Small cars pose a big risk for automakers

updated 7:06 p.m. ET April 9, 2009

NEW YORK - Music blared and lights blinked as the pint-sized car descended from the ceiling. A platform lowered it to the ground and photographers rushed to snap pictures.

This was how the Toyota showed off its latest, tiniest car — the iQ — at the New York International Auto Show. The message from the Japanese automaker was clear: This is the car of tomorrow.

But is it?

Small cars and hybrids surged in popularity last summer as gasoline prices blew past $4 a gallon. Compacts and subcompacts — including cars like the Toyota Yaris and Ford Focus — surged to more than a quarter of new vehicle sales in June and July, according to data from auto Web site Edmunds.com.

But as the economy sputtered and gas prices collapsed, small cars lost ground to trucks and sport utility vehicles. Compacts and subcompacts last month commanded about 20 percent of the new car market, according to Edmunds.

"I heard it the other day — I don't know if it's true — that Americans' memory is about 60 days," said Tim Mahoney, senior vice president of Subaru of America. "You can see the fuel-economy situation from last summer. I heard (a dealer) the other day talking about how they couldn't sell Civics and Corolla and Priuses fast enough. All of a sudden, 60 days later, we're back on SUVs and trucks."

Small car still took center stage at the New York auto show, which opens to the public on Friday after two days of media previews. Automakers unveiled their fair share of sedans and crossovers, but much of the attention was on cars like the iQ, the Fiat 500 and the Volkswagen Golf VI, which won the show's top award.

"It is the time for small cars," said Stefan Jacoby, chief executive Volkswagen of America. "We will see a certain trend toward small, compact cars in the United States."

One of Toyota Motor Corp.'s main attractions is the iQ, a tiny model that has room for three adults and is already on sale in Europe and Japan. At 10 feet, 7 inches bumper-to-bumper, the iQ is only about 2 feet longer than the Smart fortwo.

Toyota, which is displaying the car with a Scion badge in New York, is still weighing a release date for the U.S.

The Golf VI took the show's World Car of the Year award. The car is on sale only in Europe, but it is similar to the Volkswagen Rabbit compact car in the U.S. Its competition for the prize? The Ford Fiesta small car and the iQ.

Perhaps the little car making the biggest splash was the Fiat 500. On Wednesday, Chrysler LLC President Jim Press surprised reporters when he drove the iconic minicar onstage during the automaker's press conference to unveil a new Jeep Grand Cherokee. Chrysler, faulted for focusing too much on trucks and SUVs, is likely to bring the 500 to America if it completes a deal with Italian automaker Fiat SpA and survives its financial troubles.

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