Smaller cars scale the US market

Smaller cars scale the US market


Light handling: a Times Square ad for BMW's Mini, which has outsold both the Cadillac Escalade and Chevrolet Suburban SUVs in North America this year

Roger Burton, a private investigator in Lake Zurich, north of Chicago, made a marked change in his car-buying habits last month. He traded in his black Cadillac Escalade, one of the most ostentatious sport-utility vehicles, for a tiny green Fiat 500. “It was not a bad vehicle,” he says of the Escalade, “but it almost felt like I was driving a house.” What is more, the behemoth cost at least $100 to fill up.

Besides finding the little Fiat easier to park and far less demanding on his wallet, Mr Burton says that “it rides a lot better than I thought it would, and it’s got a lot more pop than I thought such a small car with such a small engine would have”.
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While switches as dramatic as Mr Burton’s may be rare, many other Americans are also acquiring a European taste in cars. Even Detroit’s carmakers, which have long relied on patriotism and used slogans such as “Buy American” to help sell vehicles, are not shy these days to acknowledge that for many buyers, European is the new cool.

In a television advertisement that would have been unthinkable a few years ago, General Motors boasts that its new Buick Regal sedan is the brand’s first German-engineered car. The Regal, based on Opel’s Insignia, is also built in Germany. “If there was a time for an American autobahn, this is it,” the spot declares.

The ad for the midsized Regal suggests that there is more to the shift in tastes than a new-found preference for smaller vehicles driven by hard economic times and high fuel prices.

Sheryl Connelly, a consumer trends analyst at Ford Motor, also links it to a convergence in consumer tastes driven by the internet and social media. “A 20-year-old in the US has more in common with a 20-year-old in the UK than with a 40-year-old in their native land,” she says.
That view has encouraged Ford and other carmakers to step up their efforts to establish global platforms. Models such as GM’s small Chevrolet Cruze and Ford’s Fiesta and Focus share the same styling and most of the same components worldwide, with only minor concessions to local tastes – such as cup-holders for Americans.

Why bigger is no longer better

American consumers are gradually turning away from the notion that “bigger is better”. Sheryl Connelly, a consumer trends analyst at Ford, offers several explanations:

● Baby boomers are down-sizing and watching their pennies as retirement looms

● The “steady drumbeat of sustainability”, reinforced by high petrol prices, is causing consumers to think twice before buying products with features they don’t need

● The Great Recession has helped bring “the era of excess” to a tipping point

● Urbanisation has encouraged consumers to seek compactness rather than size

European brands are making deeper inroads across the Atlantic. Led by Volkswagen, BMW and Mercedes-Benz, their market share reached 10 per cent for the first time in June, up from 8.6 per cent a year earlier and 6.6 per cent in the 12 months to the end of 2005, according to Autodata, a market research firm. (The most recent boost is partly the result of a shortage of Japanese cars following disruptions caused by March’s earthquake; the European share edged back to 9.6 per cent in July.)

VW is in the throes of opening its first US assembly plant near Chattanooga, Tennessee, as part of a drive to expand North American sales.

BMW’s Mini far outsold both the Cadillac Escalade and Chevrolet Suburban SUVs in the first seven months of this year. According to market research company CNW, the proportion of Suburban owners who use the car as their primary vehicle has fallen to 16 per cent from 21 per cent three years ago. And two of the biggest 1990s gas guzzlers, the Hummer and the Ford Excursion, are now extinct.

The latest trends differ from Americans’ stampede to Japanese cars in the 1980s and 1990s. The rise of Toyota, Honda and Nissan at that time was chiefly a response to the shoddy quality and unimaginative styling of vehicles coming out of Detroit. Now, buyer tastes are changing, helping all manufacturers – both domestic and foreign – that are agile enough to cater to them.

Ms Connelly explains that Americans’ perception of small cars is becoming more like Europeans’: “It’s moved from being a starter vehicle or econo-box to something that is much smarter, more sophisticated and more streamlined.”

Many small models now come equipped with upscale accessories, from heated leather seats to sophisticated entertainment equipment and parallel parking systems. Such extras are highly lucrative for the carmakers, enabling them to extract bigger profits from small cars – and thus encouraging them to produce more.

Five-door hatchbacks, popular among European families but long regarded as boring by Americans, are catching on. They now make up almost half the retail sales of Ford’s small Fiesta and Focus. “It’s quite remarkable when you consider that their predecessors were a niche product that didn’t seem to have mass appeal,” says George Pipas, Ford sales analyst.

Both the Fiesta and the Focus were designed mainly at Ford’s studio in Cologne. They are built at plants in Mexico and Michigan respectively that until a few years ago were turning out big pick-up trucks and SUVs. The next version of Ford’s midsized Fusion sedan will be based on the Mondeo platform. “The ride and handling, which is a hallmark of European design and engineering, has played very well in the American market,” Mr Pipas adds.

In the latest sign of European car culture crossing the Atlantic, GM confirmed last month that it would bring a diesel version of the Cruze, a vehicle developed initially for parts of Africa, Asia and Europe, to North America in 2013.

Diesels currently account for only about 2 per cent of cars and light trucks on US roads, compared with more than 50 per cent in Europe. Americans have long regarded them as smelly, noisy and expensive.
GM helped sully diesel’s name during the oil crisis in the late 1970s by converting the petrol engine of an Oldsmobile model to diesel, with disastrous results: the converted engines were notoriously prone to breaking down. But tough economic times and the jump in fuel prices have provided a fresh opening to persuade US motorists that their cars will last longer and use less fuel if they switch to diesel.

Several European carmakers, including VW, aired TV ads during this year’s Super Bowl promoting diesel models. The German carmaker’s diesel sales climbed by 26 per cent in the year to June, far outstripping the 2.5 per cent growth in the overall light-vehicle market.

Not all Americans are about to follow Mr Burton’s example by ditching their SUVs and pickups. “There are still things that are core to the American taste,” says Ms Connelly. “A pocket of US consumers will always love the imagery of the wind in their hair, the open road and a long drive.”
Although the new taste in cars is concentrated on the east and west coasts, it is nevertheless catching on in some unlikely parts of the US. Automotive writers in Texas recently chose the Fiat 500 as 2011’s best-designed and best-value vehicle.

“We still use our SUVs when we take the family out, and things like that,” says Michael Herzing, co-host of a Houston automotive radio show who is also president of the Texas Automotive Writers’ Association. “But when we commute downtown, if you’re going to be stuck in your car for 45 minutes every day you may as well have fun in it.”