Buying Small, Spending Big

There's an interesting new trend developing with American car buyers. Because of the economy, they are being much more judicious about the type and size of car they buy.

AP

Customer at an auto dealership.

Small sedans and compact cars with lower starting price points are in favor.

Stretching for that bigger, more expensive car is out.

In this economy, with unemployment remaining stubbornly high, that makes sense. But even as people dial back on the size and entry point for the car they are buying, they aren't skimping on the content inside that car. In fact, buyers are increasingly "up-contenting" or paying thousands of dollars more to have the latest luxuries and electronics in their new ride.

Here's an example of what dealers are seeing. In the past, someone looking at a Ford Fiesta (starting price just under $14,000) would stretch to move into the larger Ford Fusion (starting at just under $20,000). Nowadays the trend is to stick with the smaller Fiesta (but paying up to $17,000 or 18,000) to pack more upscale content into them. That means adding leather seats, heated seats, navigation and entertainment systems.

This is happening across the board, not just at Ford. As one dealer said to me, "The guy who used to stretch to buy a Mercedes E class, is going C class and spending thousands to get the features in it he really wants."

It used to be small meant cheap. No more. Increasingly, buyers want smaller cars for a variety of reasons, including better mileage. But they don't want to give up the luxuries they've come to expect in cars. That means having more advanced electronics and telecommunications. It's the reason the "take rate" on Ford's Sync system is so high with many Fiesta and Fusion buyers. It's also the reason why GM is intent on leveraging the potential of its OnStar system. Buyers will pay to stay connected when they are behind the wheel.

Sure there are still many buyers who will go small so they don't have to pay as much. But more often than not, that compact or small car you see tooling around the neighborhood is going to have the latest luxuries.

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