Perspective

The compact segment has seen its share of ups and downs in the past few years. When gas prices were above $4 in the summer of 2008, interest in compact vehicles — or anything that consumed less fuel — was thriving and improved sales of these vehicles followed. In fact, Polk recently confirmed that the subcompact category (or "lower small") more than doubled from 2005 to 2008 as a result of sales of vehicles like the Nissan Versa and Honda Fit.

When oil costs normalized, so did consumers' eagerness to jump into a smaller vehicle, creating an opening for the utility-driven crossovers that serve the needs of families and outdoor enthusiasts alike — making 2009 effectively the year of the crossover. Crossover traffic boomed on Jumpstart Automotive Group properties in '09, capturing over 6% share of shopping by year's end, at a growth rate of over 50% compared to its share in '08.

More recently, over 330,000 compacts were sold last August, mostly as a result of the government CARS, or Cash-for-Clunkers, program. Compacts were prevalent for the program because nearly all of them met the fuel efficiency standards set to qualify for the discount. This past August, understandably only about half as many compacts left dealer lots.

Despite the nearly 50% drop in sales from August 2009 vs. August 2010, compact sales volume is up 6 percent this year (excluding August). What's more telling is the staggering growth in interest in small cars thus far this year. From April through August, compact share of shopping on Jumpstart properties has grown an average of 12% per month vs. the year-to-date average. When comparing the same time period last year, compact shopping share has increased by an average of 23% (see chart below) during the spring and summer months.

And while compact sales have increased gradually this year, they haven't improved nearly at the pace of the shopping activity. In the chart below, the share of shopping for compacts is compared to the share of actual vehicle sales for the compact segment. As demonstrated here, shopping share has grown exponentially over the past six months. Share of shopping for compacts in August is up 21% vs. the year-to-date average, while sales share is down 3% in August vs. year-to-date (see chart below).

When comparing compact shopping to the rest of the primary vehicle segments, it's the only one with any type of significant growth in share over time (see chart below), while most of the popular segments show little growth year-to-date. In August, compact shopping share improved by 87% vs. January, while sales share ironically fell by 8%.

With all of these factors demonstrating a greater growth in compact vehicle purchase intent, this begs the question: is the year of the compact upon us? The last four months of the year could potentially drive a heftier share of market towards compacts if the current shopping demand being revealed results in later term purchases.

After a generation of desire for trucks and SUVs, Americans could finally be warming up to smaller, more fuel efficient and compact vehicles. Interestingly, fuel costs haven't changed much, sitting below $3 all year, and families aren't getting smaller. The wave of interest in the compact segment, traditionally divided into three buckets — upper small, lower small, and small specialty — has been convincingly driven by more vehicles to choose from in the segment, heftier marketing support (Ford Fiesta, Chevy Cruze, Kia Soul, etc.) and, more importantly, noticeably better product.

A segment for decades dominated by Corolla and Civic now boasts new entries that deliver more car for the money, especially in the lower small and specialty groups. As evidenced by the chart below, the trajectory in shopping for lower small (like the Fiesta or Versa) and small specialty (like Mini Cooper and Scion xB) is greater than that of the traditional favorites in the upper small category.

Advanced interior options and safety features have made the small car more appealing, in addition to the socially responsible consumer looking to make a green statement without the need to pony up thousands more for a hybrid or fiddle with a new technology like EV.

The CAFE standards that have been set forth by the Obama Administration (a fleet average of 35 mpg) also have something to do with these developments. The domestic automakers were not well represented in the segment in the past, and many of the imports have gotten much more creative about their approach to the small car with brands like Scion and Kia challenging traditional design standards.

Most recently, the Ford Fiesta has set the gold standard for marketing excellence in the category. Through the company's Fiesta Movement program, they turned to consumers to drive inclusion of many of the features and bells and whistles on the vehicle. Ford is enjoying a powerful opening into the compact market with its 2011 models recently hitting dealerships behind tremendous momentum.

Interest in Fiesta, considered a Subcompact or Lower Small, has soared on Jumpstart's auto shopping sites over the past eight months as a result of this momentum, with 65% growth in July, and 30% growth in August, vs. the year-to-date average. In fact in the month of July, Fiesta was the most researched vehicle on Jumpstart's properties across all categories. It may not be a stretch to say that Fiesta has almost single-handedly elevated interest in an entire segment. Share of shopping in the segment for Fiesta surpassed historic subcompact leaders Yaris, Versa and Fit as of June.

Kia's goofy yet effective hamster ad for the Soul has expanded interest ahead of similar Scion and Nissan models. The Mini Cooper, considered a trailblazer in the segment, is regaining interest and consideration, while the quirky, recently launched Nissan Cube is earning new shoppers. VW's upcoming re-launch of the Jetta has translated to strong interest in the vehicle, garnering 23% growth in August vs. January.

While Toyota is absent from the growth list aside from Prius, Yaris still commands 13% shopping share of the lower small group (behind only Fit and Accent) and Corolla 12% of the upper small category (second only to Civic). Toyota's Scion brand, which had recently fallen on hard times, is showing strong consideration growth for its xA, xB and xD models.

Honda, also not one of the growth leaders in the segment, continues to lead in share of shopping for the lower small segment with Fit capturing 21%, while Civic delivers in the upper small segment with 17% share of shopping.

In the past two months, interest in compacts has seen double-digit growth. Specific vehicles, including the Fiesta and Kia Soul, have contributed heavily in the shopping gains, as displayed in the chart below.

Biggest gainers in the Compact category in segment share of shopping for Summer 2010

Largest declines in the Compact category in segment share of shopping

If trends stay true to historic patterns, the growing interest in compacts during the past four months should lead to an uptick in sales for the remainder of the year. If the data is any indicator, the Fiesta should hit the market with a strong sales surge, and the Jetta, Caliber, Soul, Cube and Scion vehicles should enjoy sales gains.

The small vehicles available today are considerably better than the patchwork small cars of yesteryear, when you were lucky to have power windows, let alone power steering available in a compact. Today's models are fully equipped with the highest standards in safety features, luxurious interiors, and, of course, excellent fuel economy.

Is this shopping growth a sign of pent-up demand or simply a lot of window shopping? In a very irregular economy it's difficult to tell, but all signs point to the compact segment representing a larger share of the pie in the coming months.