There's no doubt that the high fuel prices in 2008 impacted both the collision repair and insurance industries, and we haven't seen the last of the fallout. These heighted fuel prices also left their mark on U.S. consumers. In response to America's fear of high fuel prices, several car makers are introducing a smaller class of vehicles called the B-segment, which was previously only available overseas in markets like Europe and Asia. These pint-sized cars strike a chord with buyers by tempting them with low prices and fuel efficiency. However, thrifty consumers may not think of the consequences that can result from combining those sought-after, money-saving features with expensive soon-to-be mandatory safety equipment. The fly in the ointment here is the fact that these cars are prime candidates for totaling out.
Today, there are enough potential entrants percolating in the B-segment (also known as subcompact) to make your head spin. Thus, by focusing on those candidates most likely to make the cut -- which will be those car makers who already have a dealership network in the United States -- we will gain an understanding of the true cost of these cars to the industry. So who are the top contenders?
Cheep and Cheerful
Automakers with an established dealership network will be able to bring these vehicles to the U.S. market much more quickly than the much-talked about Chinese or Indian car companies that are now just as eagerly clamoring to capitalize in the U.S. as they have in their own respective markets. Let's simplify further by splitting the likely winners into two distinct classes: small and expensive for this freshman class (Ford Fiesta and the Fiat Panda and Nuova 500) and the "cheap and cheerful" models (Volkswagen/Skoda Fabia, Nissan/Dacia Logan).
Starting with the most likely arrival onto the burgeoning B-segment scene, Ford Motor Company said it plans to import the Ford Fiesta again. This model is much different than the first generation Fiesta, which some of us may remember as the hatchback that Ford imported as an alternative to the Pinto from 1977 to 1980.
Though it was not very popular when Ford imported it to the U.S. in the late 70s, the Fiesta has always sold well in Europe and is now quite an advanced car. The Fiesta now features Xenon headlamps on many models, which can spell trouble. If those lamps are used on the U.S. models, then expect the price of each lamp to be around $2,000, which will really impact the reparability of a front-hit vehicle on a car that should sell new at less than $14,000. Ford isn't the only automaker with its finger on the pulse.
As Chrysler struggles to produce cars that fit current U.S. market needs (namely the Panda and the 500), Fiats will likely make their way back onto U.S. roads via Chrysler/Dodge/Jeep dealers nationwide. Fiat has already sold over one million Pandas since its introduction in 1980, and Europe's motoring press dubbed the current model launched in 2004 the "European Car of the Year," and for good reason. The world-class car is equipped with many engine options, although Americans will likely receive the more costly 100-horsepower version, priced at over $17,000 in Europe. While not exactly cheap at that price, Fiat may also import the retro-styled Fiat 500, which is more expensive than the Panda but has a style appeal that is similar to BMW's MINI. Fiat's 500 Abarth, which is powered by a 1.4-liter Fire engine with an IHI variable turbocharger is ready to go head-to-head with the MINI Cooper S. These attractive "niche" cars are a great match for those Millennial buyers who are too young to remember how unreliable Fiats were when they were last sold here.
Speaking of leverage, the newly crowned "Biggest Car Maker in the World" Volkswagen (VW) AG, (Yes, VW surpassed Toyota in 2009 to become the world's largest auto maker) will likely leverage its Czech Republic-based Skoda company. VW's Skoda Fabia has a few positives right out of the gate. It is available at a low price and features the Volkswagen name, which is a major benefit since many in the U.S. are not familiar with Skoda. VW took over the Skoda brand and began manufacturing vehicles in the Czech Republic after the fall of communism. Under communism, Skoda produced 1100 CC rear engine Eastern Bloc cars as a means of basic transportation for those willing to buy them because of few other options. After communism, VW made short work of using its first-rate platforms as the basis for all Skoda vehicles, which it produced more economically than the VW version because of lower labor costs in the Czech Republic.
To go to the head of the B-segment class, VW needs to offer money-savvy U.S consumers a less expensive car that is slated below the Rabbit. The VW Polo fits this bill, but the Skoda Fabia is even more ideal, as it is even less expensive and has side airbags and Electronic Stability Control (ESC) available. Another option on the table for VW is to start importing the new VW Fox from Brazil, which is a much more modern version of the Fox that VW sold in the U.S. from 1987 to1993. Because it lacks side airbags and ESC, however, VW would need to invest significantly in its development to bring it up to snuff for the U.S. market. On the plus side, the favorable currency exchange with Brazil may help absorb some of those costs. There are a few other key auto makers on which we should focus, including Nissan-Renault.
The Nissan-Renault alliance could employ a tactic similar to VW to bring a low-cost car to the U.S. through a former Eastern Bloc manufacturer. In this case, Renault-owned Romanian company Dacia has been producing the Logan, a high-quality, low-cost car for Europe since 1999. Again, as with the VW Fox, the Logan is also built in Brazil, which could offer an attractive lower cost supply for the U.S. market. This alliance is also pursuing other avenues to drive its B-segment vehicles across other borders.
Recently, Nissan-Renault again extended its reach and partnered with Mahindra, an Indian company also hot on the heels of entering the U.S. market. Talk about an affordable car: Nissan-Renault now produces the Logan for the Indian market at 15 percent less cost than it does in Romania where it retails for under $8,000. In addition to being fully equipped with all the safety requirements needed to pass European safety tests, Logans feature flex fuel engines equipped to run on E85 to reduce their running costs. Dacia has also expanded the Logan model line to include some attractive crossover SUVs that could fill a growing market need in the U.S.
It is critical for us to educate ourselves about these potential B-segment entrants buzzing around and waiting to swarm the U.S. market because this phenomenon points to a trend that clearly indicates how car makers are leveraging their global operations to bring cars that will appeal to the changing U.S. market.
When fuel prices exploded in 2008, Americans first discovered the B-segment, and they haven't forgotten it...they are still appealing to consumers. On the flip side, introducing these potentially disposable vehicles could complicate the future of the entire collision repair market. The "cheap and cheerful" entrants of this class of car are very prone to totaling out because of their small size and low price. On a similar note, while the higher end models like the Fiat 500 and Ford Fiesta include advanced features and high performance, these both add to potential collision repair costs -- therefore increasing the likelihood of totaling out as well.
The potential impact of more total loss vehicles on the American collision repair marketplace could be huge in the form of fewer repairs, with the repairs that do occur becoming more specialized and costly. In this environment, more claim payouts for totaled cars would be a probable outcome, likely leading to different risk assessment scenarios for this class of car. If these tiny cars do make it into the U.S. market in significant numbers, then we will see change, and a lot of it -- across the entire industry.
Greg Horn is vice president of industry relations at Mitchell International.
