Making Small Cars Profitable - A Challenge !

Small may be beautiful, but U.S. automakers are more worried about making it profitable.

As high gasoline prices have American car buyers ditching their cavernous sport-utility vehicles in favor of smaller, more fuel-efficient sedans, the three Detroit automakers are faced with a problem: They can make small cars, but haven't always been able to make much money off of them.

Making smaller vehicles a more appealing business will take two things

• Simplifying production lines. The first step is for automakers to find ways to use the same parts in more of their fleets.

• Secondly, to observe if expensive fuel will nudge Americans to become more like European car buyers (willing to pay a premium for feature-packed small cars).

One other way automakers can make smaller cars profitable is by persuading shoppers that not all small vehicles are bare-bones econoboxes.

Small-car profitability hangs on balancing the feature set : putting in enough that buyers see a premium in the car, but not more than they are willing to pay for.

Ford Motor Co's Chief Executive Alan Mulally already sees the shift happening, in the form of pleas to start offering its new Fiesta...currently for sale in Europe...in its home country.

"With fuel prices going up, we can't get them here fast enough," he said. "I get two to three e-mails a day saying, 'I just saw the latest picture, can we get it here tomorrow?'"

The shift in demand played out dramatically as U.S. gasoline prices notched new record highs above $4 per gallon, leading Americans to buy more cars than light trucks !

That strong shift to small cars, in my opinion, is, perhaps a temporary phenomenon as people are overreacting to the price in gas because they don't know where it is going to end!