Automakers show small cars; buyers show restraint

Automakers are showing they can think small. But their efforts may be thwarted by the consumer's shrinking budget.

Pressured by Washington and last year's spike in gasoline prices, carmakers have accelerated what was a gradual push toward smaller and more fuel-efficient cars.

From the Accent to the Yaris and dozens of makes in between, the evidence of downsizing was on full display Friday as the Chicago Auto Show opened to the public. Squint past the Hummers and you could almost imagine it was Europe.

"The manufacturers are bringing out more smaller cars in their portfolios, so you're seeing very limited full-size vehicles and more small ones," said Jerry Cizek, the show's general manager.

Unfortunately for the ailing companies, the tighter economic conditions that once looked like they'd bring consumers to showrooms in droves seeking more miles per gallon have now turned against them. And while small may be beautiful in the U.S. car world now, it's far from clear whether Americans are ready to embrace smaller cars, concerns about fuel costs notwithstanding.

Consequently, many show attendees were kicking the tires on this next generation of cars but said they couldn't afford to buy any time soon.

"I think people are thinking small — if they're thinking at all of buying in this economy," said Jim Vickery, 64, of Roscoe, Ill., who was inspecting a 2009 Chevrolet Malibu with advertised highway mileage of 33 mpg. "I'm not in the mood to buy anything. Our 401(k) has taken a dive, as has everyone's."

Across the way, Bob Pruzin of Highland, Ind., was eyeing a third-generation Toyota Prius hybrid, which touts mileage of 50 mpg. But he, too, felt no urgency.

"The question is, should you buy now or wait a year?" said Pruzin, 69, who was attending the show with his son and young grandson. "It seems mileage is only going to get better."

It is headed that way quickly under the new administration. President Barack Obama said last month his administration would issue new fuel-efficiency requirements to cover 2011 model year vehicles. The rules would be the first step under a 2007 energy law that requires the auto industry to boost efficiency by 40 percent to at least 35 mpg by 2020.

Obama's plans could prompt automakers to make even smaller cars and more hybrids and to develop advanced fuel-saving technologies.

But companies are certain to pass the substantial development costs along to consumers. That could hamper the cars' reception if the economy remains pinched. The consulting firm IHS Global Insight has estimated that the technological upgrades needed to meet the new rules could add $2,000 to $10,000 to the price of a vehicle.

Economist Diane Swonk says affordability isn't the only reason behind consumers' unwillingness or inability to buy new vehicles.

"It is also about limited access to credit, falling residual values and complete uncertainty about what to buy — a hybrid, a compact or an SUV now that gas prices have fallen," said Swonk, chief economist at Chicago-based Mesirow Financial. "What if they rise again? What about ethanol? All this uncertainty adds up to indecision instead of decision."

There are some hopeful signs for carmakers, even in the wake of last year's 18 percent falloff in sales.

Auto industry executives said at the Chicago show this week that they're seeing signs the industry is beginning to stabilize. And Cizek, the show's manager, said first-day attendance appeared to be the highest in the 10 years since it began opening on a Friday, which to him signaled "a lot of pent-up demand."

To be sure, the show is taking place against the backdrop of two U.S. automakers, General Motors Corp. and Chrysler LLC, preparing plans that demonstrate to the Treasury that they'll be able to pay back billions in government loans.

Trevor Butler, a self-described Honda fan, was checking out the soon-to-be-released Honda Insight, a competitor to the Prius in the hybrid market. The 30-year-old Aurora, Ill., resident said he's got enough money saved to buy one if the price tag is under $20,000 as widely expected.

"This is the first car that offers true value" in the hybrid era, Butler said. "You can get the best of both worlds — fuel cost and buying price."

Even if they can find many more consumers like him, carmakers still need to get past some cultural bias against small cars in order to prosper or perhaps even survive in the new era.

Linda Testa of St. John, Ind., was letting her two children clamber in and around a Chevy Aveo that gets 34 mpg and has a list price of just $12,625. She supports the concept of smaller, more fuel-efficient cars, she said, but couldn't see herself buying one.

Testa is holding off on buying any car for now because of the economy. But when her 2000 minivan dies, she'll likely buy an SUV.

"I love being higher up," she said. "Little cars like this — well, it's a great little first car. It's very cute. I just don't buy small cars."

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