BIZMOLOGY — Yes. You read that headline correctly. Ten years ago the idea of US-made subcompacts outselling those of their Japanese rivals was all but unthinkable. But recent sales tallies show that Ford and GM are giving Nissan, Toyota, and Honda a run for their money. In July 2013 the Nissan Versa led the entry-level subcompact segment, followed by Ford’s Fiesta and the Chevy Sonic. Honda’s Fit and the Toyota Yaris round out the top five.
When I first started covering the auto industry for Hoover’s more than a decade ago, I never thought I would see this happen. At that time US carmakers were firm in their strategy of conceding small cars to foreign competitors and focusing on consumer demand for very large trucks and SUVs. So far in 2013, Ford and GM account for nearly 25 percent of all subcompacts sold in the US, which is all the more amazing when one considers that their combined subcompact market share in 2002 was zero.
How did Ford and GM do that? For years Detroit ignored the segment based on the premise that, relative to high-margin trucks and SUVs, subcompacts were unprofitable and not worth the trouble. Since then Ford and GM have improved their quality to the point of being on par with that of Japanese offerings. US companies realized that while subcompacts are a small segment of the overall car market and generally reap lower profits, entry-level vehicles are an important way to capture first-time buyers and build brand loyalty that comes in handy when consumers trade up to more expensive vehicles.
US subcompacts have also been helped by the costs associated with bringing cars in from Japan. Strong yen values the past few years and import and transportation costs make US vehicles more competitive on price. The Japanese don’t intend to take this situation lying down, and competition in the subcompact segment is about to get even more ferocious.
Honda exports the Fit from Japan, but next year the company plans to open a plant in Mexico that will supply its US retailers. Toyota has a similar plan; it will source the Yaris from a factory in France. Toyota is hedging its bets by inking a deal to build another subcompact model at a plant in Mexico owned by Mazda. The car will be based on the Mazda2 platform and will debut in 2015.
While there is significant jockeying for market share within the compact segment, it has not grown much as a percentage of the overall market in the last decade or so, according to vehicle value forecasting service ALG. Part of that stagnation of market growth is due to overall improvement in fuel economy — regardless of vehicle segment. But industry watchers are confident that while subcompact market share is only expected to rise about 1 percent between now and 2016, high fuel prices, quality products, and lingering concerns about the economy will likely result in car companies slugging it out for subcompact market share for the foreseeable future.