The State of the Subcompact Car
The auto industry's least-expensive offerings, subcompacts are a mainstay abroad, but U.S. shoppers remain cool to the concept, even in this sluggish economy. Why? Blame not-so-bargain prices and modest relative gas mileage, two factors that will keep subcompacts from outselling their compact siblings anytime soon.
Still, subcompacts are gaining some traction, and the segment deserves a look, especially as an alternative to ever-pricier used cars. After all, today's budget cars offer surprising safety and room.
In 2011, car shoppers bought fewer than 600,000 subcompacts, including a handful of minicars. That compares with nearly 1.8 million sales for compacts, whose mainstays are household words: Corolla, Civic, Focus.
The tides are shifting, if slowly. Subcompacts and affordable minicars accounted for 4.4 percent of all new-car sales in 2011, up from 4 percent a year earlier. Over the same period, compact cars fell to 13.7 percent, from 14 percent in 2010. Much of the gains came from new products: Of 15 subcompact or minicar nameplates, seven were redesigned or introduced in 2011.
That doesn't mean subcompacts are the next big thing, however. Sales are building simply because there are a lot more cars than there used to be. Five years ago — the 2007 model year — automakers offered just seven nameplates.
"The segment really has more players in it than they've had in the past," AutoPacific analyst Dave Sullivan says. "We haven't had a (Ford) Fiesta in 30 years. So to say that there's increased sales in the segment? Yes, of course. There weren't many entries in the segment three or four years ago."
No Longer 'Econoboxes' ...
The class still starts cheap, with base prices averaging just $13,943 — well under half the average MSRP for a new car, according to CNW Automotive Research. But throw in basic conveniences like power accessories, air conditioning and an automatic transmission, and the prices for many cars climb, in some cases by $2,000 or more.
It's no surprise that subcompact shoppers saw an average price of $16,677 in the fourth quarter of 2011, according to J.D. Power and Associates. Similar money buys a base compact car. What's more, those shoppers reaped on average just $132 per car in cash rebates — peanuts compared with the market average of $1,031 per car, J.D. Power says. The age of $10,000 budget cars in the U.S. — available as recently as the 2011 model year — are likely in the rearview mirror.
... Or Super Fuel-Efficient
Fuel efficiency, too, may trail perception. Lighter weight and pint-size engines allow more than half of all subcompact nameplates to achieve 33 mpg or better in the EPA's combined city/highway ratings. Still, the segment's typical characteristics — smaller wheelbases, stubbier profiles — play against aerodynamics, dinging the all-important EPA highway figure that both consumers and marketers pay heed. Subcompacts like the Chevrolet Sonic, Hyundai Accent and Ford Fiesta reach the vaunted 40 mpg EPA highway mark, but so do their larger siblings — the Chevrolet Cruze, Hyundai Elantra and Ford Focus.
"All the automakers had to add curtain airbags and side airbags and increased safety features," Sullivan says. "Regulations have really changed a lot of vehicles, having to add weight. An airbag in a small car or an airbag in a bigger car, they're going to weigh a similar amount. So if you have a small car, it really affects things."
Still, subcompacts and compacts help automakers improve their all-important corporate average fuel economy, or CAFE. The government's CAFE program will likely call for combined fuel economy of 54.5 mpg across all passenger vehicles by 2025 — which translates to around 37 mpg in EPA combined city/highway window stickers — and small cars, whether subcompact or compact, are a key way that automakers can get there.
Safe and Roomy
Safety items might add weight, but they pay dividends. Today's subcompacts include eight Top Safety Picks as rated by the Insurance Institute for Highway Safety. Every car in the segment has head-protecting airbags, antilock brakes and an electronic stability system; the last two items are federally mandated starting with the 2012 model year. In side-impact crashes, no 2012 model tested by IIHS received anything below an Acceptable rating, the second-highest crash-test score. Compare that to five years ago, when some subcompacts rated Marginal or Poor despite having standard side airbags.
At the same time, many subcompacts have become, well, not so subcompact. The EPA defines subcompacts and minicompacts as sedans whose passenger and cargo volume combine for less than 100 cubic feet. By that notion, sedans like the Chevrolet Sonic, Kia Rio, Hyundai Accent and Nissan Versa edge into the compact segment. It goes to show how roomy the segment has become. The Fiesta, by EPA standards, is among the segment's few true subcompacts, and it shows.
Audience Drives Investment
The race to automotive supremacy won't come on the backs of subcompacts, but the segment has an audience that automakers should pay attention to. Subcompact buyers are on average 47 years old, which is two years younger than all car buyers on average, according to J.D. Power data. Twenty-eight percent are younger than 36, compared with 22 percent for the market average. And 71 percent of subcompact-car buyers finance their purchases — a big business for auto lenders. By contrast, just 58 percent of the overall market finance their new cars.
What's driving these purchases? Used-car prices, Sullivan says. The average used car in February listed for $10,516 and $11,653 at franchised and independent dealerships respectively, according to CNW. Those figures are up 3.2 percent and 11.2 percent over year-ago levels, respectively, and they reflect a trend years in the making: Depressed new-car sales since 2008 have run the pipeline dry for late-model used cars, driving prices up.
"We have a bunch of new players in the segment; we've got a used-car market that's historically had some of the highest prices in recent history," Sullivan said. "And you know, the other thing, too, is that they're not these small cars. They're not the tin cans that they used to be. They're solid vehicles."