Wed | Oct 21, 2020

Small cars being discontinued - Subcompact cars are heading for the compactor

Published:Sunday | August 30, 2020 | 12:52 AM
Kia Rio.
Kia Rio.

After years of declining sales of passenger cars, several automakers have recently decided to give up on the subcompact body style as SUVs increasingly win over Americans.

General Motors recently became the latest company to discontinue a subcompact car, saying it would end production of the Chevrolet Sonic in October. The Sonic went from a fuel-efficient, youthful symbol of GM’s comeback in the aftermath of the company’s 2009 government-funded bankruptcy to mostly forgotten in an era of surging SUV sales.

Put simply, most Americans are no longer willing to squeeze into small cars despite their affordability and fuel efficiency.

With gas prices low and SUVs providing the allure of a higher stance and more cargo space, subcompact car sales fell 50 per cent in the first half of 2020, compared with the same period a year earlier. That drop was worse than the overall industry’s 23 per cent sales decline, which was attributed largely to the COVID-19 pandemic.

Jessica Caldwell, analyst for car-research site Edmunds, said the subcompact car is unlikely to go away altogether, but only the strong will survive. For now, that includes vehicles like the Honda Fit, Hyundai Accent, Kia Rio, and Nissan Versa.

Increase in SUV sales

But soaring sales of SUVs in recent years show Americans may never go back to small cars, Caldwell said. Several compact cars also have been discontinued in recent years, including the Chevrolet Cruze and Ford Focus.

“Car sizes have evolved so much in the past 12 years to be so much bigger, so can we really go back to a life when we were driving subcompact cars? I don’t think so,” she said. “It just doesn’t seem to match the psyche anymore.”

In 2019, subcompact cars made up 2.7 per cent of vehicle purchases, down from 5.5 per cent in 2012, according to Edmunds.

Many buyers of subcompact cars have upgraded to relatively new subcompact SUVs – such as the Honda HR-V, Jeep Renegade, and Hyundai Kona – which have a similar wheelbase and length but greater height. Subcompact SUV market share increased from 0.8 per cent in 2012 to 4.9 per cent in 2019, according to Edmunds.

In June, Toyota, once known largely for disrupting the American market with its small cars, announced it was discontinuing the Toyota Yaris subcompact car. And last year, Ford announced it would no longer make the Ford Fiesta subcompact car.

It’s not that subcompact cars lack sufficient technology or quality. The Chevy Sonic, for example, was named in June as the best vehicle in the US in the 2020 J.D. Power Initial Quality Study.

But GM said it couldn’t justify continuing to make the Sonic anymore “due to declining demand”. Sales of the Sonic fell 85 per cent from their peak of 93,518 in 2015 to 13,971 in 2019.

Not everyone is ditching small cars. Nissan recently redesigned the Sentra compact car – and the company’s chief operating officer, Ashwani Gupta, said the company still believes in the subcompact segment, as well.

“Yes, this segment may shrink, but for us, this is an opportunity because if we put additional value in this segment, the customer can be energised,” Gupta said in an interview.

It’s an uphill battle, however, particularly in the midst of the COVID-19 pandemic, which is hastening the demise of poorly selling vehicles. Automakers can no longer afford to make cars that aren’t selling well or turning a profit, so they will likely continue to pare down their line-ups, Autotrader analyst Michelle Krebs said. And SUVs are vastly more profitable than cars.

Plus, shoppers who might otherwise have been in the market to buy a new subcompact car are now less likely to do so.

Subcompact car “buyers are very budget-constrained,” Krebs said. “They probably are more vulnerable to the job losses we’ve seen.”

The trade-off is that there are fewer new cars on the market with a starting price of less than US$20,000, placing them out of reach for many Americans. For example, the Sonic’s starting price is US$16,720, while its sibling ride, the Chevy Trax subcompact SUV, has a starting price of US$21,400.

“I think it will drive people into the used market because transaction prices for new vehicles continue to climb,” Caldwell said.

In past years, the rental car industry might have come to the rescue, snapping up subcompact cars that retail buyers don’t want. But rental car companies are floundering amid a nationwide slowdown in travel. At least two of them, Hertz and Advantage Rent A Car, have filed for Chapter 11 bankruptcy protection.

Even before this crisis, rental car companies had begun to lose interest in subcompact cars, if only because their customers don’t want to drive them on vacation, Caldwell said.

Only 4 per cent of new vehicle sales to rental car companies are subcompact cars, according to Cox Automotive, which owns Autotrader and Kelley Blue Book.