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The Honolulu Advertiser
Posted on: Thursday, August 17, 2006

Gas prices fuel demand for 'B-Cars'

By Tom Krisher
Associated Press

The Toyota Yaris, like this one at a dealership in Glendale, Calif., could sell for its sticker price — or more — before it hits the showroom. Toyota has sold 32,822 of the tiny cars as of July 31.

RIC FRANCIS | Associated Press

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DETROIT— Just a few years ago the subcompact car in America was a tiny, cheap econobox with a noisy engine and no frills that few people wanted to buy.

But as gasoline prices settle in around $3 per gallon, the market for tiny cars is rapidly growing and changing as their styling, interiors and features continue to improve.

"I don't think there's a segment that's come to life quite so quickly and robustly," said Jim Sanfilippo, senior industry analyst for Bloomfield Hills-based Automotive Marketing Consultants Inc.

Analysts say eight tiny cars are on the market from seven manufacturers, but that number is likely to grow as demand increases.

Sales of the diminutive vehicles, called "B-Cars" in the industry, are up 43 percent in the first seven months of the year compared to the same period last year. So far this year, automakers have sold 151,848 of the cars, and analysts say sales easily will surpass the 175,387 sold in all of 2005.

Still, it's just a small fraction of a market dominated by larger vehicles. Automakers sold more than 9.8 million cars and light trucks during the first seven months of the year.

The increase, though, has drawn interest from all the auto companies. Executives at Ford Motor Co. and DaimlerChrysler AG's Chrysler Group hinted last week that they've got new subcompacts in the works. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. entered the market this year with great success.

Demand for the Honda Fit and Toyota Yaris is so high that dealers sell the cars at or above sticker price before they arrive at the showrooms.

General Motors Corp.'s Chevrolet has been in the market since 2003 with the Aveo, a tiny car built in South Korea by the company's GM Daewoo affiliate. The Aveo is the largest-selling subcompact in the U.S., and the company is banking on increased sales when it unveils a redesigned four-door version today.

The Yaris has been the greatest success so far, with 32,822 sold as of July 31. Even though it was just introduced in March, the funky car is closing in on the Aveo for the top spot in the class.

"We have basically sold out every single month," said Jim Turner, managing partner of O'Brien Auto Park in Urbana, Ill., a group of eight dealerships that includes Toyota. "We pre-sell them before they get here, and they've pretty much been sticker price. Suffice it to say it's been a huge hit."

Honda also has been having trouble meeting demand for the four-seat Fit. At Howard Cooper Honda in Ann Arbor, Mich., graduate student Joshua Bornfield, 26, was disappointed to find none of the cars on the lot.

He is looking to buy his first new car, and prefers a subcompact because of price and gas mileage.

"If I were able to afford a more expensive car, I don't know that I would pick anything bigger at this point," he said. "I'm looking for fuel economy."

Gasoline prices indeed are driving the increased interest, but the cars are selling because they're much better than the old econoboxes, said Dan Gorrell, a partner in Strategic Vision, a San Diego-based market research firm and consultant to automakers.

"The B-cars of today are far better, more functional, more styled than those of the past," Gorrell said.

A few years ago, the Toyota Echo flopped largely because it looked and felt cheap, Gorrell said. The rounded Yaris is much nicer inside and out, he said.

"The options and equipment rival luxury cars of 10 years ago," said Jesse Toprak, chief economist for Edmunds.com, an automotive Web site. "They're not your mother's subcompact any longer."

Chevrolet has realized this with its 2007 Aveo, which is made of better materials than its predecessor, said GM spokesman Jim Burke. When the car is unveiled today, it will have options such as remote keyless entry, heated outside mirrors and steering wheel audio controls.

"There's a surprising level of content in the vehicle," he said. "Things that you aren't used to seeing in the economy segment."

Nearly all the subcompact cars get 35 to 40 miles per gallon of gasoline, and all are pleasant inside and out, Sanfilippo said. Prices range from under $10,000 to around $16,000.

Mark Fields, Ford's president of the Americas, said breakthroughs in design and materials have made the interior space equivalent to larger cars.

He predicted that sales in the B-Car segment would grow to 600,000 by the end of the decade and said Ford is looking seriously at entering the market. Ford research shows that fuel economy has risen to among the top three factors that drive auto purchases, along with quality and safety.

Technology, including side air bags and stronger materials, have made the tiny cars safer, Sanfilippo said.

"There's not that concern anymore. You can drive safely," he said.