Score One for the Little Guys The Mini's big comeback inspires car makers to think smaller and smaller
By Lawrence Ulrich

(MONEY Magazine) – America loves big. Big spaces. Big portions. And always, big cars. Make that big trucks, with the sales balance tipped firmly in favor of colossal crossovers, mega-minivans, and portly pickups and SUVs. But don't count the little guy out. A loose fellowship of hobbit-size models looks to lure more Americans into the fun yet frugal cars that dominate Europe, Asia--everywhere but here.

These little underdogs will hardly make the SUV obsolete. Yet from cramped cities to congested suburbs, models like BMW's Mini Cooper make a point that many Americans still won't concede: Small cars make a lot of sense. They save money and fuel, pollute less and typically offer more smiles per mile than their bulky brethren. "We've gotten so locked into power and size, but people are rediscovering that light and small can be more fun," says Honda spokesman Andy Boyd. Emboldened in part by the Mini's big success--Americans bought more than 36,000 last year, far above BMW's rosiest forecasts--Honda is considering offering its Honda Fit here. The subcompact hatchback, Japan's best-selling car in 2002, delivers 40 miles per gallon and could sell for around $10,000.

For many Americans in the 1950s and '60s, the VW Beetle was their first small-car experience. Nostalgia aside, the old VW was hamster-powered and virtually heat-free in winter. Detroit's initial downsized models, rushed out in response to the fuel-economy and clean-air standards of the '70s, soured millions of buyers with their erratic engines and rust-bucket ways. All told, small-scale transportation got little respect until Japanese automakers made names like Civic and Corolla synonymous with quality in the 1980s.

Taking a back seat to no one

Fast-forward to 2004, and you'll find the tiny-car class focused more on image than on economy. Credit in part the booming movement to customized fast-and-furious compacts, as Generation Y drivers reject the beefy muscle cars their parents drove. But perhaps more important, these cars highlight how even budget buyers are demanding knockout design and a premium feel. Getting that kind of special car used to mean spending a ton of money. Now, modern and more flexible assembly plants can build multiple models on a single production line. That's allowing automakers to design low-volume boutique cars, keep them affordable and still turn a profit.

In other words, these are cars you aspire to, not settle for.

"We established a beachhead of sorts--allowed the American public to realize small doesn't have to mean cheap," says Richard Steinberg, spokesman for Mini.

George Peterson, president of consultant AutoPacific, says the class it defines as "high-image compacts" didn't even exist before the VW New Beetle arrived in 1998. Sales in the segment boomed to 213,000 last year, spurred by cars like the Mini Cooper and Toyota Matrix, a hatchback offshoot of the popular Corolla. AutoPacific figures that a slew of new models could deliver 500,000 sales by 2009--still less than 3% of the projected U.S. market but a huge increase nevertheless.

"The challenge for these automakers will be to match the appeal of the Mini," Peterson says. "That's a car you're proud to own and it's fun to drive, with tremendous visual appeal that strikes a chord with just about everyone."

BMW's modern take on the British favorite--first designed in the '50s as a response to the Suez fuel crisis--is a decidedly premium player, yet it starts at $16,999. Just shy of 12 feet long, it's easily the smallest car sold in the U.S. Yet it grabbed the North American Car of the year award and has won starring roles in movies like The Italian job. Now the Mini is proliferating in cities from New York to San Francisco, where owners find it the ultimate urban vehicle: chic, easy on gas, zippy in traffic, able to squeeze into breadbox-size parking spots. And as with Chrysler's larger PT Cruiser, the Mini's new convertible version is designed to keep the model from becoming yesterday's news.

New York City's Ellen Cohen owned two original Minis, '62 and '67 models, and didn't hesitate to trade in her Ford Explorer for the revived model. The Bayside, Queens resident, 54, finds Manhattan and the Mini a perfect match. "I don't miss the truck at all," Cohen says. "The Mini feels so great to drive, I'm looking for errands to do all the time."

Keep 'em coming

With these boutique cars seizing the public imagination, rival automakers are eager to try their own half-pint models.

General Motors' Pontiac Solstice roadster goes on sale for around $20,000 in August 2005. It's a curvaceous cutie whose basic design will spawn other bantam machines. One candidate would be the Chevrolet Nomad, a concept hatchback that charmed almost everyone on the 2004 auto-show circuit.

Mazda used January's Detroit show to gauge consumer interest in its 13-foot-long MX-Micro Sport. It'll launch the Lilliputian hatchback in at least one world market this year, perhaps the U.S. "Obviously, we've seen the success of models like the Mini," spokesman Jeremy Barnes says. "Cars seem to get bigger all the time, and we asked ourselves, 'Are we going in the wrong direction?'"

Toyota has launched an entire division, the youth-oriented Scion, with three bargain-priced squirts going on sale nationwide in June. They include the XB ($14,965), whose boxy, bulldog styling--so ugly that it's cute--is wrapped around a surprisingly roomy and sprightly package.

Daimler Chrysler's Mercedes, whose Smart Fortwo coupe is a common sight in Europe, was once leery of bringing this budget brand stateside. Now it'll dip a toe in the water with the Smart Formore, a miniature four-seat SUV coming in 2006. Smart's cuddly Fortwo goes on sale in Canada later this year; Mercedes will bring the next generation of this golf-cart-size machine--now barely eight feet long--to the U.S. after 2006.

Britain's legendary Lotus will offer its Elise this May. The two-seat, ultralight convertible may carry a heavyweight price tag of $39,995, but even that's affordable by the standards of this exotic sports and racing brand.

Some of the biggest luxury names are jumping into the shallow end too, albeit with models sized more like typical compacts, roughly 14 to 15 feet long.

On sale in July, the Saab 9-2X is being dubbed the Saabaru: The racy all-wheel-drive hatchback is based on the thrilling Subaru WRX.

A compact trio of German luxury cars, the Audi A3, Mercedes A-Class and BMW 1-Series, are poised to reach U.S. dealerships. Audi pegs its hatchback for the spring or summer of 2005. Analysts expect the Mercedes to also arrive next year, while BMW says the 1-Series' U.S. fate remains undecided, with sales no earlier than 2006.

All in all, it's quite a Matchbox collection. Yet with SUVs, pickups and minivans now approaching 55% of the U.S. market, it's clear that most Americans will continue to prefer their Tonkas. "We have big roads, big parking spaces," says AutoPacific's Peterson, "and gasoline is still cheaper than Evian."

Peterson, who once owned a Mazda Miata, acknowledges the joy of driving a car that fits like the perfect pair of jeans. But he's also seen the drawback to sharing the road with SUVs. "You're staring at their lug nuts," he says, "and you can feel awfully small out there."