The subcompact is back

The subcompact is back -- with a twist. With gasoline prices hovering around $3 a gallon, automakers are rushing to introduce several subcompacts in the United States next year. The cars will be more stylish, better equipped and pricier than their entry-level ancestors from the 1970s and 1980s. And if gasoline prices spike again, the anticipated revival of small-car sales could become a stampede.

Japanese automakers are ready to pounce with a batch of new products:

• Next year, Nissan will introduce the entry-level Versa, which is smaller than the Sentra. In 2007, the automaker is expected to introduce the aptly named Cube.
• The Toyota Yaris will debut next spring as a three-door hatchback and sedan. It replaces the Echo, one of Toyota's rare failures in the United States.
• The Honda Fit hatchback will debut next spring or summer. Honda already has raised sales projections to reflect rising gasoline prices.
• Mitsubishi may build a small car in Normal, Ill.

While the Japanese automakers are moving quickly, domestic automakers are still in the hunt.

• General Motors offers the Chevrolet Aveo, which is built by Daewoo.
• Ford Motor Co. plans to unveil a subcompact entry-level vehicle in 2007. "Consumers are little-by-little starting to be convinced that high prices are here to stay," said

Renault/Nissan CEO Carlos Ghosn at a meeting with journalists at the Tokyo Motor Show last week. "They are probably shifting their attitude and behavior on the market." Two factors are feeding the proliferation of subcompact nameplates. Automakers already sell these vehicles in Japan, Europe and South America, so they don't have to spend large sums on product development or build assembly plants. Difficult to predict It's a lot like the 1970s, when twin fuel crises put Japanese carmakers on the map in the United States. When prices soared and lines formed at the pump, they introduced cars such as the Honda Civic. To be sure, gasoline prices are notoriously difficult to predict. Lower prices could puncture demand for these cars, says Kazuo Okamoto, Toyota Motor Corp.'s product development chief. "For sure for now there is a shift of preferences to smaller, fuel-efficient cars," he says. "But whether that will continue is uncertain. If current price levels are taken for granted, then there may be a reversal to larger cars." But the low cost of entry into this new segment will allow Japanese automakers to take chances. And the Japanese can move faster than ever.

For example, Nissan can spin a new model off its B small-car platform in less than 11 months -- from design freeze to production. "We've got two very good, very modern small-car platforms as well as diesel technology if the market shifts that way," says Simon Sproule, Nissan's vice president for global communications. Nissan, which has experienced a sales shift to Altima and Sentra from its larger models, will launch the Versa as its new entry-level car. The Versa is about the size of a Ford Focus. That introduction will allow Nissan to shift the Sentra upmarket. The next rendition of Nissan's boxy Japan-market Cube likely will follow a year later. "We've haven't made a decision about the Cube," Sproule says. "But the next generation of all small cars will be engineered for the U.S. market."

Big 3 respond General Motors is relying on its Daewoo subsidiary to design and produce subcompacts such as the Chevrolet Aveo. The Korean automaker enjoys the same advantages -- minimal product development costs and available plant capacity -- as its Japanese competitors. Through September, GM sold 55,225 Chevrolet Aveos in the United States, up 44 percent over the year-ago period. Industrywide, U.S. small-car sales are up 9.5 percent in the first nine months compared with the same period in 2004.

Meanwhile, Ford plans to introduce a small sport wagon based on the EcoSport, which is produced in Brazil. The EcoSport is a variant of the subcompact European Fiesta. Suppliers say the U.S. version will debut in the 2008 model year. Ford's assembly plant in Cuautitlan, Mexico, will produce the vehicle, and it may produce a second Fiesta-based subcompact for the United States.

The Chrysler group has adopted a different strategy. Instead of focusing on the subcompact segment, the automaker is introducing slightly larger vehicles to compete with compact cars such as the Civic and Focus and Toyota Corolla. Thus, the Dodge Neon will be replaced next year by the Caliber five-door hatch. Chrysler says it has no plans to introduce a subcompact car. While Ford and GM have entries in the rapidly evolving subcompact segment, the Japanese automakers appear better positioned to exploit the trend. "General Motors and Ford are global carmakers, but they are regional product planners and manufacturers," says Jim Hall, an analyst with AutoPacific Inc. in Southfield, Mich. "The Japanese take consideration for all markets when they develop a product. They sell and plan for around the world."