Will Small Cars Hit It Big?

Among the several things that the Obama administration would like you to do is buy a small car. Fuel economy is in; carbon dioxide emissions are out (please hold your breath as long as you can, and some would say the American car market is already moving in the desired direction. A look at the sales data for the past several years shows what seems to be an unmistakable trend: The American market has shifted toward small cars. 

Over the course of the past two years, small-car sales have gone up considerably and their combined share of market has skyrocketed, since the market has been shrinking. At the very same time, auto manufacturers have been falling all over themselves putting forward new hybrid, full-electric and “electrically driven” concepts. For example, October’s Tokyo Motor Show was full of news about the electrification of the automobile. Electrics were staged front and center, and many of these electric concepts are destined for America, so it is inevitable that in the next few years, we will see more alternative-powered vehicle models on American shores than ever before.

Some are drawing the conclusion that Americans finally get it: They realize their large cars, sport utilities and full-size trucks are profligate users of energy, spewers of harmful greenhouse gases and wasters of resources. American consumers, the newly coined thinking postulates, are becoming much more like their global brethren in Europe, Asia and South America, where small cars are the thing. In other words, Americans of all stripes are going green, and that environmental consciousness will be reflected in their increasing preference for small cars versus big trucks. So the future of the small car in America, and the futures of the companies that sell them, are as bright as the mid-summer sun.

Well, maybe. But then again, maybe not. Sales and market share of small cars enjoyed big gains in 2008, and that trend continued in 2009. It could market the beginning of a long-term trend or it could be the result of short-term factors. So what was going on in 2008 that might have persuaded consumers to eschew large vehicles and move toward small cars? Do you think $4 per gallon of gasoline qualifies? Of course, gas prices have since moderated. So what was going on this year that might have persuaded consumers to continue to turn to small cars? There are two logical answers: the collapse of the global economy that has sent car buyers (those few who are left) on a quest for more cost-effective transportation solutions (read: small cars) and the federal government’s reaction to the collapse that found expression in the Cash for Clunkers program. The Cash for Clunkers effort alone was enough to cause a big spike in small-car sales this year.

Will the global market electrify its cars? There is a strong movement in that direction among vehicle manufacturers -- perhaps largely for political reasons -- but it is far from an across-the-market trend among American consumers. Yes, Americans are turning toward smaller, more fuel-efficient cars now, but as the economy recovers and consumers feel more flush again, will they continue to seek small vehicles? Odds are they might turn back to the larger, more comfortable cars they enjoyed in the past.