Downsizing Comes To Detroit----With A Vengeance

Implications: Shift in buying patterns picks up steam in 2008-leaving the Detroit Three with a revenue shortfall.

Analysis: The big shift to small cars this year threatens the revenue and profitability prospects of the Detroit Three.

The change in buying patterns accelerated in March, while overall sales tanked. The problem for the domestic automakers: They are still way too under represented in the vehicle segments that are growing.

All three say they aim to bolster their small car portfolio.

Total U.S. light-vehicle sales in March dropped by 12%; sales for the first quarter fell 8%. But sales of small cars-from the Honda Fit to the Ford Focus-rose 3.6% for the first quarter. The segment's share jumped by 2.1 percentage points to 17.8% of the total industry.

The downsizing trend can be seen elsewhere, too. Crossover sales are now almost double those of truck-based SUVs. And sales of four cylinder engines are spiking: Nearly 40% of vehicles purchased in March contained four cylinders, overtaking six cylinders and showing the highest monthly share since 2002.

All of this begs a question for Ford, GM and Chrysler: How do they compensate for revenue and margin loss as buyers continue to leave the truck segments dominated by the domestic brands in favor of car segments dominated by import brands?

It must be said that consumers are adding pricier content into these smaller vehicles, but that will only partially offset the hit.

For Ford to succeed in the long term, it has to pump up its product offerings in the super competitive segments of small and mid-sized vehicles. The company's global product development strategy aims to do just that, though most of the new vehicles won't arrive until the next decade.

Meanwhile Chrysler is scrambling to develop more fuel-efficient vehicles and will likely rely on alliance partners to supply them.

The company already has an arrangement with Nissan Motor Co to build about 20,000 Versa-based subcompacts for Latin America starting next year.

Detroit's love affair with big pickups, bigger SUVs and a  failure to pay attention to an important market segment  has finally caught up to them.