The Resurgence of Small Cars

Toyota redefined entry-level cars with the introduction of its Scion subsidiary in 2003. Scion's two extroverted hatchbacks, the xA and xB, bore ultra-hip styling and utility to boot, a major departure from the segment's legacy of cramped, unrefined offerings. With new small cars from Honda, Nissan and General Motors, analysts agree: Economy cars are making a fashionably late comeback.

Entry-level compact vehicles, commonly called B-cars, have existed for decades. Priced around $10,000 through much of the 1990s, B-cars attracted recent graduates, young families and retirees — anyone looking for basic transportation. But a penchant for uninspired styling, substandard quality and poor handling soured their reputation as the decade wore on, and by 2002 the segment amounted to fewer than 275,000 car sales — just 1.6 percent of all vehicles sold that year.

Things changed when automakers decided style, rather than price or fuel efficiency, should be the B-car's selling point, said Joe Barker, senior analyst at automotive research firm CSM Worldwide.

"Over the last few years we're seeing a market shift from your traditional small sedan to other body styles, like hatchbacks and sport wagons," Barker said.

Credit this shift to buyers' changing tastes, said Brett Smith, an industry analyst at the Center for Automotive Research.

"People get bored with what's out there, and they look for something new," Smith said. "We've had big and burly for 10 years. This is kind of the antithesis."

The B-car segment includes cars at the bottom of an automaker's lineup whose prices rank among the industry's lowest. Nine 2007 models fit the bill, with prices ranging from $10,000 to $14,000, not including destination charges.

B-Cars Getting Bigger

Subcompact models no longer typify the segment. The Environmental Protection Agency, which classifies cars based on interior volume, categorizes three of today's B-cars as midsize:

Where They Rank
Below, new small cars are listed by EPA size class, from smallest to largest.
2007 Toyota YarisSubcompact$10,950 - $13,325
2007 Chevrolet AveoCompactTBA
2007 Hyundai AccentCompactTBA
Kia Rio, Rio5Compact$10,570 - $13,500
2007 Nissan VersaCompactTBA
Scion xA  Compact$12,780
2007 Honda FitMidsizeTBA
Scion xB  Midsize$14,030
Suzuki Reno  Midsize$13,199 - $15,299

Note: does not include a subcompact segment, and the EPA bases its classifications on interior volumes, so our classifications differ from the EPA's. classifies all of the above as compact cars.

The next rung up includes larger models such as the Honda Civic and Toyota Corolla, often called C-cars. Those frequently dip into B-car prices with their base models, so the segment's boundaries are more perceptual than fixed, Barker said, especially considering vehicles can change segments with a redesign.

2. B-Cars Becoming More Space-Efficient
The 2007 Chevrolet Aveo has more interior space than the Chevrolet Cobalt, which has a larger exterior.

The 2007 Chevrolet Aveo has more interior space than the Chevrolet Cobalt, which has a larger exterior.

Despite their smaller exteriors, today's entry-level cars offer nearly as much interior space as their larger siblings. A 2007 Chevrolet Aveo sedan, for example, is 10.6 inches shorter than Chevrolet's larger Cobalt, yet has slightly more interior volume (103 versus 101 cubic feet). Hatchback configurations, available across the segment, pack even more space: Honda's 2007 Fit hatchback offers 111.4 cubic feet of interior volume, which is 8.4 cubic feet more than a Civic sedan.

Space efficiency has not always been a B-car strength. Look at Toyota: In the mid-1990s, its entry-level Tercel sedan's 89.1-cubic-foot interior lagged far behind the larger Corolla's 101.7 cubic feet. But Toyota's Echo, which succeeded the Tercel in 2000, boosted interior volume to 101 cubic feet — beating the redesigned Corolla by 0.9 cubic foot. Toyota's 2007 Yaris, the Echo's replacement, offers roughly the same interior volume as the Echo.

3. B-Cars Have More Features

With available steering-wheel audio controls, side curtain-type airbags and six-disc CD changers, today's entry-level cars can be equipped comparably to their pricier siblings. Some items — particularly safety features — are often standard: Both the Honda Fit and Hyundai Accent include antilock brakes and six airbags at no extra cost.

That wasn't always the case; features like power steering and antilock brakes weren't standard on economy cars well into the 1990s. While low prices still prevent B-cars from matching every feature offered by industry leaders, today's models have made up some ground:

2000 Models
Below are features of B-cars from the 2000 model year.
2000 CarSafetyAutomatic TransmissionAudioWheels
Hyundai AccentDisc/drum brakes, 2 airbags4-speed1 CD, 4 speakers13-inch steel
Toyota EchoDisc/drum brakes, ABS, 2 airbags4-speed 1 CD, 6 speakers14-inch steel
Chevrolet MetroDisc/drum brakes, ABS, 2 airbags3-speed1 CD, 4 speakers13-inch steel
2007 Models
Below are features of 2007 B-cars that are, or will soon be, on the road.
2007 CarSafetyAutomatic TransmissionAudioWheels
Hyundai AccentAll-disc brakes, ABS, 6 airbags4-speed6 CD, 6 speakers16-inch alloy
Toyota YarisDisc/drum brakes, ABS, 6 airbags4-speed1 CD, 4 speakers15-inch alloy
Chevrolet AveoDisc/drum brakes, ABS, 4 airbags4-speed6 CD, 6 speakers15-inch alloy

Note: Content reflects top equipment availability per vehicle.

Analysts say the strength of the Honda brand should help its Fit in the B-car segment.

Analysts say the strength of the Honda brand should help its Fit in the B-car segment.

Features alone don't tell the whole story. Reliability and refinement have also increased; in J.D. Power and Associates' 1997 initial quality ratings, B-cars such as the Ford Aspire, Geo Metro and Toyota Tercel averaged 2.6 stars on a 5-star scale. A sample of today's models — the 2006 Accent, Chevrolet Aveo and Scion's xA — averages three stars. Lonnie Miller, managing director at the Polk Center for Automotive Studies, attributes the change to manufacturer experience.

"You've got pure reputation from Toyota, Honda, Nissan and their overarching brands coming into this segment," Miller said. "Buyers will know they're part of a family that's far more established than they were 20 or 30 years ago."

4. Hatchbacks Cool Again
New B-cars are excelling in the market partly because hatchbacks are back in favor.

New B-cars are excelling in the market partly because hatchbacks are back in favor.

Today's hatchbacks sport angular lines and unashamedly squared-off rears, bearing much of the B-car's newfound style. Miller thinks their popularity has just begun.

"You're going to start seeing more of them coming in," he said, adding that, unlike some previous models, today's hatchbacks "are not vehicles for people with car seats."

Barker attributes the revival to buyers' interests.

"These body styles are more conducive to the active lifestyles of Americans these days," he said. "It's easy access to the [cargo] area — easier than the trunk is on a sedan."

5. Price Not as Important
Accessories can drive up the cost of a Kia Rio5 or any other small, entry-level car.

Accessories can drive up the cost of a Kia Rio5 or any other small, entry-level car.

To be sure, the entry-level segment is extremely price-sensitive for some. An increase of $1,000 could raise an owner's monthly payments by 10 percent or more.

"If consumers walked onto a lot and saw the price of a B-car going up to $16,000 or $17,000, they would likely walk away," Barker said.

But buyers are willing to stretch their budgets. Ian Beavis, Kia's vice president of marketing, said buyers of the $10,500 Kia Rio add on an average of $1,800 in options.

"There's really more elasticity in this segment than others realize," Beavis said. "Look at [the difference between] a Scion's base price and transaction price — elasticity exists when you have really well-designed vehicles."

Much of Scion's profitability lies in its wide range of accessories. An xA offers 24 factory- and seven dealer-installed items, ranging from blue sport pedals to gold license plate frames.

"You can still be frugal with your money and still have a lot of fun with the vehicle. That's the message," Miller said.

Ryan Robinson, manager of global analysis at the PricewaterhouseCooper Automotive Institute, attributed the range of prices within this market to consumer differences.

"You're looking at two different kinds of buyers," Robinson said. "You're looking at the economy, entry-level car, and then you're looking at B-cars that might be geared more toward the tuner market, at people who might want to accessorize those vehicles in one way or another."

6. Uncertain Future

More than half of all B-cars from the 2007 model year are all-new or significantly updated, and more are on the way. DaimlerChrysler is showing interest with its Dodge Hornet concept, and though Ford hasn't announced a specific B-car, spokeswoman Jennifer Flake acknowledged the company is moving in that direction.

Analysts agree this segment will exist for years to come, but how long it will enjoy its newfound popularity remains in question. Smith said he sees the segment eventually peaking and fading back out, particularly if fuel prices level off.

Chinese automakers such as Geely and Chery add more uncertainty. Both are expected to enter the market within the next five years.

"It's going to change the dynamics — particularly at the small end of the vehicle segment — in a similar way to [how] the Koreans did it back in the early 1980s," Robinson said. "It's going to have a similar impact, although we're looking at the potential for higher-quality vehicles than there were in the past."

Korean automakers, meanwhile, are working hard to differentiate themselves by moving upmarket, particularly in the B-car segment.

"There is a space there at the bottom end," Beavis said. "If that's where the Chinese want to go, [Kia] won't be there with them, and we don't want to be there with them."

Posted on 3/8/06