Small Sports Cars Will Save The Automotive Industry

General Motors Co. late last year said it was phasing out the Chevy Cruze compact car in the U.S. It also plans to end U.S. sales of its Chevy Sonic subcompact, people familiar with the matter say. Both small-car models made their debuts less than a decade ago as the company’s answer to then-rising gasoline prices.

Ford Motor Co. is dropping the Focus, one of the industry’s most recognizable compact-car nameplates, from its U.S. dealerships. It is also ending U.S. sales this year of the smaller Ford Fiesta, which it brought back in 2010 as part of a push to offer a better selection of fuel-efficient vehicles. Ford had originally stopped U.S. sales of the Fiesta in 1980.

Econoboxes Ebb

U.S. sales of new vehicles priced under $20,000 have fallen as gas prices drop and buyers opt for more expensive vehicles.

Change in sales volume since 2008

By vehicle price and use

50

%

New, $20,000

and over

25

Used

0

–25

–50

New, under

$20,000

–75

’10

’16

’18

2008

’14

’12

U.S. retail gasoline prices

 a gallon

$4

3

2

1

Weekly

0

’10

2008

’16

’18

’12

’14

Sources: Edmunds.com (sales volumes); U.S. Energy Information Administration (gasoline)

Volkswagen AG’s Beetle will disappear from showrooms in the U.S. and globally as production ends this year, and Fiat Chrysler Automobiles NV in 2016 axed the Dodge Dart, a compact car that was intended to lessen the Detroit car maker’s reliance on large, fuel-guzzling trucks and SUVs.

“The market is essentially half of what it was four to five years ago,” said Ivan Drury, a senior analyst at car-shopping website Edmunds.com. Low gasoline prices, better-quality used cars and more first-time buyers delaying purchases are also contributing to the slump in small-car demand, analysts and dealers say.

“If you cross-shop against used vehicles, the value just isn’t there anymore” for car buyers who can get larger preowned vehicles for nearly the same price, Mr. Drury said.

Smaller cars are expected to take a back seat at the annual North American International Auto Show, which gets under way for media on Monday in Detroit. Sports and muscle cars, along with pickup trucks and SUVs, will be at center stage.

The shift reflects a broader auto-industry move away from traditional sedans to higher-margin crossovers, SUVs and pickup trucks. This transition has helped boost profits for many car makers but is also pushing new-car prices higher, challenging the the ability of some buyers to afford new vehicles. The average price paid for a new car was about $32,500 last year, up from $29,300 five years ago, according to J.D. Power.

Volkswagen plans to end production of its Beetle this year. Volkswagen plans to end production of its Beetle this year. Photo: Richard B. Levine/Zuma Press

Historically, the smaller, low-price models have delivered thin profit margins. Some auto executives have said that the weak demand has made the cars unprofitable to keep around.

Regulatory changes have also made it less appealing for car makers to continue to invest in smaller vehicles, industry officials and policy experts say. The Trump administration has moved to ease fuel-economy standards, reducing pressure on the industry to meet higher miles-per-gallon targets. Auto makers are also taking advantage of a loophole that puts those fuel-economy standards on a square-footage-based sliding curve, effectively rewarding them for producing longer and wider vehicles.

Sales of subcompact cars fell 22% last year over 2017, while sales of all sedans priced under $20,000, including compact cars, were down 29% for the same year-over-year period, according to Edmunds.com.

Some auto makers have rolled out scaled-down crossovers, such as the Toyota C-HR and Nissan Kicks, hoping to provide new entry-level vehicles for consumers, but their starting price tags are generally higher than similar-size car models.

Small-Car Slump

Share of sales volume, by make, of new vehicles under $20,000

Largely in response to weaker demand for smaller cars, auto makers are narrowing the choices available to budget-minded U.S. consumers.

100

%

New vehicles under $20,000

Toyota

50

 models sold

75

Kia

40

Hyundai

30

50

Nissan

Ford

20

Chevrolet

25

Honda

10

Other

0

0

’18

’16

’16

’14

’12

’18

’12

’10

2008

’14

’10

2008

Small-Car Slump

Share of sales volume, by make, of new vehicles under $20,000

Largely in response to weaker demand for smaller cars, auto makers are narrowing the choices available to budget-minded U.S. consumers.

100

%

Toyota

New vehicles under $20,000

50

 models sold

75

Kia

40

Hyundai

50

30

Nissan

Ford

Chevrolet

20

25

Honda

10

Other

0

0

’14

’16

2008

’10

’18

’12

’12

’14

’16

’18

’10

2008

Small-Car Slump

Share of sales volume, by make, of new vehicles under $20,000

Largely in response to weaker demand for smaller cars, auto makers are narrowing the choices available to budget-minded U.S. consumers.

100

%

Toyota

New vehicles under $20,000

50

 models sold

75

Kia

40

Hyundai

50

30

Nissan

Ford

Chevrolet

20

25

Honda

10

Other

0

0

’14

2008

’12

’10

’16

’18

’12

’10

2008

’18

’14

’16

Small-Car Slump

Largely in response to weaker demand for smaller cars, auto makers are narrowing the choices available to budget-minded U.S. consumers.

New vehicles under $20,000

50

 models sold

40

30

20

10

0

’10

’12

’14

2008

’16

’18

Share of sales volume, by make, of new vehicles under $20,000

%

100

Toyota

75

Kia

Hyundai

50

Nissan

Ford

Chevrolet

25

Honda

Other

0

’10

’14

’16

2008

’18

’12

Source: Edmunds.com

For decades, these small-car models served as both a way to attract younger buyers to the brand by offering more affordable price points and as a hedge to meet tougher U.S. fuel-economy standards.

Fuel-sippers, such Volkswagen’s Rabbit and the Datsun B-210 sold by Nissan Motor Co. , caught on among baby boomers during the 1970s oil crisis, helping to establish the foreign brands in the U.S. and earning these models the nickname “econoboxes.”

Another spike in gasoline prices and the onset of a recession revived the small-car market toward the end of last decade. Riding that rebound, Ford reintroduced the Fiesta subcompact in the U.S. in 2010, and GM offered the Sonic, an American-made subcompact, in 2012. But buyer enthusiasm for these cars waned as gas prices fell back and the U.S. economy recovered.

Toyota Motor Corp. , which killed off its youth-oriented, small-car brand called Scion in 2016, is now weighing the future of its subcompact Yaris for the American market.

“Yaris doesn’t do much in the U.S.,” Jim Lentz, who runs Toyota’s North American operations, told reporters in Tokyo late last year. “I’m not sure, at least in the U.S., how important that segment is.”

Ford is dropping the Focus compact from the company’s U.S. dealerships. Ford is dropping the Focus compact from the company’s U.S. dealerships. Photo: Justin Sullivan/Getty Images

A big reason for the decline is that many young car buyers are waiting until their late 20s to make their first new-vehicle purchase, a point at which they are likely to afford a more expensive vehicle.

“The millennial car buyer is entering the market later, so it’s knocked the econobox off their list,” said Mike Sullivan, head of LAcarGUY, a family of nearly a dozen dealerships based in Santa Monica, Calif.

To be sure, Honda Motor Co. , Hyundai Motor Co. and other car makers say they will still offer small-car options, even if sales of these models continue to dwindle, because they see them as valuable entry points into the brand.

Justin Fox, a 22-year-old California resident, said he recently bought a subcompact Honda Fit to match his budget, paying $18,000 out the door, and is worried his options for more affordable models will shrink.

“They tried to get me into a [larger] Civic,” he said. “It’s just a way of getting around town. I don’t need high ground clearance or four-wheel drive.”

—Sean McLain in Tokyo contributed to this article.

Write to Chester Dawson at [email protected]

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