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The Honolulu Advertiser
Posted on: Saturday, December 24, 2005

More tiny cars enter market

By Sholnn Freeman
Washington Post

WASHINGTON — After piling into minivans, sport utility vehicles and even pickup trucks, Japanese automakers are crowding into yet another corner of the U.S. market — itty-bitty economy cars.

Japan's Big Three — Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. — all have new small cars hitting U.S. showrooms next year. Toyota is bringing out the Yaris, its best-selling model in Europe. Nissan has the Versa. At Detroit's North American International Auto Show, which begins Jan. 8, Honda will unwrap the Fit, another hot seller in Europe and Japan.

Mitsubishi Motors Corp. is also studying options to bring little cars into the United States. At the same time, Korean automakers are improving their offerings — the Hyundai Accent and the Kia Rio. General Motors Corp. is beefing up its Korean-built Aveo, currently No. 1 in the market segment known as subcompacts. These cars are even smaller than vehicles such as the Toyota Corolla and Honda Civic. They are priced between $10,000 and $14,000 and can get as much as 40 miles per gallon on the highway, in the same league as gas-electric hybrids.

With rising gas prices, consumer interest in smaller vehicles has surged this year, though Americans have gone through all of this before. After the oil shocks of the 1970s, which included gas lines and government rationing, Americans began flirting with the little boxy cars from Toyota and Honda. Lots of consumers stayed loyal to Toyota and Honda.

But once gas prices settled down, many other Americans returned to their big car and truck roots. Minivans took hold and then SUVs, which zoomed ahead into this decade.

Last week, the Energy Department forecast higher gas pump prices into 2025. But industry analysts are not sure if the higher prices have produced a sea change in consumer behavior this time around, either. Based on history, Americans could quickly shrug off subcompacts. Cautiously, the Japanese are planning modest U.S. sales targets and are leaving even smaller cars at home.

However, the subcompact category is a major part of the car business in nearly every part of the world except the United States. In 2004, automakers sold 177,000 subcompacts in the United States, less than 1 percent of the overall market. But U.S. sales so far this year are slightly ahead of last year, and purchases have been held back only by limited choices, analysts say. Masaki Taketani, director of Asian vehicle forecasting at CSM Worldwide Inc. of Farmington Hills, Mich., predicts the market will increase as automakers pile in with new entries. He expects U.S. sales to grow from 185,000 this year to 359,000, or 2 percent of the overall U.S. market, in 2010.

The new wave of Japanese subcompacts hits as GM and Ford Motor Co. struggle with slumps that have led to massive layoffs and several plant closings. Sales of Detroit's larger vehicles — particularly big SUVs — have stalled.

At the same time, Toyota is gunning to overtake GM's decades-long lead as the world's No. 1 automaker.