG LLP, and reported by the Associated Press (via the Miami Herald), fuel prices are among the reasons for the shift toward small cars (and hybrids) in consumer preferences.

“The rise in gas prices due to Hurricane Katrina left a lasting impression on the minds of consumers,” said Betsy Meter, an audit partner in KPMG’s automotive practice.

Manufacturers are betting rising gas prices will continue to push consumers toward more environmentally friendly autos, smaller cars.

While it is easy to say small cars are big again because of the higher fuel prices, the reasons run far deeper than that, analysts are saying…

Demographic
Marketers say a convergence of demographic trends will also support the market, BusinessWeek reported. These demographic trends include the following:

• People staying single longer and putting off the need for large kid carriers;
• A population spike in the so-called Generation Y (57 million born between 1981 and 1995) population;
• The pumping of huge numbers of budget-conscious, first-time buyers into the market;
• The rising population of Hispanic immigrants, who tend to be budget-conscious; and
• The debt load of young people who are credit-challenged and can’t qualify for or won’t choose more expensive wheels.

The underlying cause for the small-car reawakening, however, is the so-called Generation Y — the echo ‘Boomer generation — according to AutoWeek. Planners see them as nickel-pinchers, unable to afford SUVs and crossovers.

For instance, small hatchbacks, which gained popularity in the ’70s, have come full circle. The return of the hatchback was one of the leading trends at the North American International Auto Show earlier this month. “It doesn’t hurt that they are popular with the 64-million-strong members of Generation Y,” according to the Morning Call.

Further, automakers are trying to win sales from these children of Baby Boomers, as they are now buying their first cars.

The Sexy Factor
Sure, Americans have historically shunned smaller cars because of the “prestige and image” factor, the Pittsburgh Post-Gazette recently noted, but “most small cars today are well-equipped and stylish, and have far more individuality than the larger models that are on the showroom floor.”

For example:

• The 2007 Honda Fit, for one, provides novel features in the subcompact segment, including a five-speed automatic transition with paddle shifters and an Apple iPod audio jack. If human cargo isn’t a concern, all seats except the driver’s fold flat. Estimated fuel economy is 33 mpg, 38 mpg highway.

• And Volvo’s C30 concept is a thinly disguised version of the upcoming C30 hatchback. Based on a shortened S40/V50 platform, “the C30 concept features a turbocharged 2.4-liter, five-cylinder engine, a 260-horsepower engine that is mated to a six-speed manual, and a 0-62 mph time of under six seconds.”

• Then the Dodge Caliber — a sporty-yet-utilitarian five-door hatchback, available with all-wheel-drive and electronic stability control and three four-cylinder engines, the Caliber features fold-down speakers mounted in the rear cargo hatch, allowing you to play your music while tailgating; an audio input jack for your iPod; a compartment that holds four 20-ounce bottles and keeps them chilled; a rear detachable cargo lamp that doubles as a flashlight; a front passenger seat that folds forward to double as a table top — all of which adds up to a fine replacement to the Dodge Neon, surely.

The tendency these days, analysts say, is for consumers to load up their small cars with all sorts of options (or, as the MTV kids would refer to as “Pimping their ride”).

As a recent article in the Austin American-Statesman began:

Speed and style still count. But in tomorrow’s cars, so do video screens, cell phone connections, portable music players, computers and even live TV. Catering to iPod- and laptop-toting consumers who are starting to demand entertainment and connectivity on the go, carmakers and suppliers are gearing up for what could be a watershed year for high tech on the highway.

Indeed, most cars at the 2006 NAIAS boasted support of MP3 playback and satellite radio.

Safety
Another consideration is the safety factor, of which admittedly there still are some hurdles.

Yes, the addition of standard equipment such as side airbags, antilock brakes and traction and stability control on some models has lowered the risk to small-car passengers. As well, side curtain airbags are either standard or available as options on the newest models exhibited at this month’s show in Detroit.

Further, the prevalence of hulking SUVs on American roads has long worried consumers in smaller vehicles. (Unfortunately, this remains true and cannot change unless the small-car trend becomes the norm.) However, the deadly potential of small cars purportedly isn’t, as many people fear, because big SUVs crash into them. Instead, 41.5 percent of small-car deaths in 2004 were single-vehicle accidents, according to National Highway Traffic Safety Administration (NHTSA) data. Another 6.1 percent of small-car deaths were from small cars crashing into one another. Simply put, nearly half of small-car fatalities involved only small cars.

“The laws of physics dictate that, all else being equal, larger and heavier vehicles are safer than smaller and lighter ones. In relation to their numbers on the road, small cars have more than twice as many occupant deaths each year as large cars,” according to an Insurance Institute for Highway Safety (IIHS) report. Small cars simply lack the size to provide generous crash-absorption structures and lack the heft to prevent them from rebounding in neck-snapping fashion when they do collide with bigger machines.

Profits
Historically, small cars meant small profit margins, and that has been an inhibitor. As such, dealers have been reluctant to push small cars because of the credence that small cars wouldn’t make as much money as those larger cars.

In fact, the smallest cars have accounted for only about one percent of the U.S. car market in recent years, Power Information Network said. “That’s fewer than 170,000 a year, not enough to support sales plans of all the new entrants unless they draw buyers who’d otherwise buy used cars or bigger new ones.” However, BusinessWeek noted, “that’s in large part a function of automakers not offering them and hardly advertising the ones they have.”

Further, if economy cars become the “cool” vehicles — as SUVs have been — the pool of buyers increases.
(Reported USA Today: “Jim Press, head of Toyota’s U.S. sales operation, estimates that five percent to seven percent of new-vehicle sales are to so-called ‘image buyers,’ who switch to whatever type of vehicle is popular.” Ugh.)

Also to consider: “Consumers may like small cars,” the Pittsburgh Post-Gazette said, “but they want them with all the comforts heretofore available only in larger models.” As aforementioned, analysts note the tendency these days for consumers to load up their small cars with all sorts of options. This thus drives up dealer profits.

Impractical, But Not Gone
Now, none of this is to say that the market for SUVs and large cars is going away. Indeed, they continue to make significant money for automakers. Rather, the point is that there will be continued growing interest in small cars, for each and all of the above factors — particularly as families and individuals (not to mention business owners) keep multiple cars.

As consultant KPMG said in the summary of its recent survey of 140 global auto executives, “A more practical, less self-indulgent era may be dawning,” a recycled era of small cars.

So the auto market is cyclical, and the ’80s-size car is coming back. Please, let’s be selective, though, people: leave the Pulsar and bring back the DeLorean. **Wink**

For further information about the 2006 North American International Auto Show: http://www4.naias.com/.

Auto Resources

AutoWeek
Automotive News
The Auto Channel
BusinessWeek, Autos section
Detroit Free Press, Auto News
Just-Auto.com
Automotive Design & Production
WardsAuto.com

Associations

Alliance of Automobile Manufacturers
Automotive Industry Action Group
Society of Automotive Analysts
U.S. Council for Automotive Research

References

Suddenly Revved about Small Cars
by David Kiley
BusinessWeek, Jan. 10, 2006

Will they sell? Recent small car revival raises the big question
by Lindsay Chappell
AutoWeek, Jan. 24, 2006

Move over gas guzzlers, small cars are coming
by James R. Healey, Sharon Silke Carty and Chris Woodyard
USA Today, Jan. 8, 2006

Ford, Honda Concur at Detroit Show: `Small Is Big’
by Alan Ohnsman
Bloomberg News, Jan. 11, 2006

Auto executives predict growth for hybrids, small cars
by Dee-Ann Durbin
The Associated Press (via the Miami Herald), Jan. 4, 2006

Big plans for small cars
by Larry Printz
The Morning Call, Jan. 15, 2006
[THIS ARTICLE IS NO LONGER ONLINE.]

Smaller cars are stars of this year’s Detroit auto show
by Don Hammonds
The Pittsburgh Post-Gazette, Jan. 11, 2006

Are we there yet? Who cares with these packed vehicles
By Bob Keefe
The Austin American-Statesman, Jan. 30, 2006

Auto Industry Moving to Embrace New Technologies
Gizmodo (via BusinessWeek), Jan. 17, 2006