Economic crisis has small car sales making a U-turn

Sales of small cars have taken the wildest ride in the auto business this year — first up, then down — and the gyrations may not be finished.

Though gas prices tumbled, some automakers are trying to juice sales of fuel-thrifty economy cars by slashing starting prices to less than $10,000.

Small-car sales doubled during the first half of the year as gas topped $4 a gallon. By the end of November, sales levels had tumbled 63% from the peak. Even with the drop, the segment is holding up better than others because overall vehicle sales are so weak. "It's surprising," says Ford Motor analyst George Pipas.

No other vehicle segment saw such sales volatility in 2008. First, it was falling gas prices that slowed small-car sales. Now, it's the inability of recent college graduates and other price-conscious drivers to qualify for loans.

"The credit market is squeezing first-time buyers out. They are getting laid off and being exposed to the economy more than others in their careers," says General Motors spokesman John McDonald.

In the early part of the year, automakers responded to rising demand for economy cars by trying to produce more. Ford, for instance, announced it would add another shift to the Wayne, Mich., plant that makes its small Focus model. Those plans were later quietly dropped.

Economy cars were smacked by a "perfect storm" — frenzied demand that depleted inventories, cheaper gas and the credit crunch, says Dave Zuchowski, sales vice president for Hyundai.

Even now, despite the sales drop, dealers don't have droves of small cars sitting around for long. They spend an average of 36 days on the lot, compared with 83 days for all cars and trucks last month, says Power Information Network.

With the recession making cars harder to afford, automakers are looking to price-cutting to attract buyers.

Nissan struck first in October, offering a new version of its smallest model, the Versa, with a less powerful engine and fewer features. It was priced at $9,990.

It didn't remain the "lowest-priced new car in the U.S.," as Nissan billed it at the time, for long. Hyundai cut the price of its Accent hatchback by $1,775 to $9,970. That's $20 cheaper than the Versa.

The move may pressure other automakers to make their economy cars even more economical.