Endangered Species U.S. small car segment has shrunk 20% in a decade

These are the worst of times for small cars in America. Since peaking in the late 1980s at slightly more than three million units annually, the segment shrank by 20% to less than 2.4 million in 1997.

But the worse news in this age of a profit-driven stock market is that small-car profitability is beginning to appear more elusive for most manufacturers than the cure for cancer.

Indeed, some major automakers are losing as much as $1,500 per unit on their entry-level models, despite seminal progress on productivity and simpler designs that make these cars easier to assemble.

What's going on here?

The easy answer is historically low gasoline prices. Who cares about fuel economy when they're spending less per week on gasoline than they are to satisfy their soft-drink craving?

The more demographically pertinent reality is that the population is aging and many former conservation-minded motorists are into a life stage where space and utility are high priorities.

Even Generation X is entering the family-forming stage.

The less obvious but perhaps most potent factor is the explosion of new-car leasing. Leasing has allowed vast numbers of middle and lower-middle income consumers to step up a notch or two on the automotive food chain without any significant increase in monthly payments.

In addition, leasing has generated a virtual tidal wave of barely used two or three-year-old cars that are vying for the very same buyer who used to gravitate toward smaller cars. Many of these "21st Century clunkers" are fully reconditioned and backed by warranties that substantially reduce the cost of operating them.

If the price is the same, what would you rather drive, a two-year-old Explorer or a new Escort?

Face it, we don't really much like small cars, at least not when $10 or $12 will fill the tank of something that makes us feel more powerful and affluent during the couple of hours we spend on the road each day.

As much as we like to think we are environmentally conscious, global warming agreements and stricter hydrocarbon emissions standards are not going to push us back into frugal little cars any time soon.

Frankly, if small cars were not needed to achieve federally-mandated fuel economy standards, some manufacturers would likely drop out of the segment altogether.

But there's still a market out there. They're largely under 30, generally single. In addition, a significant number of older buyers are perfectly happy with a reliable and economic second or third vehicle.

Many of these potential customers have strayed because of the lack of imaginative styling. For financially ambitious Generation Xers, most small cars are an affront to their self-esteem. Where's the passion, the unpredictable, the contrarian image?

That's why Volkswagen's reincarnation of the Beetle is so interesting. It is defying the odds, spitting in the face of current cultural trends.

The truth is that no small car since the original Beetle died has struck the same kind of cosmic serendipity, not even the impeccably-assembled and highly dependable subcompacts Toyota, Honda, Nissan, Mazda and Subaru used to establish their beachheads on American shores.

As Andre Agassi says in the old Canon camera commercials, "Image is everything."

The Beetle shows VW understands that. At a base price of $15,200 it may be within reach of the pocketbooks of many young first-time buyers. Whether that is enough to resuscitate the small car segment remains to be seen.

I have a hunch VW will do well enough to teach the rest of the industry, American, European and Asian alike, that even those of limited means have psychic and whimsical instincts that motivate them, too. Remember, the original Beetle experienced its best years well before the bummer of oil embargoes and gasoline lines at the corner station.

As one of the New Beetle's ads playfully suggests: Less flower, more power. But notice they put in the bud vase. Maybe it's the seed that will revitalize the whole notion of what small cars can be.