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Small cars boom as Americans seek cheaper, yet better, new rides

October 3, 2012

Autumn started off with a bang for the white-belt set at the nation's auto dealers, as sales of new cars rose 13 percent in September from a year earlier. The noteworthy surprise: Booming demand for small cars, whose sales rose nearly 50 percent from a year ago and have become the fastest-growing slice of the industry. Not since the early 1980s have small cars been quite as popular among American drivers -- and here's the top three reasons why.

PRICES: According to TrueCar, the average new vehicle sold in September came with a transaction price of $30,282 -- a level that ranks among the highest ever, and has held steady for several months. Since emerging from the financial calamity of 2009, automakers, especially the Detroit Three, have been far more reticent to throw cash or cheap loans at customers just to get a sale; the average combination of rebates and other incentives of $2,645 per vehicle in September was down slightly from the month before.

Top-selling small cars
Model Sept. 2012 sales Sept. 2011 % chg
Chevy Sonic 7,525 1,426 428
Chevy Spark 2,223 - N/A
Chevy Cruze 25,787 18,907 36
Ford Focus 19,736 10,309 91
Fiat 500 4,176 2,773 50
Dodge Dart 5,235 0 N/A
Toyota Corolla 23,062 16,147 42
Honda Civic 21,546 13,724 56
Kia Soul 9,467 6,666 42

That said, deals still abound, and with rock-bottom costs for loans and the Federal Reserve's easing, automakers have been able to lure owners with less-than-sparkling credit back into showrooms with lower interest rates and deals stretching to six years or even more; in recent months, about a quarter of new-car loans go to buyers with subprime credit scores.

But even with easy loans, the sticker price of a new car can be a challenge for many households. Long past are the days where dealers could keep a few new models on the lot starting below $10,000. Small cars remain the models most buyers can afford.

QUALITY: As important as prices are, the boom in small cars has also come because small cars are no longer automatically terrible. Many automakers and dealers, especially Detroit brands, shunned small cars for years because of their small profits, sticking them with old engines and prison-quality interiors. Yet since 2009, Detroit's automakers have introduced small cars that were not just inexpensive but well-designed -- with tech features like Bluetooth-enabled sound systems filtered down from more expensive models.

The best example: the new Chevy Spark, the smallest car Chevrolet has ever sold and a full five inches shorter than the late lamented Geo Metro. While GM was sanguine about the car's prospects at first, the Spark has caught on; sales hit 2,223 units in September, even though it wasn't available in many parts of the country. With a base price starting around $11,000, the four-door Spark fills the same niche that the Chevy Aveo once did of least-expensive new car on any dealer's lot. Unlike the Aveo, the Spark's a good car; it's roomier, with better features, than more expensive competition from overseas automakers. And while it's 85-hp engine won't win any races, it can get up to 37 mpg on the freeway.

In the slightly larger subcompact class, there's never been quite as many worthy choices; not just the stalwarts like the Honda Fit and Toyota Yaris, but new models such as the Ford Fiesta, Chevy Sonic, Kia Rio and Hyundai Accent.

SAFETY: The laws of physics will always make riding in a smaller vehicle more risky than a larger one, but with much of the world already choosing smaller cars, automakers have no choice but to make them as safe as possible. Five minicars earn "top pick" ratings from the Insurance Institute of Highway Safety; a few have jumped from "poor" to "good" in their most recent redesigns. The Spark sports 10 airbags, including ones to protect front passengers' knees. It's enough to ease the concerns of many buyers, especially those who may be handing the keys over to a younger relative.

Previous surges in small-car buying have been somewhat short-lived; gas prices fell to make larger cars more attractive, and some portion of the recent gains has come from rental fleets and other bulk buyers re-stocking their lots. But there's nothing on the immediate horizon that would suddenly make small cars less attractive, and the demographic trends of Americans moving into larger cities from the suburbs suggest more people making their next trip to a dealer will think small.