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Bankrate's 2007 New Car Guide
The auto world's in a period of great change. How will it affect you?
Small cars are selling big

With gas prices hovering in the $3 per gallon range, it's probably no surprise that sales of smaller cars are increasing. But what may shock you is just how significantly sales of small or compact cars are up, and at what cost to consumers.

Online car information provider Edmunds.com says compact car sales marked a record month in May, grabbing 21 percent market share. For every five new cars sold that month, one was a compact.

"It's up dramatically," says Edmunds.com industry analyst Jesse Toprak. As a vehicle category, compacts have enjoyed the biggest growth for the past five years, averaging about 17 percent of monthly sales, Toprak says. But the category's gotten even hotter lately.

"If gas prices stay where they are or go higher, that's going to enable compacts to get near 20 percent by the end of the year," Toprak says.

In its report on 2006 new vehicle sales released last month, the National Automobile Dealers Association, or NADA, says that the small-car category saw the second-highest growth over the year. The 4.7 percent increase trailed crossover utility vehicles, which came in at 9.1 percent. Considering that total sales were down about 400,000 vehicles from 2005, however, buyers' move to smaller vehicles is more significant.

2007 Mini Cooper
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Trend strengthening
Currently, the trend looks even stronger considering the relatively skimpy incentives carmakers are offering for compacts. Toprak says incentives like cash-back offers averaged only $1,114 for the compact category in May. Large SUVs, by contrast, were dangling incentives averaging $3,424 per unit in May.

 "It shows the strength of this category," Toprak says. "People are willing to buy at a premium."

The trend isn't all due to gas prices, either. Carmakers have created an influx of new small cars that have proven popular, like the Mini Cooper, Toyota's Scion and Prius, and Mazda 3.

2008 Scion
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"Compact cars in the last couple years became a bit fashionable, especially in the metro areas," Toprak says.

Don't expect sport utility vehicles and minivans to suddenly vanish from the roads, however. The market for large vehicles still exists, as there are few practical substitutes for lots of seats.

"People are not trading in their seven-passenger Ford Expedition for a Ford Focus," Toprak says.

Rather, middle-class families who purchased two large vehicles -- perhaps because of attractive incentives -- are frequently choosing to downsize one of them for something more efficient that will be used as the main commuting vehicle.

-- Posted: Aug. 2, 2007
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