Stalled in the USA: Europe's Small Cars
When automakers reported how many cars they moved in the U.S. in May, small fuel-sippers were the clear favorites. Ford Motor (F) sold 53% more Focus compacts than it did a year ago, while Nissan's (NSANY) tiny Versa sold 15% more. And Volvo (F), Volkswagen (VLKAY), and BMW? All sold fewer of their small models.

A head-scratcher, that. European carmakers should be cleaning up. After all, small cars rule the road on the Continent, where the ancient horse and buggy infrastructure virtually requires smaller cars. But here's the dirty secret: Volvo, VW, BMW, and their peers are limiting the supply of some of their cars in the U.S. because they aren't profitable.

Earl J. Hesterberg, chief executive of Group 1 Automotive (GPI), a Houston megadealer with two Volvo stores, says he could sell 5 to 10 times as many S40 compact sedans if Volvo reinstated a lease deal it dropped in March to suppress sales. But "there isn't a scenario where we can sell cars under $30,000 at a profit," says Volvo Cars of North America President Doug Speck. [snip]

While a 13% dollar to euro exchange rate shift hasn't helped, it's high labor costs that are the primary culprit: in Europe unions remain powerful...

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