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Carlos Osorio  /  AP
General Motors Co. CEO Dan Akerson announces plans to spend $190 million to build a new Cadillac small car at its Lansing Grand River plant in Lansing, Mich., Thursday. The automaker said it will add 600 jobs and a second shift to produce the new vehicle in the city.
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updated 10/28/2010 5:37:31 PM ET 2010-10-28T21:37:31

With fuel economy increases looming, U.S. automakers are placing big bets on small cars, adding new models, investing in factories and hiring workers at a rapid pace.

General Motors Co. said Thursday it will add a new small car to its Cadillac lineup. It plans to spend $190 million to upgrade its Lansing Grand River plant to build the car, and will add 600 jobs to the plant's work force of 1,100.

Also Thursday, Chrysler Group LLC said it will invest $600 million in its Belvidere, Ill., assembly plant to build new cars starting in 2012. Chrysler didn't say which cars will be built there, but at least one of them will likely be a small car to replace the Dodge Caliber, which is currently built in Belvidere. The investment won't create new jobs, but the company will retain the 2,349 jobs currently at the assembly plant and a nearby parts stamping plant.

Those announcements were only the latest in the small car investment boom. Earlier this month, GM said it will start producing two new small cars — a revamped Chevrolet Aveo and the new Buick Verano — at a now-shuttered plant in Orion Township, Mich. And Ford Motor Co. is in the process of a $950 million transformation of its Michigan Assembly Plant from a truck plant to a car plant that will produce the new Ford Focus small car starting next year.

Ironically, U.S. small car sales have been anemic this year, overshadowed by bigger gains in the truck and sport utility segments. Small car sales were up 7.3 percent through September, compared to a 10.3 percent increase in overall sales, according to Autodata Corp. Large pickup sales were up 18.7 percent.

Aaron Bragman, an analyst with IHS Automotive, said people tend to buy smaller cars when gas prices are seeing wild fluctuations, as they did in 2008. But since gas prices have stabilized this year, people have gravitated toward larger vehicles.

As new fuel economy standards creep closer, however, automakers will have to get people to think smaller. Cars, pickups and SUVs will need to meet a new average of 35.5 mpg by 2016, up from 27.5 mpg today, and the government is developing plans for future vehicle models that could push the standards to between 47 mpg and 62 mpg by 2025.

Bragman said the downsizing of cars, SUVs and trucks will be a necessity to meet those standards.

"Regardless of what people want to buy, this is what they're going to have to buy," Bragman said. "There's a wholesale shift in mindset that's going to have to happen."

Luckily, small cars aren't what they used to be. The Mini Cooper, which went on sale in the U.S. in 2002, proved to U.S. consumers that small cars didn't have to be cheap and stripped of amenities, Bragman said. The new Ford Fiesta subcompact has options like heated leather seats, a moonroof and a hands-free entertainment system.

GM CEO Dan Akerson said the new Cadillac small car will be a sporty, rear-wheel-drive car that will compete head-on with the Mercedes C-Class and BMW 3 Series.

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"We've ceded this segment of the market to our foreign competitors for too long," Akerson said. GM didn't reveal the name of the car or when it will go on sale.

Another reason for the small-car investments is new labor agreements that make it profitable for automakers to build small cars at their U.S. plants. GM will be the only car company making a subcompact in the U.S. when it starts producing the Aveo in Lake Orion next year. The company says it can build the car profitably because of a new labor agreement that lowers the wages of 40 percent of the plant's workers.

United Auto Workers President Bob King said the Lansing Grand River plant, which will produce the new small Cadillac, won't be cutting current workers' pay. But any new hires at the plant will get about half that pay, or $15 an hour.

"We know it's pretty hard to support a family and everything on a $15 an hour wage, but we also know that we have to keep General Motors and Ford and Chrysler competitive," King said.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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