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The Chicago Tribune Jim Mateja Automotive Column

Posted on: Wednesday, 21 December 2005, 12:00 CST

By Jim Mateja, Chicago Tribune, Chicago Tribune

Dec. 21--The domestic automakers stood back and watched as the Japanese stepped in and walked away with the economy-car market in the 1970s.

The domestics offered only token resistance. Their cars were busts, thanks in large part to poor quality. Their offerings included the Chevrolet Vega, Ford Pinto and American Motors Gremlin, the latter from a company eventually acquired by Chrysler.

Seizing on their success in the high-mileage market, the Japanese turned to midsize sedans, luxury cars and even full-size pickups and sport-utility vehicles.

As with those economy cars, the domestics are chasing the Japanese in the midsize sedan and luxury segments.

Toyota, Honda and Nissan plan to follow these successes by revisiting the entry level with the Yaris, Fit and Versa, respectively.

But General Motors doesn't look to be caught flat-footed this time.

Only 2 1/2 years after Chevrolet brought out an entry-level Aveo, it has redesigned the car. Aveo now comes in four-door sedan and four-door hatchback. The redesigned sedan will be unveiled on the auto-show circuit that kicks off the first week in January, and Chevy will start shipping 2007 models to dealers next summer.

Ford and Mitsubishi don't plan to be left behind. Both are expected to unveil economy concepts on the auto-show circuit, and Chrysler is talking with other automakers about a joint venture to get a car in that segment.

"Time will tell how big the market will be, but we expect it to grow and we aren't going to sit back and watch," Jim Campbell, director of marketing for cars at Chevrolet, said in a phone interview.

"We won't be alone [with the rival entries coming], but we aren't alone now. Hyundai has the Accent, Kia the Rio and Scion the xA," Campbell said.

It's not a big market, about 150,000 units annually among a handful of players. But it's a key one for Chevy.

"We have 40 percent of the entry-level, small-car market now, and it's an important market for us because 75 percent of all Aveo buyers are new to GM," he said, meaning they could have bought a rival but didn't.

While Chevy redoes the Aveo sedan first, Toyota and Honda will bring out two-door hatchbacks, which like the Aveo hatchback will be about 150 inches long--or about 8 inches longer than a Mini Cooper.

Small cars are piquing interest, and their sales are expected to grow because of concern about fuel prices.

"Mileage is now at the top of many consumers' minds," Campbell said.

Potential buyers "are people who see these cars as high-mileage but lower-priced alternatives to hybrids, or people who bought hybrids and were disappointed because they didn't get the mileage they expected.

"They might not get the mileage of hybrids, but they don't carry the premium prices, either. Most studies show that it takes a long time to pay back the hybrid premium in fuel saved," Campbell said.

Hybrids typically cost $3,000 to $5,000 or more than their gasoline-only counterparts.

But the problem, as it was when Vega and Pinto came out for the 1971 model year, is that automakers don't make money on small cars. The cars contribute to market share at the expense of profit. "I have no comment on specific profit, but the goal is to make money on all vehicles we sell," Campbell said.

Since Aveo was developed and is produced in South Korea with GM's partner Daewoo, it costs less to bring to market than if built here.

"Yet one of the key things is to bring new people into the Chevy and the GM family," he said.

Getting them into the family means an automaker has the chance to keep them in the family as age and income levels rise.

But that, obviously, is the same goal at Toyota, Honda and Nissan, and history shows they've done a good job at it.

Read Jim Mateja Sunday in Transportation and Wednesday and Friday in Business. Hear him on WBBM-AM 780 at 6:22 p.m. Wednesdays and 11:22 a.m. Sundays.

jmateja@tribune.com

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Copyright (c) 2005, Chicago Tribune

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Source: Chicago Tribune

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