Ford, General Motors and Chrysler are launching smaller, more fuel efficient vehicles in Japan to better compete against German automakers.

Ford will launch the Focus five-door hatchback next summer with a two litre engine and fuel economy of about 13km/litre, the smallest Ford sold in Japan.

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“Clearly, Ford set both the price and [fuel economy] with German rivals in mind,” an industry insider told the Nikkei.

Big SUVs such as the Explorer and Escape now account for around 80% of the firm’s Japanese sales. But “we will grow the Focus into a new pillar,” said Toshio Morita, president of Ford Japan.

GM will release the Cadillac ATS in March. Equipped with a two-litre direct injection turbocharged engine, the compact luxury sport sedan can travel 12.2km/litre. And at a base price of JPY4.39m (US$58,600), it will be roughly 20% cheaper than comparable German models.

Chrysler has just launched the Lancia-built 900cc Ypsilon as its first new model in Japan in four years. The company and parent Fiat merged Japanese headquarters functions in July and have since worked together to expand the local sales network. About 20% of Fiat dealerships in Japan now carry Chrysler models but the plan is to raise it to 100%.

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The Detroit Three sold about 12,000 vehicles in Japan in the first 11 months of 2012, already exceeding the tally for all of 2011. New models are expected to boost sales for a fourth consecutive year in 2013.

Competition with German automakers, which control 80% of the imported car market in Japan, is expected to intensify further, the Nikkei said.