3 Reasons America Is Having Its First Small-Car Crisis

Last Updated Jul 5, 2011 4:06 PM EDT

We want small cars to go with our small flags.
It's an article of faith: Americans don't like small cars. Except when they do. Which isn't very often -- and even then, they usually go back to big cars as soon as whatever provoked them buy a small car (usually high gas prices) goes away.

But there's weirdness in the land around the just-passed Independence Day weekend. The U.S. is experiencing its first-ever small car crisis.

And here's why:

  1. Small cars are actually appealing for once. The econoboxes of yore have largely vanished. Consumers now expect big things in small packages. Formerly, carmakers could skimp on features in small cars because they assumed that buyers were making decisions based mainly on price. Now, they're choosing small because they don't want to endure pain at the pump. This means that today's small cars are fully competitive with the bigger siblings -- in amenities, features, technology, and safety.
  2. Americans have finally gotten small-car religion. For the Detroit Big Three, small cars were always something that they put up with. Gas prices would spike, and Motown would halfheartedly build smaller rides for a while -- until gas prices dropped and Motown could return that market to scrappy foreign competitors who were willing to chase slimmer profit margins. Higher fuel-economy regulations have forced Detroit to rethink this attitude, and this has led to, for example, the Chevy Cruze, which outsold the Honda Civic last month. General Motors (GM) has never made a small car this good. And that's because the U.S. market demanded it.
  3. We're refusing to settle for big cars. Here's a great insight from AP, paraphrasing Ford (F) sales analyst George Pipas: "Pipas said buyers who want those cars appear to be waiting to get them instead of settling for something bigger." Instead of settling for something bigger. Meditate on that for a second. Inventories of compact and subcompact vehicles were so low in June that automakers couldn't meet customer demand. This would never have happened in the old days, when inexpensive compacts were pitched mainly at young buyers. Now the small cars in short supply are so good that customers are willing to wait.
This all represents a sea-change in consumer behavior in the U.S. In the 1990s and 2000s, Detroit was content to leave small cars to its Asian rivals, while focusing on juicier earnings from trucks and SUVs. Now buyers aren't just saying they want small cars -- they're saying they'll sit on their money until they can get what they desire.

From crisis comes opportunity, however. For Detroit, that means it could produce much more balanced lineups going forward, and never have to scramble again to hedge itself against inevitable fluctuations in gas prices. The times, they are a-changin' all right.


Photo: Wikimedia Commons