Gas prices just don't measure up

WASHINGTON -- Shoppers at Celebration Chevrolet in Milford, Va., stroll past the Prizm compact cars and bypass the small Cavalier sedans.

It matters little that the cars carry rebates of up to $1,250, or that they can get 30-plus miles per gallon of gasoline.

''They go right over to the pickup trucks,'' said Celebration salesman Al Collins.

The pickups include one of the dealership's hottest sellers, the Silverado 1500, priced at from $16,000 to $31,720, depending on the model and equipment chosen. It gets 18 to 21 mpg.

Even though fuel prices are at their highest level since the early 1990s -- regular unleaded is $1.39 in Milford -- Americans remain uninterested in buying small cars. As a result, automakers and dealers are offering incentives and deep discounts to consumers in an effort to move those models. It's not a matter of generosity.

The U.S. government requires automakers to meet corporate average fuel economy (CAFE) standards -- minimum average fuel economy for all cars and trucks sold in a given year. For cars, that standard is 27.5 mpg. For light trucks, which include sport-utility models, it is 20.7 mpg.

Selling more fuel-efficient vehicles helps automakers meet those standards. Selling fewer puts the car companies in jeopardy of paying tens of millions of dollars in federal penalties.

But the more economical vehicles generally are the smallest, ''which are the ones people don't want to buy,'' said George C. Peterson, president of AutoPacific Inc., a global auto marketing research firm in Tustin, Calif.

So the automakers and their dealers offer rebates and incentives to keep the small cars moving while they collect profit on larger cars -- and on trucks, which not only have a lower CAFE standard, but are also counted separately from cars under current federal rules.

In those rare cases where small cars are selling well, as is happening with Ford Motor Co.'s new Focus and Korea's Hyundai models, mileage is, at best, a third consideration, say auto dealers and industry analysts.

The Focus is selling because it is new and has ''broken out of the mold of bland, boring small cars,'' Peterson said. Hyundai cars are selling because they have the best warranties -- 10 years/100,000 miles on engines and other drivetrain components -- of any car sold in America, analysts say.

Nonetheless, Peterson said, only 5 percent to 6 percent of Americans want to buy small cars, compared with 44 percent who want sport-utility vehicles.

A historical portrait of auto sales in the United States illustrates the point. Auto retailers sold 5.2 million small cars in this country in 1985, compared with 4.2 million last year and 3.8 million projected for this year, according to an analysis by Salomon Smith Barney Inc.

The small-car share of the U.S. new-vehicle market slid from 33.4 percent in 1985 to 24.7 percent in 1999; and it is expected to fall to a 24 percent share this year despite the introduction of the Ford Focus, the comparable Toyota Echo, and the aggressive use of rebates and other sales incentives, says the Salomon Smith Barney market survey.

General Motors' Saturn Corp., once the jewel of the U.S. small-car business, is struggling. Saturn's sales are down 10 percent from last year and show no immediate signs of improving, not even with this year's introduction of the mid-size L-series cars.

Making matters worse, Saturn's once highly touted, no-haggle pricing program, which attracted numerous imitators, is beginning to strangle the company in the marketplace, analysts say. While other automakers are loading their small cars with rebates to get them moving, Saturn is loath to do so for fear of violating its no-haggle policy.

That hits Saturn with a double-whammy, Peterson said. ''Saturn cars are simply too old (in basic design) to compete. They are, in fact, the last small cars that the auto industry will be able to build this way -- bland, boring,'' Peterson said.