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Automakers Get Small


But can compact cars be profitable?

Selling a buck for $0.99 means revenues will soar, but the bottom line will never quite catch up.

US automakers face a similar problem as buyers switch to small cars from monster SUVs and behemoth pickup trucks: it's easy to sell a lot of sub-compacts, but it may be difficult to make a significant profit on smaller cars.
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Automakers are attacking this problem by simplifying production and pushing extras. This is largely unexplored territory, and no one knows if American buyers will pile expensive options onto small cars and, if so, what the upper price limit might be.

Little things can save big bucks in production. Building several cars on the same chassis is basic, but using the same hardware -- door hinges, door handles, seat-tracks, headlights, catalytic converter or even the engine -- can quickly cut production costs.

The downside: Using many of the same parts for different models may turn the car into a commodity, and that's almost certain to be an anathema to buyers who see their cars as an expression of their individuality.

Cutting production costs looks like the easier side of the problem because automakers don't have to fret about buyers' psychology. But they can't skimp on design and quality if they want to avoid adding their new, fuel-efficient models to the list of the all-time worst cars in creation.

It's easy to boost the already hefty profit margin on a $60,000 SUV, because the buyer has money to burn (literally) and probably can't imagine living without the upgraded seats, wheels, a GPS and a killer stereo.

But how do you make a Honda (HMC) Fit saucy, especially when the buyer wants to hold the cost down? Special floor mats, stain protection for the seats and extra rust protection don't add pizazz, even if such ho-hum add-ons boost the out-the-door price.

The small, premium car is one answer, but it's a niche product and isn't intended to meet the need for a moderately priced car that delivers good gas mileage.

The Mini Cooper is a highly profitable small car, but it's a specialty car with a cult following. The Cooper is deftly marketed, too. The company's website cajoles, "See how you can hug trees and corners at the same time. Having fun on the road isn't just possible, it's responsibly attainable."

Some ad copywriter earned a week's pay with that one. The Mini Cooper S starts at $21,850; the S convertible starts at $26,050. That's a far cry from a Ford (F) Fiesta, currently for sale only in Europe, or the Chevrolet (GM) Aveo, starting at about $10, 895.
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