U.S. automakers are thinking small.
They're investing in small cars by adding compacts to their lineups, overhauling factories and hiring workers as they prepare for government regulations due in 2016 that will require cars to go farther on a tank of gas. Even though U.S. small car sales have dropped lately, hurt by steadier gas prices that followed a huge run-up two years ago, automakers don't want to be caught without compacts when the new fuel standards arrive.
On Thursday, General Motors Co. said it will add a new small car to its Cadillac lineup, the same day Chrysler Group LLC said it would invest $600 million in plant geared for small cars.
GM plans to spend $190 million to upgrade its Lansing Grand River plant to build the car, and will add 600 jobs to the plant's work force of 1,100. It didn't name the car or say when it will go on sale.
Chrysler will upgrade its Belvidere, Ill., assembly plant to build new cars starting in 2012. Chrysler didn't say which cars will be built there, but at least one of them will likely be a small car to replace the Dodge Caliber, which is currently built at the site. The investment won't create new jobs, but the company will retain the 2,349 jobs currently at the assembly plant and a nearby parts stamping plant.
Those announcements were only the latest in the small car investment boom, which has also been encouraged by agreements to cut wages at some small-car plants.
Earlier this month, GM said it will start producing two new small cars _ a revamped Chevrolet Aveo and the new Buick Verano _ at a now-shuttered plant in Orion Township, Mich. And Ford Motor Co. is spending $950 million to transform a Michigan truck plant into a factory that will make the Ford Focus.
Ironically, U.S. small car sales have been anemic this year, overshadowed by bigger gains in the truck and sport utility segments. Small car sales were up 7.3 percent through September, compared to a 10.3 percent increase in overall sales, according to Autodata Corp. Large pickup sales were up 18.7 percent.
Aaron Bragman, an analyst with IHS Automotive, said people tend to buy smaller cars when gas prices are seeing wild fluctuations, as they did in 2008. But since gas prices have stabilized this year, people have gravitated toward larger vehicles.
As new fuel economy standards creep closer, however, automakers will have to get buyers to think smaller. Cars, pickups and SUVs will need to meet a new average of 35.5 mpg by 2016, up from 27.5 mpg today, and the government is developing plans for future vehicle models that could push the standards to between 47 mpg and 62 mpg by 2025.
Bragman said the downsizing of cars, SUVs and trucks will be a necessity to meet those standards.
"Regardless of what people want to buy, this is what they're going to have to buy," Bragman said. "There's a wholesale shift in mindset that's going to have to happen."
People worried they'll have to trade comfort and style for fuel economy should consider how some small cars have changed.
The Mini Cooper, which went on sale in the U.S. in 2002, proved to U.S. consumers that small cars didn't have to be cheap and stripped of amenities, Bragman said. That car was made by Germany's BMW AG, however. Now Detroit wants in on the high-end small car market.
The new Ford Fiesta subcompact has options like heated leather seats, a moonroof and a hands-free entertainment system.
The new Cadillac small car will be a sporty, rear-wheel-drive car that will compete head-on with the Mercedes C-Class and BMW 3 Series, said GM CEO Dan Akerson.
"We've ceded this segment of the market to our foreign competitors for too long," Akerson said.
Another reason for the small-car investments is new labor agreements that make it profitable for automakers to build small cars at their U.S. plants.
GM will be the only car company making a subcompact in the U.S. when it starts producing the Aveo in Lake Orion next year. The company said it can build the car profitably because of a new labor agreement that lowers the wages of 40 percent of the plant's workers.
United Auto Workers President Bob King said the Lansing Grand River plant, which will produce the new small Cadillac, won't be cutting current workers' pay. But any new hires at the plant will get about half that pay, or $15 an hour.
"We know it's pretty hard to support a family and everything on a $15 an hour wage, but we also know that we have to keep General Motors and Ford and Chrysler competitive," King says.