Small Cars, High Hopes

By Janice Castro

We all know about small American cars. Even as the U.S. auto industry pulled itself out of its '80s slough with its nifty minivans and reborn muscle cars, Detroit's compacts continued to deserve their reputation as cheap, homely, unreliable and, well, maybe a cut above Yugos and Trabants and the like, but not by much. Even their makers now admit that American compacts have been, for the most part, junk. Listen to Ford's Jerry Auth, a marketing executive: "Small cars built by Ford, GM and Chrysler were considered inferior -- and they were." Says Chrysler's Walter Battle, a planning manager: "They were regarded as basically underpowered, and maybe not safe." No wonder Detroit accounted for only 40% of the U.S. small-car market.

Of course, the reason auto executives are coming clean about their companies' shortcomings is not that they've suddenly decided it's the right thing to do. Rather, Detroit is owning up to its lemon-strewn past by way of touting its peachy present. Capping a year that has seen each of the Big Three earn record quarterly profits, Ford, General Motors and Chrysler are trumpeting a sweeping redesign of their smaller models. Now hitting showrooms % is a new type of compact, one that approximates the flowing, sculpted looks and sheer drivability usually found only in sports and luxury cars -- in short, a kind of Everyman's Porsche. Ford's Contour and Mercury Mystique, Chrysler's Cirrus and Dodge Stratus, and GM's retooled Chevrolet Cavalier and Pontiac Sunfire will feature from 120 to 170 h.p. (vs. 90 or under for many older compacts). Formerly upscale-only features like dual air bags, antilock brakes and automatic mirror controls will be standard, while options include leather interiors, dashboard CD players and special antitheft devices. Prices in this group start at about $12,000 to $16,000, and can reach around $21,000 depending upon one's appetite for automotive swank.

"They're really good, really modern cars," says David Davis Jr., editor of Automobile magazine and usually no fan of the Big Three. "We're finally reaching the point with this model-year where you have a legitimate reason not to buy Japanese." Or, as a once skeptical test driver notes, citing a kind of bottom-line test: "The doors go clunk instead of clink."

With reviews like that, Detroit is so enthused about its prospects that it is positioning the new class of compacts as the centerpiece of an old- fashioned, '50s- and '60s-style all-out autumn advertising blitz. Between now and Super Bowl Sunday, the automakers will spend an unprecedented $1 billion on ads, commercials, giveaways and other promotional stunts introducing all makes and models; more than $400 million will be devoted to touting the appealing new compacts. Says Steve Lyons, general-marketing manager of the Ford Division, which will spend $100 million selling the Contour alone: "This is the biggest launch campaign in our history. These are important cars for us, new cars with new names. We've got a lot of explaining to do."

Indeed. Such as, What took them so long? Traditionally, Detroit has had little interest in the cars it dubbed "econo-boxes" because they are far less profitable than larger makes. Unfortunately, its lack of interest was all too apparent. And so, while the Big Three spent the '80s cutting corners on quality and aesthetics, and Big Three consumers spent the '80s having dashboard knobs come off in their hands, Japanese automakers were assiduously focused on making better small cars, along the way earning a reputation for reliability, quality and price. Now the market for compacts has grown so large that Detroit can no longer afford to treat it shabbily. Thanks in part to a rise in two-commuter families, two-thirds of all cars sold in the U.S. are compacts and subcompacts, up from 48% in 1980, and 43% of those cars are Japanese made. The Big Three are hoping their new models will enhance their muscle in a small-car market that continues to grow faster than that for any other family vehicle (up 14.2% during the first seven months of this year, while total car sales rose only 5.8%). Detroit's principal target: the top end of the compact market, where Japanese automakers sell 8 out of 9 cars.

But it is not just the Honda Civic buyer that Detroit is now intent on winning back. It is the Honda Civic owner who trades up to an Acura Legend. By manufacturing a decade's worth of compact and subcompact duds, American carmakers helped poison the well for the rest of their lines. In effect, they turned their backs on what marketers now call "a lost generation" of potential Ford customers and GM families and Chrysler loyalists who could have been expected to trade up to larger, more profitable models as their incomes rose. In fact, by the time Chrysler discontinued its luxury Imperial last year, the median age of owners had reached 73 -- a demographic niche without, alas, much upside.

Meanwhile, millions of American drivers are perfectly satisfied never having owned a U.S.-made auto. Admits Chrysler/ Plymouth general manager Steve Torok: "They are probably on their third or fourth Accord, and highly satisfied, and are likely to be risk-averse to buying an American product."

To reinvent the American compact, Ford, GM and Chrysler turned for inspiration to Europe, where luxury and relatively vast interior spaces are cleverly jimmied into small, efficient cars like the popular, European- designed Ford Mondeo (the Contour, in fact, is a first cousin to the four- door, five-passenger Mondeo). Engineers focused on enhancing performance handling, tightening suspensions and turning up the vrrroom quotient with more powerful (yet still fuel-efficient) engines, then wrapping the whole thing in fluid, surprisingly sexy packaging. Indeed, Chrysler president Robert Lutz gets a little carried away when he talks about Cirrus: "It looks like a powerful athlete in a very tight T shirt, like the sheet metal had to be stretched to fit the chassis."

No one, not even Lee Iacocca, ever used a simile like that to describe a Dodge Aries. The Cirrus and its eminently drivable competitors may go a long way toward winning back that lost generation of drivers. Detroit has certainly set ambitious goals for them. Although the new compacts like Contour and Cirrus are in the same size bracket as the Honda Civic and the Toyota Corolla, for example, they are squarely aimed at taking away customers from the larger (and more expensive) mid-size Honda Accords and Toyota Camrys. The strategy is to squeeze the popular mid-size Hondas and Toyotas between Detroit's hot compacts and its larger models, like Ford's Taurus, the top-selling car in the U.S. Says Chris Cedergren, who tracks auto-industry sales for AutoPacific: "The battle lines are really going to be drawn in the premium-compact market, where the Japanese get about 33% of their U.S. car sales. We think the Contour and the Mystique and the Chrysler models are going to put a lot of pressure on the Japanese."

Economists point out that the cheaper dollar will help, since more than half the key components in U.S.-assembled Japanese cars are still made in Japan. As Cedergren points out, "At 98 yen to the dollar, there is not a whole lot the Japanese can do about it." Other industry experts wonder, though, if the pricing advantage will really boost Detroit's cause all that much. As long as so many consumers trust Japanese cars, they may be willing to pay a little more for them. Says David Andrea, who follows auto pricing for AutoPacific in Detroit: Buying Japanese "is almost like buying an insurance policy."

Ultimately, it is the guts and good looks of Detroit's new compacts that will have to do the hard work of rebuilding consumer loyalty. Ford, for one, is betting $6 billion in development costs that once people try the Contour and its cousins, they will never look at an Accord or Camry the same way again.

With reporting by William McWhirter and Joseph R. Szczesny/Detroit