It makes sense: as fuel prices rise, so do sales of small and fuel-efficient vehicles.
"In almost every month where gas prices go up, the market share of small, entry-level vehicles goes up with them," auto analyst Dennis DesRosiers notes in a recent report from DesRosiers Automotive Consultants. "And interestingly, vice-versa: if gas prices go down, the share of entry-level vehicles also go down."
Fuel prices are surging again as a byproduct of turmoil in the Middle East. A litre of regular gas has topped $1.30 in parts of Canada already and most experts expect higher pump prices yet. Similarly, a gallon of gas in parts of California has pushed through the $4 (U.S.) barrier, often considered a tipping point for vehicle sales - the point where consumers say enough is enough and they start downsizing.
We've seen this before and pretty recently. DesRosiers' research shows that through most of 2007, while fuel prices remained relatively low and stable, sales of entry-level small cars actually plunged from more than 50 per cent of the market in March to about 43 per cent by November, 2007.
But by July of 2008, with gas prices spiking towards $1.40 a litre, sales of entry-level runabouts were back up over 50 per cent.
"Interestingly," DesRosiers says, "it isn't necessarily the amount that consumers have to pay for gas that is critical. Instead, it is the expectation of increase and/or decrease. Once gas prices stabilize, even if at a high level, then sales of entry-level vehicles stabilize.
"Stabilized fuel prices allow consumers to budget for increased cost of fuel and once budgeted for, consumers are more comfortable buying a larger vehicle.
This holds true, of course, as long as there are no wild cards in the deck. For instance, if auto makers throw big discounts and incentives into the game, they most definitely steer buyers into vehicles with the best giveaways. And that's why light trucks - pickups, minivans, crossover and SUVs - out-sold passenger cars in 2010 and have continued to do so in 2011.
"A consumer can buy a lot of gas when a vehicle company puts $15,000 in the glove box of their vehicle," notes DesRosiers. "And the amount of incentive the last four to five months overcame the hesitance of buyers to a larger vehicle."
A second wild card - one now coming into play with the raft of new small cars rolling into dealerships - is the quality of the entry-level small cars themselves. For decades, Detroit's auto makers all but ignored small cars, leaving the playing field largely to the big Japanese players - Toyota, Honda and Nissan primarily - and to a lesser extent the South Koreans (Hyundai and later Kia).
But now virtually all the big-time auto makers have turned serious attention to small and entry-level rides. The implications, DesRosiers says, are significant for any buyer interested in saving money over what he argues is the 20-year lifecycles of the typical new car, small, medium or large.
"Most vehicles bought today will easily last 20 years and that represents a lot of fuel cost if the consumer was lured into a gas-guzzling product due to an incentive," he notes.
"Each litre per 100 km of fuel efficiency translates into between $3,000 and $3,500 of fuel savings over the life of a vehicle at current gas prices on a present value of money basis. Who knows what gas prices will be 20 years from now, but I'd bet they will be higher - indeed a lot higher - so the fuel savings could be much higher than this amount.
"So over the life of a vehicle fuel efficiency makes a huge difference in the cost of operating a vehicle."
For consumers chasing small-car fuel savings, there really has never been a better time to go shopping. Take Ford, which DesRosiers argues is the best-positioned among Detroit's auto makers to take advantage of any significant move to small cars.
Ford has delivered a world-class compact in the 2012 Focus. Unlike the outgoing Focus, the 2012 is an excellent compact car with crisp performance, a stylish exterior and luxury car interior. The 2.0-litre four-banger is strong and smooth and the new transmission glides through gears beautifully.
Ford has done nice work here, but is hardly alone in delivering a world-class small car to Canadians. Other makers, from Chevrolet with the Cruze to Hyundai with the new Elantra, are also launching new small cars with more luxury, better styling, improved performance and plenty of high-tech features. Compact cars, then, have become the new battleground as mid-size cars sales plunge.
"The rest of the world has been like this for years," Aaron Bragman, an automotive analyst for IHS Automotive, says in trade journal Automotive News. "Compact cars are the largest segment in the world."
And they are just plain large now, too. The Cruze uses size as its first calling card, though fuel economy is strong, too. The Cruze is quiet, sporty and can carry five adults quite comfortably in its well-appointed interior. And like the Focus, the Cruze was launched in Europe.
Then there is the redesigned Hyundai Elantra with looks to rival the mid-size Sonata, which was itself all-new a year ago. This little sedan features nearly as many amenities as are found in a luxury car.
Similarly, the Focus has such up-town features as torque vectoring for better handling and park assist for easier parking. The Focus also has a fancy array of electronic do-dads based on its Sync voice-activated controls introduced several years ago and since updated and refined. Sync has evolved into MyFord Touch - a more comprehensive system that moves beyond voice recognition.
"If you look at the sort of equipment in compact cars today, there's more than mid-size cars 10 years ago," Ed Kim, an automotive analyst for AutoPacific, told Automotive News.
Honda, meanwhile, will launch its 11th-generation Civic this spring and it's been the best-selling car in Canada for 13 straight years. Honda has made clear its intention to defend the title with an aggressive new Civic launched with an aggressive marketing campaign. And Toyota has just updated the Corolla (the No. 3 selling car in Canada last year) and Mazda is introducing a new line of engines in the Mazda3, Canada's second best-selling car last year.
The small car attack doesn't end with compacts, either. The 2012 Sonic, Chevy's subcompact answer to the Fiesta Ford launched last year, is on its way later in 2011. Like its Ford rival, the Sonic will be available in hatchback and sedan form.
Subcompact buyers will then have the Sonic, the Fiesta, the Mazda2, Honda's well-regarded Fit from which to choose - along with the next-generation Kia Rio and Hyundai Accent subcompacts, which are coming later this year, too. Chrysler Group partner Fiat is rolling out its 500 mini-car, as well.
All these small cars will help auto makers meet fuel-economy standards that get steadily tougher through 2016. That's the practical consideration of auto makers with an eye to regulators. Car companies from Detroit to Tokyo and throughout Europe also see a chance to earn profits on small cars in North America as fuel prices rise and consumer tastes change. Their plan is to equip small cars like big ones of the past.
Ford, again, has been very aggressive and very candid about its plans for the 2012 Focus. Jim Farley, Ford's group vice-president of global marketing, sales and service, is making no apologies for his company's plan to sell the Focus at a premium because it's a premium offering.
"In the past, because of our un-competitiveness in quality and fuel economy, we've been unfortunately discounted," Farley says. "We intend to be deadly serious about competing for the small group of customers at the very high end of the segment by offering them features and series that they have never seen from Ford."
Small is the new big as pump prices spike, and while there are fuel savings to be had as a result, the new crop of runabouts is anything but cheap.