Well-practiced Asians cram in a lot

With iPod plugs, new flexibility, marques alter brand loyalty dynamic

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It's not enough small cars are relatively inexpensive to buy and drive.

Automakers, anxious to woo young, first-time buyers, are offering spiffier entry-level small cars with cool features like factory-installed iPod or MP3 plugs and versatile interiors. Carmakers whose entry-level models "are boring and devoid of style are only going to appeal to old retired people who just want cheap transportation," says Wes Brown, analyst with consultant Iceology.

In the process, automakers are tinkering with how they develop long-term brand loyalty.

Mr. Brown cites Toyota Motor Sales USA's Toyota Echo, which despite an attractive $10,000 sticker price had a high percentage of older buyers. Echo was a rare slip for Toyota. Lesson learned. Toyota is replacing Echo, which debuted in 1999 in the U.S., with a version of its European Yaris, hitting dealerships now with a starting price of $10,950. Toyota has predicted Yaris will sell 50,000 units this year and 70,000 in 2007. Saatchi & Saatchi, Torrance, Calif., is providing ad support.

Mr. Brown predicts Yaris will be more successful attracting younger buyers than Echo.

Toyota's two biggest Japanese rivals in the U.S. also have sharp, new entry-level small cars arriving.

American Honda Motor Co. is introducing the 2007 Honda Fit, one of its best-selling cars in other parts of the world. "The Fit will appeal not only to entry-level consumers but will also appeal more broadly to consumers looking for a fun, flexible and fuel-efficient small car that serves as an ultra-comfortable cargo mover," says Dick Colliver, exec VP-sales for both Honda and sibling Acura. He projects sales of 33,000 Fits this year and 50,000 next year. The Fit starts at $13,850 and will get advertising from RPA, Santa Monica.


Nissan North America's all-new 2007 Nissan Versa arrives early this summer, replacing Sentra as the brand's entry-level model. Nissan says the Versa will start at about $12,000, with a combined fuel economy rating of 38 mpg. TBWA/Chiat/Day, Playa del Rey, handles.

J.D. Power & Associates labels this segment "compact-entry," based on size, price and other factors, roughly in the price range of $13,000.

It's more than just a coincidence that the Big 3 Japanese auto marketers in the U.S. are introducing entry-level cars about the same time. It's not that gas is gouging people's pocketbooks as much as it is the success of the carmakers' former entry models. The smallest cars from Honda and Toyota, the Civic and Corolla respectively, have grown in size and price over the years, while the Nissan Sentra is also moving up a notch.

"The Japanese companies have upsided their whole fleets, which opened space at the smaller end," says John Casesa, former auto analyst for Merrill Lynch & Co. and now managing partner of Casesa Strategic Advisors.

The automakers are chasing the children of baby boomers-the echo boomers, a group that will continue to grow in the next decade, notes Susan Jacobs, president of auto consultancy Jacobs & Associates.

The new cars from all three Japanese transplants have been adapted for this market from existing models they sell elsewhere in the world. Mr. Brown says General Motors Corp. has already done the same, leveraging its acquisition of key parts of Daewoo for its Chevrolet Aveo, designed and built in South Korea. Ford Motor Co. has no such entry in the U.S., but Mr. Brown says it could easily have one by bringing to the U.S. its small Ka model from Europe.

Brent Dewar, who moved March 1 from VP-marketing at GM North America to VP-field sales, service and parts, says the automaker realized the small-car segment was splitting along lines of those attracted by price and others desiring sporty features.

After GM discontinued its price-leading Chevrolet Cavalier after the 2005 model year, it introduced the price-leading Aveo in 2004 and the sporty Cobalt in 2005.

Kia Motors America competes in the entry-level segment with its Rio, which starts at $11,100. "Pricing is the starting point of anything in that segment," says Ian Beavis, VP-marketing at Kia. Rio ads from davidandgoliath, Los Angeles, also tout fuel economy and safety.


Entry-level is a "strange segment" because its two biggest buying groups are under 30 or over 50, Mr. Beavis says. Kia focuses on young people for its second-generation 2006 Rio, which arrived last fall, and is attracting more younger buyers than its predecessor.

Hyundai Motor America also sees an opening. This spring, the automaker is adding a pair of three-door siblings to its Accent four-door sedan. Hyundai is clearly aiming Accent at the new entries from the leading Japanese transplants.

The GS Accent, which starts at $11,495, has more horsepower than the Toyota Yaris, Toyota Scion xA or Honda Fit, says John Krafic, VP-product development and corporate strategic planning at Hyundai. Accent buyers can customize the car with any of 35-plus factory-made accessories, which is more than Toyota offers for its Scion xA.

"We're going to get cross-shopped," Mr. Krafic says, adding, "We know the Japanese competitors are coming, and that's part of the strategy with the Accent."
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