The US market could face an over-supply of smaller, fuel efficient cars next year at a time when petrol prices remain stable, an industry forecasting firm said this week.

CSM Worldwide said that both GM and Ford are planning to launch small cars -including the European developed Ford Fiesta - and electric vehicles in 2010 to meet tighter fuel economy standards and attract buyers that have gravitated toward smaller cars, mostly from Asian manufacturers.

But fuel prices are expected to stay steady at today's levels of under US$3 per gallon. This will put manufacturers under "extreme pressure to channel smaller vehicles into the market due to CAFE and emissions standards [but this] will raise incentives and lower profitability", said Michael Robinet, vice president of forecasting at the firm.

Car makers are required to raise their US fleet-wide average to 35.5 miles per gallon by 2016 under a new law aimed at cutting carbon emissions and spurring development of fuel-efficient vehicles.

Globally, automakers and governments are estimated to spend about $428bn a year by 2020 under a world-wide push for promoting greener transportation, CSM said.

Increasing competition in the subcompact and compact segments, which have long been dominated by Asian automakers, may also hamper Detroit automakers' goal of making money on selling small cars, CSM said.

Craig Cather, president and chief executive of CSM, said, "It is very possible that US automakers will not achieve their objectives of selling small cars at a profit."

GM plans to launch its Chevrolet Cruze small car in the US in the third quarter of 2010, a vehicle it said was capable of reaching 40mpg in highway driving. GM also aims to launch the Chevrolet Volt electric car at the end of next year.

The top US automaker is counting on a series of upcoming fuel-efficient vehicles like the Cruze and the Volt to revitalise its lineup as it tries to reverse a long-running slide in market share after emerging from a government-financed bankruptcy on 10 July.

Ford is set to roll out the Mexican-built Fiesta small car in the United States by early summer and a redesigned Focus compact car later in 2010 - which the company has touted as two key US car launches next year.

Chrysler Group, now under Fiat management, also plans to bring the unbranded Fiat 500 subcompact to the US at the end of 2010.

The trend toward smaller, more fuel-efficient vehicles will continue as the US economy recovers and gas prices start to rise, CSM said. But a gradual increase in prices is not sufficient enough to drive demand for such vehicles, it added.

"We need a little bit more that that," Robinet said, citing petrol taxes or another oil shock as possible catalysts for boosting demand.

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