The Compact Craze and Changing Quality Perceptions

The Compact Craze

Nissan Versa
Nissan Versa

The combination of higher gas prices and a slew of sharp, new pint sized cars helped drive American car buyers to make almost 1 out of every 3 cars bought last year a compact car. The question is whether that surge in sales will continue in '07 - especially if gas prices continue to fall.

According to J.D. Power's Power Information Network, 31.2 % of the cars sold in the U.S. last year were compacts. Up from 27.9% in 2005 and a healthy increase from 2000 when 23.8% of the cars driven off dealer lots were compacts. There's no doubt, the spike in gas prices during the first half of last year forced a lot of people to dump their large sedan, and in some cases, their SUV for small gas sipper. But the popularity of compacts would not have surged as much were it not for the introduction of good looking, strong performing models. Take the Nissan Versa. It has enough leg room in the second row for me (6' 1") to sit comfortably in the back. The Toyota Yaris, Honda Fit and Chevy Aveo are other compacts that have shed the image of compact cars as being a penalty box. The are well equipped and at a price between $11,000 and $14,000 they are affordable.

What happens to compact sales with gas prices dropping? I suspect demand will slow down as some buyers feel more comfortable looking at an SUV with gas at a more reasonable range of between $1.85 and $2.10 a gallon. But the car companies are not throwing in the towel on these small rides. They realize they can be printable is made on the right platform and in the right place.

GM's Quality Perception Improving
CNW Marketing's latest research on the perception of auto buyers about what brands have quality models, shows good news for General Motors. Cadillac is once again number two behind Lexus, but it's perceived quality score has increased, and put some distance between Cadillac and #3 Toyota. Honda and Hyundai rounded out the top 5. I've been reporting for some time that GM's making progress improving quality. This survey, along with the latest surveys by Consumer Reports, J.D. Power, etc.confirms that GM is closing the gap with Toyota. I'm not ready to predict if or when GM will catch the Japanese automaker, but I believe the perception of "American-made" being "poorly made" is slowly, but steadily eroding.

Questions? Comments?