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Small cars staging a big comeback

There's a big battle shaping up as manufacturers roll out cheap cars for the masses.

November 9, 2005; Posted: 12:37 p.m. EST (1737 GMT)

By Peter Valdes-Dapena, CNN/Money staff writer
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NEW YORK (CNN/Money) - While America's long love affair with enormous SUVs may be waning, a new market is being discovered at the other end of the scale.

Very small cars are making a comeback.

Last week, Toyota unveiled the Yaris, which has been sold in other countries, including Japan, for some time. The Yaris is smaller and less expensive than the popular Toyota Corolla.

In addition, Honda will soon be introducing the Fit and Nissan plans to roll out the Versa. Like the Toyota Yaris, these are also versions of cars those companies currently sell in other countries.

Cheap and little: See the cars

Hyundai and its Korean sister company Kia have recently introduced redesigned versions of their bottom-of-the-line cars, the Hyundai Accent and the Kia Rio.

The current standard-bearer in the "cheap-and-efficient" market segment, though, is none other than General Motors. The Chevrolet Aveo is made in Korea by GM Daewoo, an affiliate of GM. Next year, Chevrolet will be releasing a redesigned Aveo in the United States.

Already the best-selling car in its segment, not to mention the cheapest, the Aveo is also a surprisingly good little car, said Ed Hellwig, auto test editor for Edmunds.com, an automotive Web site that provides data and tools for CNN.com.

"A lot of people will probably be surprised at the level of refinement in some of these cars," said Hellwig.

More than fuel prices, the increasing quality of cars at these low prices is driving the market, Hellwig said. Even the current version, let alone the redesigned Aveo, adds a bit of design flair to its bargain-basement functionality, he said.

Not that it's a great car. Cars at these prices don't need to be great. They just have to be better than you expect, automotive marketing experts say.

In this market segment, cars have two major selling points. They're dirt-cheap and they're fuel-efficient. Prices for the Aveo, for example, start at less than $10,000 and the car gets an EPA-estimated 35 miles per gallon on the highway and 27 in city driving. Prices for most cars in this low-end segment start at about $12,000 or so.

Car companies aren't expecting huge sales volume from cars like these, but these cheap models offer car companies a way to get new, young buyers into the showroom and get them hooked on the brand, said James Bell, publisher of IntelliChoice.

Should you buy?

Which raises a question for the consumer. Does a really cheap new car make sense when you could just buy used?

For some buyers, it might.

The new-versus-used question faces buyers of any type of car. For example, someone considering purchasing a Toyota Camry shouldn't overlook the option of taking a three-year-old Lexus that could offer a nicer overall experience for the same money.

The advantage of the Camry would be a longer warranty and the certainty of knowing that the car hadn't been mistreated by any previous owner.

The same will go for the person considering whether to buy a Honda Fit or a late-model used Civic. The main difference will be that someone shopping for a car at these sorts of prices may be less able to deal with even a small amount of uncertainty, said Hellwig.

If someone's used Lexus suffers a breakdown, that person will probably be able to find another way to get to work, he said, and they could cover the cost of repairs or would have paid for an extended warranty.

The person who could only afford a used Civic may not have so many options, so a new Fit might be the better choice..

With all the new products in this market segment, competition for your business should be fierce, said Peterson.

"There's going to be a big fight at that end of the market this fall," said Peterson.

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