The Smart Car Gets Company

Toyota is bringing legitimacy to the Kei Car Market

Toyota is introducing a new micro-compact under the Scion moniker called the iQ. The iQ is the first real competitor against the Smart ForTwo. I see a lot of people look at the Smart Car and laugh at it, but I really see a lot of potential in the Kei Car market. With one of the major automakers entering the segment, the Kei Car market is finally achieving some legitimacy.

With the movement towards smaller more fuel efficient cars, these two seat minicars definitely could become the new craze. First of all, they get better mileage. They're lighter and they have smaller engines. It makes sense for automakers to try to push these cars as they try to meet federal MPG requirements.

Challenges:
The first challenge is price. The Smart Car starts a shade under $12,500 and the iQ should start about two grand above that. These cars aren't exactly cheap. I think there will be a bias against them for that because you can get more car for the same price. The pricing structure of cars in America is such that the more you pay the more you get. For these cars to succeed, they will need to prove they are worth the money. I don't know if better fuel economy and better maneuverability can do that.

The second challenge is safety. No matter how many airbags these companies put in these cars, there's going to be some concern. It's simple physics. The smaller car is going to take more of an impact than a bigger car because of its light mass. When you're driving around larger cars and SUVs, there is going to be inherent danger all around. The only real way to make the cars safer is to surround it on the road with vehicles of similar sizes. That doesn't appear like it will happen.

A third challenge is space. How much can a Kei Car hold? Can it hold groceries? Can it hold golf clubs? I personally feel the need for storage space in a car is overstated, but there has to be a minimum for what it can hold. The Smart Car can hold golf clubs, which means it should be able to hold groceries and whatever other small things you need to carry.

Why It Will Succeed:
Toyota getting into this market is a huge deal. I believe that automakers can create new markets if there is a demand and there is good execution. The SUV wasn't a staple of the auto industry until 20 years ago when Ford introduced the Explorer. I believe that when a brand like Toyota gets into this market segment, it increase the potential of the market to grow.

It's important to keep in mind that these cars are geared towards city folks. The maneuverability and small size should make it easier to get around the city and find parking. Furthermore, how much stuff do people in the city have to carry in their car? I think that the need for trunk space is not as big a deal as people think. The amount of money you save from having a more efficient vehicle probably can help make up the money to rent a vehicle when a trunk is necessary.

I think the safety concern is much more important than the price. The key thing is to market towards the city dwellers. These cars are more at risk where cars operate at higher speeds. In a city, there is less speeding and as a result, these cars will be less vulnerable to dangerous crashes. People aren't going to buy these cars if they don't feel safe in them. There will always be innovation in safety and these automakers must make sure that it trickles down into these cars.

It will be interesting to see how these Kei Cars do and whether they can finally be accepted by Americans.