OEMs to Enrich Small-Vehicle Content

Auto makers will turn their former econoboxes into sporty, stylish rides replete with an unprecedented level of high-tech gadgets, safety and creature comforts to win over car buyers keen on beating high gas prices.

“I've said for years, when the price of fuel over here starts resembling the price of fuel in Europe, which means $8 or $9 a gallon, the North American car parc will start to resemble the European car parc,” GM Vice Chairman and product boss Bob Lutz says during a preview of the auto maker's '09 lineup.

“What that generally means, is a fleet with more small cars. And if the prediction holds true, those smaller cars will come with a far higher content than we're used to seeing in this country,” he adds, pointing to initial additions such as adaptive headlights and heated windshield-washer fluid.

“In short,” he says, “small, subcompact and compact will no longer mean cheap, ugly or low quality.”

Consumers are “looking to downsize, not downgrade,” adds Steve Polakowski, executive director-advanced interiors and electrical/electronics systems at Magna International Inc.'s Decoma International subsidiary.

“We definitely expect to see more of the content that people have been accustomed to in the up-level segments,” he says, citing “basic comfort/convenience” items, such as heated seats and keyless entry.

In addition, Polakowski notes, there is a strong push from OEMs to utilize high-grade materials and multi-hued color schemes, neither of which have been hallmarks of compact cars in years past.

Overall, small cars account for a growing share of the North American market, 19.8% through August vs. 16.1% in like-2007, according to Ward's data. Small cars accounted for 18.7% of vehicle sales in all of 2007.

This year's movement has come as consumers flee fuel-thirsty trucks and SUVs for more economical passenger cars and cross/utility vehicles against a backdrop of surging gas prices and a weakened economy. Demand has been so brisk this year that all auto makers selling in North America have struggled to build enough fuel-sipping small cars.

Ward's forecasts the trend will continue, with small-car production growing 38.4% by 2015, to 3.44 million vehicles from 2.49 million this year.

And the available content of those typically Spartan vehicles should rise alongside their production numbers. For example, Ford did not choose its Lincoln luxury brand or bread-and-butter F-150 truck lineup to roll out the high-tech Sync entertainment system it developed with Microsoft Corp.; the auto maker instead picked its thrifty Ford Focus C-car.

But perhaps no vehicle better illustrates the trend in the U.S. than the '09 Honda Fit. Compared with the '08 model, which enjoyed a 55.7% hike in sales through August, the redesigned Fit adds more aggressive styling, an uptick in horsepower, better ride and handling dynamics, additional safety, clever new storage and cargo options, an available satellite navigation system and upscale touches such as a leather-wrapped automatic shift knob and steering wheel.

Honda also makes available a 6-speaker stereo system with MP3 and Windows Media playback capability. The system also includes a USB port.

All that and up-level models still achieve 27/33 mpg (8.7-7 L/100 km), according to the Environmental Protection Agency.

But don't expect such wholesale improvements across the board in the segment, says Paul Lacy, director of technical research at Global Insight, a consulting company.

“As the cost of electronics goes down, content should go up,” Lacy says. “Stability control, added safety, improved ride and handling — that will go up, but slowly. When you put on items like that, it affects fuel economy.”

Lacy estimates today's all-wheel-drive systems, for instance, degrade fuel economy anywhere between 2.0% and 10.0%.

“New all-wheel-drive systems coming on line could change that, but if a manufacturer is struggling to meet the new fuel-economy targets you won't see a lot of added content from them out of the gate,” he says.

Lutz agrees, suggesting auto makers may back away from the technology altogether with stricter new corporate average fuel economy rules on the horizon.

“Content doesn't necessarily deteriorate CAFE,” he tells Ward's, “because it adds a little bit of weight. If you're talking 50 or 75 pounds, that doesn't hurt your fuel economy very much.

“But all-wheel drive, that will deteriorate (CAFE). I think you will find all manufacturers either offer less of it or price up to discourage people from buying it, because all-wheel drive adds hundreds of pounds and that definitely deteriorates fuel economy.”

At the same time, however, Lacy expects technology to enable a downsizing of 4-cyl. powertrains at the lower end of the market. He points to the '11 Chevrolet Cruze, due in the U.S. in mid-2010, as one example. The Cruze will feature a turbocharged 1.4L 4-cyl. engine optimized by direct injection and variable-valve timing. GM intends to mate the engine to a 6-speed automatic transmission — a segment-first — and promises highway fuel economy of more than 40 mpg (5.9 L/100km).

The combination would replace the 2.2L 4-cyl. and available 5-speed gearbox found on the base-model '09 Chevy Cobalt.

“It's a trend we'll see from everyone, going from larger displacement 4-cyl. engines to smaller displacement 4-cyl. engines with turbochargers,” he says. “It's cheaper than hybridization or a diesel.”

But certain safety items remain rare on foreign and domestically built small cars. According to Ward's data, no imported car in the Lower Small segment in the '07 model year, which represents the latest available data, included either electronic stability control, or its poorer cousin traction control, when it left the factory.

Four-wheel antilock brakes, however, seem to be mounting a return, appearing on all Honda Fits, a standard installation that continues on the nameplate in '09, as well as all Kia Spectras and Suzuki Aerios. It appears on 46% of all '07 Toyota Yaris models imported to the U.S.

The National Highway Safety Admin. makes stability control mandatory on all light vehicles sold in the U.S. under 10,000 lbs. (4,537 kg) by the '12 model year.

Among North America-built C-cars in the '08 model year through April, only the Pontiac G5 receives electronic stability control, with a 56.6% installation rate. It was completely absent on the model in '07. Its platform mate, the Chevy Cobalt, does not receive the technology, although 31.2% leave the factory with traction control. In the entire '07-model year, 44.7% of all Cobalts were equipped with traction control.

Ward's data shows 7.5% of all Ford Focus units and 6.0% of all Honda Civics built featured the technology. In the '07-model year 5.9% of all Focuses left the factory with traction control and no domestically built Civic received the option.

Otherwise, stability control remains almost entirely absent among C-cars, with the exception of the Volkswagen Jetta, where 30.0% received the option in '08.

The industry's current installation rate of stability control presently stands at a relatively meager 16.9% among North America-built cars, while traction control's penetration has reached 44.1%. Those numbers are up slightly from the '07 model year.

Installation rates of 4-wheel ABS appears flat between '07 and '08 North America-built C-cars, with the greatest uptick seen on the Cobalt, where through April 32.0% of its models left the factory with the option vs. 21.8% in all of the '07 model-year. Only the Civic and Jetta show an installation rate of 100% when it comes to 4-wheel ABS.

Current installation rates of 4-wheel ABS among North America-built cars increased to 79.6% in '08 from 72.0% in '07.

Installations of side airbags in the B-car segment appears uneven, with 100% of '07 Honda Fits, Hyundai Accents and Suzuki Aerios receiving the equipment, but it appears on only 26.0% of all imported Yaris models and no Kia Rio or Spectras. In '08, 100% of all Nissan Versa models built in North America received side airbags, a repeat from '07.

Among North America-built C-cars through April, side airbags were installed on every '08 Focus, compared with a 40.5% penetration in all of '07. Civic and Jetta installed side airbags at a 100% clip again in '08, but no Cobalt or G5 received the option with their '08 deliveries through April.

The industry's current installation rate of side airbags stands at 73.5% among North America-built cars.

Jack Gilles, director-public affairs for the Washington-based Consumer Federation of America, a consumer protection group, and author of “The Car Book,” the group's annual buyer's guide, says proliferation of safety items on small cars represents a significant market-share opportunity for auto makers.

“By putting safety in these small cars you will ensure consumer acceptance,” Gilles says. “If you're a consumer the easiest way to improve your fuel economy is to buy a smaller vehicle,” but, he says, the roadblock to entering the segment always has been a perceived trade-off between safety and relief at the pump.

Detroit auto makers hope a new labor agreement they reached with the United Auto Workers union last year will slash labor costs and make small cars built in the U.S. more profitable. That would allow them to increase standard content.

“The easiest way for Detroit to fix themselves is to put a bunch of safety into their small cars, although the problem has always been that profit margins are so thin,” he says.

All-wheel drive remains entirely absent from the small-car segment in the U.S.

Also rare in the small-car segment are creature comforts like power seats, leather trim, adjustable pedals and heated seats. Rear cameras and sonic object direction sensors also remain absent, although cruise control has crept into nearly all models.

And while the penetration of navigation systems continues to rise industry-wide — up to 4.9% of all North America-built '08 cars vs. 3.7% in '07 — they remain absent among small cars with the exception of a 4.0% installation rate on the Jetta.

However, MP3-capable AM/FM stereos with CD changers show tremendous growth within small cars for the '08 model year, jumping to 32.7% of the segment from 24.5% in '07. Ford remains on track to a 90% installation rate this year on the strength of its Sync system, while the Cobalt's MP3 capability leaps to 93.8% of all '08 units to leave the factory through April vs. 61.7% in all of '07.

Installations of the technology remain flat at 80.0% of all Civics and 75.0% of Jettas, but it remains absent on all North America-built Versa B-cars. In the '07-model year, 25.0% of all imported Aerios included MP3 capability and it appeared in 78.8% of Yaris units. It was absent from all Kia and Hyundai B-cars.

Satellite radio, meanwhile, remains a popular installation on the Cobalt and G5 in '08, while it grows to 40.0% of all '08 Civics from zero in '07. Penetration remains low among Toyota and Nissan models.

Tim Yeardon, director-global innovation and North American marketing at Visteon Corp., says the Tier 1 systems integrator expects an explosion in consumer demand for electronics in small cars.

“It will come in different levels, but we expect to see some of the rapid growth we've seen in Asia and Europe,” says Yeardon, who counts the instrument panel on the Renault Clio as one of the supplier's many B- and C-car programs.

As a North American example, he points to the Dodge Caliber C-car, which receives a Boston Acoustics brand audio system packaged by Visteon. “Consumers want these premium technologies you would traditionally see on a higher-segment vehicle,” he says.

The trick, Yeardon adds, will be managing this influx of electronics into a human/machine interface that does not distract drivers from the roadway, as well as smarter packaging of existing items, such as climate-control units, to accommodate electronics and innovative storage.

However, such limitations open the door for consumer electronics to become “more integrated,” Polakowski suggests.

Some industry executives expect to see factory-installed iPhone docks, which would readily afford conveniences such as hands-free calling and GPS navigation.

Lutz makes this guarantee: the days of the $15,000 small car are long gone. He cites the average price of car a in Switzerland, which last year reached $40,000.

“A preview of coming attractions,” he says.
— with Eric Mayne and Diane Elnick

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