U.S. small car rush may create oversupply -CSM

Tue Dec 8, 2009 4:07pm EST

* Several new small cars slated for U.S. market in 2010

* With gas prices steady, small car rush may pressure margins

By Soyoung Kim

DETROIT, Dec 8 (Reuters) - A new lineup of small cars slated for U.S. showrooms next year may create an oversupply of compact vehicles in the U.S. market at a time when gas prices remain stable, an industry forecasting firm said on Tuesday.

Automakers including General Motors Co [GM.UL] and Ford Motor Co (F.N) are rushing to launch new fuel-efficient small cars and electric vehicles in 2010 to meet tighter fuel economy standards in the United States and attract buyers that have gravitated toward smaller cars.

However, if gas prices trend steady from today's levels of under $3 per gallon, "Extreme pressure to channel smaller vehicles in the market due to CAFE and emissions standards will raise incentives and lower profitability", said Michael Robinet, vice president of forecasting at CSM Worldwide.

Automakers are required to raise their fleetwide average to 35.5 miles per gallon by 2016 under a U.S. law aimed at cutting carbon emissions and spurring development of fuel-efficient vehicles.

Globally, automakers and governments are estimated to spend about $428 billion a year by 2020 under a worldwide push for promoting greener transportation, CSM said.

Increasing competition in the subcompact and compact segments, which have long been dominated by Asian automakers, may also hamper Detroit automakers' goal of making money on selling small cars, CSM said.

Craig Cather, president and chief executive of CSM, said, "It is very possible that U.S. automakers will not achieve their objectives of selling small cars at a profit."

GM plans to launch its Chevrolet Cruze small car in the U.S. market in the third quarter of 2010, a vehicle it said was capable of reaching 40 miles per gallon in highway driving. GM also aims to launch the Chevrolet Volt electric car at the end of next year.

The No. 1 U.S. automaker is counting on a series of upcoming fuel-efficient vehicles like the Cruze and the Volt to revitalize its lineup as it tries to reverse a long-running slide in market share after emerging from a government-financed bankruptcy on July 10.

Ford is set to roll out the Fiesta small car in the United States by early summer and a redesigned Focus compact car later in 2010 -- which the company has touted as two key U.S. car launches next year.

Chrysler Group LLC, under the management of Italy's Fiat (FIA.MI), also plans to bring the Fiat 500 subcompact to the U.S. market at the end of 2010.

The trend toward smaller, more fuel-efficient vehicles will continue as the U.S. economy recovers and gas prices start to rise, CSM said. But a gradual increase in prices is not sufficient enough to drive demand for such vehicles, it added.

"We need a little bit more that that," Robinet said, citing gasoline taxes or another oil shock as possible catalysts for boosting demand. (Reporting by Soyoung Kim; Editing by Phil Berlowitz)

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