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Not Your Father's Small Car Business

General Motors announced new plans to build a new small car to adapt to the recent consumer demand for smaller more fuel efficient automobiles since gasoline prices hit such a high spike in the $4 a gallon neighborhood. The cost to build this car is a staggering $500 million in development and tooling costs, a figure that is an awesome amount compared to the much smaller amounts of cash outlays once required to develop new models by the major car makers.

In April of 1970, little American Motors Corporation was able to build the first modern American subcompact, the Gremlin, for a mere $6 million in development and tooling costs by cutting about a foot and half out of it's existing Hornet compact which was developed for a cost of just $40 million dollars from a project that started way back in 1966 to bring out a car for the 1970 market. But the history of the American small car was mostly a smaller segment of the American car market as years and years of cheap gas made smaller cars a real second choice for many American buyers who sought the bigger and more powerful models.

In 1951, American steel tycoon and industrialist, Henry J. Kaiser sought to steer Americans towards the purchase of small fuel efficient cars and his early subcompact, the Henry J, hit the American market with an economical 68hp four cylinder engine. Even Sears Department stores had their own version of the Henry J to sell in their stores rebadged as the Sears Allstate. But in the days of 27cents a gallon gas, both cars were quick marketing failures and quickly disappeared from the market before very long.

Many buyers instead opted for the bigger models such as the Chevy Deluxe or the later Chevy 150 instead which were larger and had six cylinder engines. The 1950's were characterized by American cars growing bigger and wider by the year it seemed, and subcompact models had little buyer interest except for a few rare imports like the late 1950's BMW Isetta oddity. The Isetta was a strange little car with only one single door on the front of the car that seated just two. The driver had to connect the steering wheel on the door to the steering gear on the floor in order to drive the car as well. With a 236cc motorcycle two stroke motorcycle engine that produced just 9.5hp, the little Isetta was a success in Europe but not the U.S. American buyers were just ready to give up on so much American car power or luxury to get 50-70mpg like the tiny Isetta offered.

By 1960, as the American economy hit recession in the late Eisenhower years, American carmakers responded with a flurry of compact models to compete with the success of the compact Rambler from American Motors which sold for just $1880. Ford brought out the Falcon. GM brought out the revolutionary, but controversial rear engined Corvair. Plymouth had the Valiant. Little Studebaker had the ultrathrify Lark models.

At the time, only the Volkswagon Beetle was the main foreign competitor. Japan was still struggling to build toys out of recycled soup cans in 1960 and the head of the new Sony company in Japan was having difficulty convincing the government and the public there that the transistor was the ticket to economic success for Japan. But by the later 70's, both Toyota and Datsun were able to make serious new dents into the imported small car market and began to challenge the market of Volkswagon a little.

The success of Volkswagon, and rise of Toyota and Datsun by 1970 spurred the development of the subcompact AMC Gremlin, but also Ford to develop the Pinto. GM spent even more money to develop the troubled Vega model. But it was the first serious attempts in modern times for the car makers to build truly smaller and higher mileage cars that were actually Volkswagon sized unlike the bigger compacts of the past.

By the 1980's and beyond, small cars had to become more safe and more high tech in design and the Ford Escort and Focus models were both based off of successful European models that were proven in use overseas.

Today, the development a new small car is an expensive project where the quality has to be very good as well as the fuel economy. It is nothing like the days of the $1300 1951 Henry J that cut costs by having fixed rear windows, no arm rests or no flow through ventilation. Even the 1970 compact Ford Maverick which sold for just $1995 left out the glovebox to cut costs.

One of the main selling points of the Competing 1970 Hornet model from AMC which sold for $1994 was that it cost a dollar less and had a glovebox. Today such would hardly become a selling point with most new car buyers. Even small cars are a capital intensive business and the permanent high cost of gasoline will probably make the small car here to stay for good unless alternate fuel technology can make the larger cars or trucks more economical like a Toyota Prius hybrid model.

The American public may finally be ready for the subcompact models to become a permanent major share of the American automobile business for good. Just like in Europe where high gas prices have forced a market of smaller cars, motorcycles and motor scooters, America is adapting to the same sort of models as a response to the new reality of gas that will be priced between $4-$7 a gallon for the future.


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Comments (4)

John S:

Adjust the $40 million it cost AMC to develop the Hornet for inflation and you come up with... $500 million. And in April of 1970 AMC didn't have to content with an EPA, OSHA, thousands of auto safety mandates, and the 10 million product liability lawyers we've graduated since 1970. Developing a new car today for $500 million is dirt cheap.

John, you make a great point about the cost of inflation as well as the added costs for safety protections in modern automobiles. In fact, that was a part of my argument here as well. Automobile buyers expect something that is high tech, safe, and gets good mileage whereas some older American small cars were mostly built to be cheap.

As much as I'm a fan of the AMC Gremlin, there was at least one lawsuit related to their large 21 gallon fuel tanks being placed right at the back of the car which was the subject of at least one $10 million dollar fire related lawsuit. The Ford Pinto had similar problems. In order to cut costs Ford saved $11 per car by failing to put a shield over the rear differential lug-bolts that could punch holes in the gas tank during a crash. In addition a cheaper non flexible fuel filler line was used. Ford actually had internal documents which calculated the cost of lost human lives due to these safety problems, yet sold the unsafe Pinto cars for a low $1919 anyway, while the AMC Gremlins were going out the door in basic two passenger models for $1879. Ford had to fight a $128 million dollar lawsuit in which a 12 year old boy lost his nose among other serious injuries to a gas tank fire. Ford eventually spent the extra $11 per car to install the flexible fuel line and the rubber-like differential lug-bolt shield which made the cars much safer. The station wagon versions of the Pinto did not have the same safety problems as the smaller two door models.

The Chevy Vega had some serious problems as well even though it sold for around $2,300. The engine made heavy use of aluminium in order to save weight because the front brakes were so small and inferior. The Aluminum engines were troublesome and later Vega models either used cast iron engine blocks or actually became the new Chevy Monza series in order for GM to stay in the small car market. The Chevy Monza was a new body and new image to salvage GM's reputation after so many quality control problems with Vega.

The Gremlins and Pintos were at least very good and durable cars compared to the Vega. But all three were built to sell for a very low price. By 1979, AMC reinvented the Gremlin as the Spirit which was supposed to be a luxury small car, but a number of these had serious quality control issues unlike any previous AMC products except for some troubled Kelvinator Refrigerators.

Americans still expect a decent level of quality and safety in small cars and aren't willing to risk their lives in dangerous and defective products. A funny thing is when China is criticized for a few of their products being unsafe, when the U.S. produced many deadly automobiles as late as the 1970's which needlessly cost lives.

A really funny side-note here, the $40 million dollar AMC Hornet project was based off the 1966 AMC Cavalier prototype project. AMC became so cash strapped by about 1980, that every AMC car up to 1987 was actually based off the 1970 Hornet including the Eagle four wheel drive cars, when Chrysler bought out the company. 17 model years use of a car line is all time record for any American car. Even Checker Motors taxi bodies only lasted from just 1958-1974. AMC marketed cars under the names Hornet, Gremlin, Concord, Spirit, AMX, Eagle and Eagle SX4 all using the same 1970 Hornet as the base. It was the greatest economical use of a single American car-line in American history ever.

Paul Duffau:

Even small cars are a capital intensive business and the permanent high cost of gasoline will probably make the small car here to stay for good unless alternate fuel technology can make the larger cars or trucks more economical like a Toyota Prius hybrid model.

Lee,

The Prius is not very economical. Based on fule consumption and taking into account the much higher price tag, it would take upwards of a decade to reach a breakeven point.

And this is before you take into account the cost of battery disposal.

Just like in Europe where high gas prices have forced a market of smaller cars, motorcycles and motor scooters, America is adapting to the same sort of models as a response to the new reality of gas that will be priced between $4-$7 a gallon for the future.

This is not an accurate statement. It was not the high price of gasoline that triggered the change. The production cost of the gasoline was not substantially higher in Europe than here. It was the high taxes attached to the gasoline.

European governments used tax policy to modify behavior. Recognition of this is important.

Paul Duffau:

Whoops, addressed the wrong person. Sorry about that, Paul.


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Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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