Japanese Subcompacts, With Room for Profit

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Times Staff Writer

Small is the new big.

Not too long ago, the world’s automakers were engaged in a virtual arms race to satisfy the American public’s appetite for hulking sport utility vehicles.

General Motors Corp.’s jumbo-sized Chevy Suburban was topped by Ford Motor Co.’s mammoth Excursion. GM’s Hummer, originally a U.S. military vehicle, was sold in a civilian model to buyers who wanted to tower over other motorists. Even the Japanese got into the race.

Now Japan’s big automakers stand to profit from galloping gas prices as they prepare to roll out a batch of fuel-efficient small vehicles. The move could spell additional trouble for Detroit, which still seems obsessed with gas-gulping muscle cars.


The subcompacts from Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., which established themselves here in the 1970s with small, reliable, fuel-efficient vehicles, will deliver fuel economy in high-30-miles-per-gallon territory at prices starting at about $12,000.

In March, Toyota will launch the Yaris sedan and three-door hatchback, followed by Honda’s Fit, a five-door hatchback in April, and Nissan’s Versa hatchback in May and a sedan in the fall. The Yaris is a third smaller than the Suburban and weighs almost a ton and a half less.

Toyota is seeking to follow up on the popularity of its Scion xB, a refrigerator-shaped vehicle popular with young buyers. Last year alone, Japan’s biggest automaker sold Americans 156,000 cars in the Scion line.

Toyota and its two rivals are taking aim at a group of younger buyers who otherwise shop for used cars. They hope these people will become Honda, Toyota or Nissan loyalists for life, moving up to the automakers’ larger and more profitable models.

The Japanese carmakers said fuel costs didn’t figure in their calculations -- the small cars were planned before fuel prices soared.

“Toyota started studying U.S. small-car possibilities in 2001,” said Jim Lentz, general manager of the Toyota division. “We began understanding how big generations X and Y would be and how ... small cars were getting bigger and more expensive. We saw opportunity.”


Already there’s some buzz about the new Japanese cars even before they hit showrooms.

The Honda Fit’s “cool looks” persuaded Annie Tsai, 20, a Temple City nursing student, to wait until it goes on sale in April to buy her first new car. She’s the prototypical customer for the new subcompacts: young, budget-conscious and concerned about style, safety and reliability.

“It’s cute, it’s affordable, it gets great mileage and it’s still a Honda,” Tsai said.

American automakers may now find themselves with too few small vehicles in their arsenals.

Detroit has long believed that demand for subcompacts is too small to make them profitable, said George Peterson, president of AutoPacific, a market research firm in Tustin.

Ford’s U.S. operations president, Mark Fields, said a subcompact would be a welcome addition to the carmaker’s offerings because “small is big.”

But development of a U.S. subcompact probably is at least two years away, as Ford executives are consumed with reversing a U.S. sales slide and mounting manufacturing and healthcare costs.

A subcompact is typically 12 to 14 feet long, bumper to bumper. Of the new Japanese subcompacts, the smallest is the Toyota Yaris hatchback at 12.5 feet. A Honda Civic compact sedan is 14.7 feet long and a Chevrolet Suburban SUV measures 18.3 feet.

Subcompacts, called B-segment cars overseas, are big sellers in Asia and Europe, where their small size makes them ideal for scooting through traffic and narrow, twisting city streets. And their fuel economy is a big lure in countries where gas costs $4.50 to $5.50 a gallon.


Dozens of subcompact models are sold in the rest of the world and are particularly popular in Asia. Honda’s Fit was voted Japan Car of the Year in 2001 and was the bestselling car in that country the next year, toppling the perennial champ, Toyota’s Corolla. Since then it regularly has been Honda’s bestselling car in Japan and one of that country’s top sellers.

Toyota has sold more than 1 million Yaris models since 1999.

But in the U.S., except for a short period during the gas crunch of the 1980s, subcompacts haven’t done well because they lack the power and size that most consumers want in a family car. Subcompacts accounted for less than 1.5% of passenger vehicle sales in the U.S. last year.

Among American carmakers, only General Motors sells a subcompact. Its South Korean-built Chevrolet Aveo outsold all other subcompacts in the U.S. last year, posting a 20% sales hike as dealers sold 68,085 Aveos -- about 30% of all subcompact sales.

But the new entries from Japan are expected to steal some of GM’s sales.

“Cars like the Aveo just won’t have the cachet with consumers as small cars from a Toyota or Honda,” said Wes Brown, an auto analyst at market research firm Iceology in Los Angeles. “The Japanese have that reputation for quality.”

The new Japanese subcompacts, which max out at about $15,600 for a top-of-the-line Toyota Yaris, come with long lists of standard and optional equipment. And their modern looks have little resemblance to the boxy cars of three decades ago.

For 2007, the first full year on the market, Toyota expects to sell 70,000 Yaris models and Honda expects to sell 50,000 Fits. Nissan hasn’t announced its sales goal.


All three cars were first sold elsewhere but were designed with the American market in mind, so meeting U.S. safety rules and consumer expectations incurred minimal costs, said Jed Connelly, senior vice president at Nissan North America in Gardena.

And because they are hits overseas, the companies’ costs are already covered, “so U.S. sales will be all gravy for them,” said Mike Chung, an auto industry analyst for

The extra sales would continue the growth of the big Japanese companies, while American carmakers keep losing market share to foreign brands, Brown said. Last year, Japan’s automakers captured a record 32.2% of the U.S. market, up from 22.8% a decade ago, while the American companies’ share fell to a record low of 56.9%, down from 73.5% in 1995.

If the new Japanese small cars sell well in the U.S., the carmakers probably won’t stop.

All sell several small-car models overseas that could be tweaked to meet U.S. standards.

Nissan executives two years ago in San Francisco showed off a micro-van sold in Japan called the Cube. They said it was a question of only when, not if, it would be sold here.



Car comparison

Japanese automakers will soon introduce these subcompacts.

Nissan Versa

Length: Five-door hatchback, 14 feet; four-door sedan, 14.6 feet

Engine: 1.8-liter, four-cylinder with 120 horsepower

Transmission: Six-speed manual, four-speed or continually variable automatics

Mileage: Highway/city combined, 38

Price range: $12,000 to $15,000


Honda Fit

Length: Five-door hatchback, 13.1 feet

Engine: 1.5-liter, four-cylinder with 109 horsepower

Transmission: Five-speed manual or five-speed automatic

Mileage: City/highway, 33/38 automatic; 34/39 manual

Price range: $13,000 to $15,500


Toyota Yaris

Length: Sedan, 14 feet; three-door hatchback, 12.5 feet

Engine: 1.5-liter, four-cylinder with 106 horsepower

Transmission: Five-speed manual or five-speed automatic

Mileage: City/highway, 34/39 automatic; 34/40 manual

Price range: $11,530 to $15,630


Sources: Toyota, Honda, Nissan