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Home > Feature Articles > Logistics and Vehicle Fleet Management > Autos & Small Consumer Vehicles

Small Cars Are The New Trend Starting in 2007

Small, basic cars are leading auto manufacturing to tap the new global markets and meet fuel price increases

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alternative transportation for light vehicles cars trucks Small, low-cost cars have abruptly become the next frontier for the global auto industry, after almost 20 years in which major car makers dismissed such vehicles as a low-profit afterthought. As gas prices keep rising, consumer tastes around the world are shifting toward smaller, more fuel-efficient cars. In the U.S., drivers are trading in gas-guzzling SUVs like the Nissan Armada for smaller models like the subcompact Honda Fit. In developing markets, where sales are exploding, first-time drivers are starting out with the smallest, cheapest cars.

Global demand for small cars is expected to grow by 30% to 27 million vehicles by 2013, with the growth coming mostly from developing markets, according to auto research firm CSM Worldwide Inc. Demand for big SUVs during that time is expected to drop 4%, to 10 million vehicles.

Toyota Motor Corp. recently said it may launch a car priced at around $7,000 as early as 2010, aimed at large developing countries such as Brazil, Russia, India and China. Chrysler LLC is tying up with China's Chery Automobile Co. to make small cars for export world-wide, including the U.S. Small cars are expected to dominate many auto makers' displays at the Tokyo Motor Show opening Wednesday.

The industry's shift poses a challenge that no car maker has managed yet to meet: how to make decent profits. Trucks and SUVs earn 10% to 20% margins, which for many popular models can mean $2,500 to $5,000 profit per vehicle. Even the best-selling small cars like Honda Motor Co.'s Fit and Toyota's Yaris subcompact earn margins for manufacturers of just 2% to 3% -- about $300 per car. In emerging markets, the cars are sold with fewer profit-boosting features, so car makers earn even less. "Most car makers are considered to be doing well if they break even on small cars," says Tokyo-based J.P. Morgan analyst Takaki Nakanishi.

READ FULL ARTICLE AT THE SOURCE: Wall Street Journal



Edited by Carolyn Allen, owner/editor of California Green Solutions
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