BUSINESSWEEK - News & Features August 3, 2008, 1:45AM EST

Only 15 cars for sale in the U.S. get combined gas mileage of 30 mpg or better. We tell you what they are

by Jim Henry

At the end of 2007, sales of the Chevy Cobalt (BusinessWeek.com, 8/7/07) were down 5.1% for the year, to 200,620. The bland little compact, made at General Motors’ (GM) Lordstown plant in Ohio, was the successor to the Cavalier, and its weak performance raised the possibility that it—and the Lordstown plant—could be victims if GM were forced to shut down more production.

What a difference a year makes. Sales of the Cobalt are up more than 18% in the first half of 2008, and Lordstown cannot make them fast enough to keep up with demand. Job growth in the area is high, and despite a stagnant real estate market in most of Ohio, the area around Lordstown is enjoying enviable strength. What is the reason for this dramatic turnaround? Did GM radically overhaul the Cobalt? Did dealers offer an irresistible discount? None of the above. The tame little Cobalt has a 2.2-liter, four-cylinder engine that gets an EPA-estimated 24 mpg city/33 mpg highway, making it one of the most fuel-efficient cars for sale in the U.S. And, with a base sticker of $15,010, it’s one of the cheapest too.

In fact, a quick scan of the most fuel-efficient cars in the U.S. immediately reveals two interesting facts: first, that most of them were sales wallflowers until quite recently; and second, that most of them, with one or two exceptions, are only slightly more exciting to drive than a golf cart. The tiny Fit (BusinessWeek.com, 8/21/06) from Honda (HMC), for example, which has seen a staggering sales increase of 67.4% in the first half of 2008, takes nine seconda to go from zero to 60, and merging into traffic is not for the faint of heart. But the $14,000 subcompact does get a combined 31 mph combined city and highway, according to the Environmental Protection Agency.

Overnight Sensations

Today’s buyers are happy to sacrifice driving pleasure for practicality and good gas mileage. “This shift was abrupt and took most manufacturers and dealers by surprise,” said David Cosper, chief financial officer at Sonic Automotive (SAH), a publicly traded auto dealer group based in Charlotte, N.C. Sonic has 166 franchises, with close to $3.9 billion revenue in the first half.

“Obviously, slow demand and high supply means margin compression,” Cosper said in a July 29 conference call for Wall Street analysts. Sonic announced on July 29 that its second-quarter net income fell 59% from the same quarter a year ago, to $10.8 million.

But it’s interesting to note that only a few years ago, many of these sudden overnight sensations were either almost killed or never introduced to the North American market. For instance, the Fit and the equally small Yaris (BusinessWeek.com, 6/14/06) from Toyota (TM) were not originally intended for the U.S. market, but their respective producers launched them here to take advantage of the demand for small cars. Now, after years of claiming that Americans and Europeans want different cars, Ford (F) has announced plans to bring European-style small cars here, such as the new-generation Ford Fiesta (BusinessWeek, 3/13/08). And GM will build the Chevrolet Beat minicar in South Korea for the U.S. market.

source: BusinessWeek

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