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Decline of small cars merely a return to the norm? Maybe not

May 4, 2018
To paraphrase Mark Twain, reports of the death of small cars have been greatly exaggerated.
The surging popularity of SUVs — along with news that Chevrolet will ax the subcompact Chevy Sonic and Ford will drop its Fiesta from the U.S. market — has led to speculation that small cars are an endangered species. 
The moves seem to accelerate a trend started two years ago by Fiat Chrysler Automobiles NV, when production of its two smallest sedans, the Chrysler 200 and Dodge Dart, was discontinued.
But industry executives and analysts say the small car market is actually returning to historical norms after an unusual period when manufacturers expanded small-car lineups in anticipation of rising demand fueled by rising gas prices. Those have since eased — and are expected to stay that way.
The stalling sedan market is forcing automakers to re-evaluate the segment, but that doesn’t always require axing nameplates: GM is cutting yet another shift at its Cruze plant in northeast Ohio, leaving just one shift building Lordstown’s only car.
Cruze and its endangered sibling, the Sonic, aren’t quite as crucial to Chevrolet as they once were. But selling sedans isn’t just about volume and market share, said Steve Majoros, Chevrolet’s marketing director for cars and crossovers.
"If you think about the role cars play in overall full-line manufacturers’ portfolios, these certainly help us with loyalty and conquest," he said at a dealer event in Las Vegas last month. In addition to offering a wider array of "use cases" in the portfolio, sedans act as ambassadors to the brand.
"Vehicles like Trax have been a great success story for us because a lot of Trax sales come from people who are currently in passenger cars but are migrating through the portfolio," Majoros said, referring to Chevrolet’s smallest SUV.
Veteran Kelley Blue Book auto analyst Karl Brauer said that the next downturn will be unlikely to see much of a shift back to sedans from SUVs because the latter have made enormous gains in fuel efficiency by light-weighting their chassis and adopting smaller engines. For example, Ford’s India-built Ecosport — introduced this year as a small SUV — shares the same 1.0-liter, three-cylinder engine that once motivated the wee Fiesta.
"We would do better to get into a small SUV segment rather than" subcompact cars, said Jan Dickmann, U.S. boss of small cars for Volkswagen AG.
Over the last two years, the compact car market, traditionally the entry-level segment in the United States, has seen a surge in all-new vehicles, including the 2017 Honda Civic, 2017 Hyundai Elantra, 2017 Chevrolet Cruze, 2018 Toyota Corolla, and 2019 VW Jetta. Add to the list an all-new compact Focus to be assembled in China, which Ford announced last month.
"This has never been a good market for super-small cars," said Kelley Blue Book’s Brauer. "Gas prices and a sluggish economy helped bring cars like the Smart ForTwo and Fiat 500 to market in the last decade, but now prices have returned to their historic lows in this country."
Japanese manufacturers made their mark here 50 years ago with compact cars such as Toyota’s Corolla (introduced in 1968) and Honda’s Civic (1973). Like Ford, Toyota did not commit its subcompact Yaris to the U.S. market until 2012, while Honda’s introduction of the subcompact Fit hit American shores just in time for record-high, $4.11 average gas prices in 2008. Since then, Fit sales have dropped nearly 40 percent to just 49,454 last year.
Other foreign manufacturers have never bothered to bring their mini-cars to the rich U.S. market, choosing instead to broaden their SUV offerings and build them increasingly in dedicated U.S. assembly plants.