Small cars: Detroit 3 pull back, foreign rivals all-in

Posted by Talbot Payne on May 9, 2018

Imprezzas-01

Detroit carmakers and their foreign counterparts are taking different roads when it comes to small cars.

Ford is parking its sedan lineup, including the entry-level Fiesta and Focus compacts, as the carmaker follows the market-shift to SUVs. Only the Mustang and a Focus-based crossover will remain. Fiat Chrysler killed its mid-size Chrysler 200 and compact Dodge Dart two years ago. And Chevrolet is expected to thin its compact offerings from three to two by dismissing the Sonic subcompact.

Their Asian and German competitors, in contrast, see small cars as ways to introduce younger buyers to the brands. They are doubling down on compact passenger cars while also expanding their SUV lineups. The dueling strategies are not just apparent in product but also in plant location as Asian makers invest in U.S. plants that build sedans.

Take Subaru, for example.

Following Subaru’s strategy of jacking up a compact car (the Impreza) and calling it a crossover (the Crosstrek), Ford next year will introduce the Focus Active crossover that’s based on the discontinued Focus compact. But while Ford will import the Active from China and discontinue Focus production here, Subaru has moved production of its all-new Impreza compact to Indiana to free up production capacity in Japan to build the Crosstrek. Honda also builds it all-new compact Civic in the Hoosier state.

“Compacts are gateway cars to our brand,” says Peter Tenn, Subaru’s planning manager for passenger cars. “We want to keep people for life. We want to get people early in the buying process who might eventually buy SUVs like our new three-row Ascent. We take a long-term view that we want to sell folks on our total portfolio.”

New for the 2017 model year, the Impreza joins the Civic, Toyota Corolla, Hyundai Elantra and Volkswagen Jetta as clean-sheet new products for the U.S. market. Their introduction hasn’t slowed investment in SUVs where Toyota (RAV4), Nissan (Rogue) and Honda (CR-V) are the three best-selling SUVs in America.

“The (compact) market serves as a foundation for growing people through the brand,” says John Morel, Honda’s senior manager for business intelligence and strategy. “Civic buyers are tremendously loyal; more than 60 percent return to the Honda brand, which is among the best in the industry, and that feeds future volume to future Civic sales, CR-V sales and eventually across the line.”

Ford’s canceled Focus was introduced for the European market in April but will not be sold here. When it debuts next year, the Focus Active will chase the Crosstrek — new this year — and VW Golf Alltrack in the compact crossover market.

Ford’s absence from the small-car segment puts a Japanese stranglehold on a 2.6 million-vehicle market it first entered 40 years ago with small sedans such as the Civic and Corolla. The only remaining mainstream entry-level compact sedans offered by U.S. brands are the Chevrolet Cruze and Spark.

“Detroit automakers have never really had their heart in small cars,” says Auto Trends Consulting’s Joe Phillippi, a veteran Wall Street auto analyst. “They only had to focus on them after the 1973 oil crisis. Compact cars get swept over by the enormous profits they make on big trucks and SUVs.”

When Ford’s Focus exits the Michigan Assembly Plant later this year, Japanese manufacturers will dominate mainstream small-car production in the U.S. (Chevy’s Cruze and Hyundai’s Elantra are the two exceptions.)

“Honda has a philosophy of building cars in the markets we serve,” says Morel. “We build a lot of our cars across all segments in North America, and we intend to continue that. The proportion of Honda products made in the U.S. for the U.S is very, very high. Honda is second only to Ford in using domestically sourced parts — 65 percent of vehicles sold in the U.S. were also made here.”

The Civic is the best-selling retail car in America with 377,286 sold here in 2017. Honda built 146,580 of those Civics at its plant in Greensburg, Indiana, employing 2,500 workers. Subaru produced 117,000 Imprezas last year in Lafayette, Indiana, employing 5,600.

Though it is exiting the sedan market, Ford says it is still committed to affordable vehicles.

“Affordability is really always a part of our brand promise,” Ford president of global markets Jim Farley told The News last month. “The price point that’s affordable to most Americans is still important. Our ambition is to grow (our lineup) and hit all the price points. The only thing that’s changing is how they’re going to look.”

But without the $15,080 Ford Fiesta and $17,650 Focus sedan, Ford will not have a vehicle in the market for less than $20,000. Ford’s entry-level SUV, the Ecosport, starts at $20,990 including destination fee. SUVs generally sell at a premium over comparable sedans. Subaru’s higher-riding Crosstrek, for example, is $2,500 more expensive than the virtually identical Impreza.

Honda also sells a $21,000 sport utility, the HR-V, but Morel still sees opportunity for sub-$20,000 cars such as the $17,085 Fit subcompact and $19,835 Civic.

“If you look at overall price distribution of the marketplace, you see a significant portion of volume under $20,000,” he says. “In fact, when you look at age comparisons, younger buyers disproportionately buy cars instead of SUVs. So if we abandoned that part of the market, it would put us at a disadvantage.”

Auto analyst Phillippi is concerned that Ford’s decision is being driven by Wall Street and not its product portfolio.

“The pressure for maximum return on investment has driven Detroit’s automakers’ business decisions,” says Phillippi. “You have to eliminate the losers … and Detroit can’t quite seem to come up with a consistent portfolio of small vehicles.”

Since Honda introduced the Civic to the U.S. in 1975, Ford has gone through three compact nameplates: the Pinto, Escort and Focus.

“Honda is built on conservative values doing things in the long run,” says Morel. “Part of that are that Civic and Accord are long-standing brand names. They are tremendous assets to the company, and we take pride that they have been successful for a long period of time.”

Subaru’s Tenn says that Subaru’s sedan lineup, which includes the midsize Legacy, are also an insurance policy against higher gas prices.

“Economy cars are easier to sell to customers with higher gas prices,” he says, contradicting an industry meme that SUV fuel economy has caught up with cars. “(SUV fuel efficiency) is closer, but it’s easier to get better fuel economy with a sedan.”

Comments are closed.