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The World's Biggest Automaker Thinks Small

All good things come in threes, and in small packages, as the sayings go.

The new Chevrolet concept car called "Trax" is displayed at the New York International Auto Show in New York, Wednesday, April 4, 2007. The show opens to the public on April 6, 2007.  (AP Photo/Seth Wenig)
Seth Wenig
The new Chevrolet concept car called "Trax" is displayed at the New York International Auto Show in New York, Wednesday, April 4, 2007. The show opens to the public on April 6, 2007. (AP Photo/Seth Wenig)

So it's fitting that General Motors has pinned its hopes on a set of tiny triplets, which is already doing one good thing for the beleaguered auto giant--generating buzz.

GM is showing off three new Chevrolet minicar concept vehicles at the New York International Auto Show, which runs through April 15. But don’t expect to see these babies at your local dealership anytime soon. It’s likely the cars are still four to five years away from hitting the market, which makes all the buzz around them key to development, analysts say.

"GM wants to get some overall impressions from the media, the public and analysts to find out if there is a market in minicars and what direction to take with it," said Erich Merkle, director of forecasting at IRN, an automotive consulting company.

Minicars make up the automotive industry’s fastest-growing segment. But while the ultra-small genre is popular in densely populated cities in Asia and Europe where gas prices are higher than in the U.S., they have yet to build a following stateside. That's why GM is also gauging interest by urging consumers to vote for their favorite model on a GM Web site.

“You want to make sure consumers remain aware of the brand and of the vehicle you’re putting out there, and it’s not an afterthought,” said Peter Nesvold, managing director and automotive analyst for Bear Stearns.

Designed in South Korea, the minicars are made to achieve as much as 50 miles per gallon of gas and will target young car buyers in urban markets where affordability, fuel economy and parking space are major concerns. Bob Lutz, vice chairman for global product development, declined to volunteer a price, but when asked by a reporter if $10,000 was a likely price, he responded by saying, "Ideally."

“It is atypical for GM in an American show to show three tiny little cars of foreign origin but we do that for a reason: to demonstrate visually GM’s commitment to finding alternative ways of putting the world on four wheels, our commitment to energy efficiency and to demonstrate that Chevrolet is way more than an American brand," Lutz said.

Regardless of the reception in the U.S., Lutz said he plans to introduce the models in other markets, including India and China, boosting GM's foothold in the minicar market (Chevy already makes the Aveo). He added that it's a "safe bet" that GM will begin production of at least one of the vehicles in the "relatively near future.”

Unlike other micro cars, GM says its new offerings boast innovative design and style. And that's key to revving up Americans' interest in micro cars.

Small May Be Big

“We’re definitely seeing a shift to smaller vehicles, but automakers need to focus on styling,” Nesvold said. “People buy more for styling, it’s an emotional purchase, and if the automakers can make the financial part of it work, that’s great.”

The cars will run on three cylinders and share a common "architecture," which lends itself to a variety of unique body styles. The retro-looking “Groove” is a five-door model with a 1-liter diesel engine. With a flat front, flared fenders and 17-inch tires, the car is reminiscent of a West Coast hot rod. For those looking for the feel of an SUV, the “Trax” is a crossover with all-wheel-drive and a 1-liter gas engine. Finally, the three-door hatchback called the “Beat” is the sportiest of the three with a 1.2-liter turbo-charged gas engine.

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The minicar concept is a good move, albeit a late one, Nesvold said.

”Detroit focused too much on its core competencies, like pick-ups, SUVs and minivans,” he said. “They did not develop or maintain their expertise in passenger cars. Now they’re playing catch up on the design side and don’t have a financial plan on how to make money off it.”

Lutz notes that Chevrolet is one of the fastest growing brands internationally. But while global sales are strong, GM’s U.S. market share continues to shrink, falling to 24.1% in 2006 from 26% the previous year, according to industry statistics firm Autodata. The company on Tuesday said U.S. March sales fell 7.7% compared with last year.

Finding Lost Youth

The minicars, analysts say, will hopefully lay the groundwork for regaining lost market share, by snagging car buyers when they’re young.

This “echo boomer” market, the children of babyboomers ranging in age from preteen to early 20s, is the automakers’ new battlefield, said Merkle of IRN. “It’s the Wild West right now, the field is very open.”

And while automakers don’t make money off this segment--baby boomers are the cash cow--it’s about capturing attention and building brand loyalty, Merkle said.

“Echo boomers are going to be in a position to make more money and it’s ideal they be familiar with the brand early on,” he explained.

And it's as much a defensive move as it is an offensive one, Nesvold said, noting that a GM minicar will help keep China out of the market.

But in the United States, a country where bigger is better, can small cars really succeed? Yes, if they’re cool, stylish and affordable, Lutz says.

BMW’s Mini Cooper has been successful in the U.S., though the car is actually much larger than minicars and starts at $18,000. DaimlerChrysler will launch its Smart micro-car brand next year for under $15,000, but analysts are mixed about how it will do. Other small cars on the market are Toyota Motor's Yaris, which replaced the Echo and retails for about $11,500, and Honda Motor's Fit at a $14,000 price tag.

Regardless of what happens in the near-term, the minicar will inevitably be a reality on U.S. roads.

“The opportunities are not great right now,” Merkle said. “But in the next decade, the small car will be a very important and prominent segment of the auto industry.”

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