• by Karl Greenberg , April 11, 2007

Is there a big market for really small cars?

Certainly Toyota, Honda, Nissan and BMW have counted on an affirmative answer with Yaris, Fit, Versa, and the more up-market Mini Cooper, respectively. Soon, the segment will include Mercedes-Benz' Smart brand, and potentially, a production version of the Beat micro car that Chevrolet introduced as one of three concepts at the New York International Auto Show.

It may be a hard sell, since Americans have never taken to diminutive cars, especially in the post-'90s road environment defined by SUVs, pickups and big cars. While Chevrolet is running an online program letting consumers choose which, if any, of the three concepts GM should bring to the U.S. market, Smart is already taking names. The company is allowing consumers to go to smartusa.com to put a $99 deposit on one of three Smart models coming to the U.S. in 2008.

Ken Kettenbeil--director of communications for Smart USA, a division of United Automotive Group--says the company is launching a 50-city road show to tour the Smart car in the U.S., allowing people who have reserved a car to test-drive it. The tour, kicking off in Los Angeles in May, will be followed by a July dealership announcement. Smart dealers will either be stand-alones or Mercedes or Chrysler Group dealers. "We are looking at between 50 and 70 dealers initially," he says.

Kettenbeil says the company is predicting that Smart will do very well in urban and greater-metro areas nationwide, and the so-called smile states: the East Coast, the South and Southwest and the West Coast.

Todd Turner, president of Car Concepts, Los Angeles, thinks the ultra-small segment will be strictly limited by consumer perceptions of vehicle safety and by considerations of how useful the vehicle will be, given their limited luggage and passenger space. "I think it will be an insignificant market for a very long time," he says. "They only show a benefit over other vehicles in spaces where parking is at a premium. And that market is very limited to high-density metro markets. I think there's an over exuberance in terms of portraying the market potential for these."

Toyota has sold 19,186 Yarises through March this year. Nissan's sold 16,195 Versas in that period, and Honda 8,837 of its Fit car.

But Kettenbeil said the car, which has been in the Canadian market for two years, has done well beyond cities there. "Canada doesn't have a lot of metropolitan areas; still, it's been surprising even for them that many people outside urban areas purchased the vehicle."

Turner says the real consumer hesitation will be around safety. "People will perceive these as slightly safer than a motorcycle." He says, by contrast, that vehicles in the larger end of the sub-compact market, like the Nissan Versa, will succeed because American consumers are averse to compromising. "The weakest performer of the trio [Versa, Yaris and Fit] introduced last year was the Fit. It was the smallest, and consumers perceive it as the least safe."

He says Smart will address consumers' perceptions about small-car safety with information during the Smart road show, such as a display showing off the tritium cell, which is the steel cage surrounding driver and passengers; the vehicles' four airbags; electronic stability; anti-lock brakes, and other features "typically reserved for luxury vehicles," says Kettenbeil. "When you tell that story we find consumers are very engaged, especially when we throw in the fact that the car is manufactured by Mercedes." He says videos showing a head-on crash between a Smart and a Mercedes, where both vehicles have minor damage, will also be included in the tour.

He also says that Web traffic suggests there will be a strong market for the car. "Since June 28, when we announced that United Auto Group is the distributor, we have had 900,000 user sessions on the Smart USA Web site," he says. "And that's with no advertising." He adds that Smart has had more than 50,000 people ask to be posted on progress and news of the vehicle, and "in the thousands" of people who have dropped $99 to reserve a Smart car.

There will be three models of the 8.8-foot-long car: a basic coupe starting under $12,000; a well-equipped coupe called Passion, for under $14,000; and a well-equipped convertible that will start under $17,000.

He said the cars get more than 40 miles per gallon. "When you figure the price of the vehicle, the low cost of ownership, the whole emergence of the small-car market, when you put that together, we think it will go over well in the U.S."