Compact cars in focus at Frankfurt auto show

FRANKFURT — Germany's highly profitable auto makers are rolling out important new vehicles in the ferociously competitive small car market at this year's Frankfurt auto show.

The Volkswagen Up subcompact, Mercedes-Benz's streamlined B-Class hatchback and BMW's electric-powered i3, aimed at crowded cities with its zero-emission motor and lightweight, carbon-fiber reinforced body, are all major bets on what will appeal to buyers — and help earnings through an uncertain year ahead in which global demand may slow.

The mood ahead of this year's show is strangely mixed, upbeat thanks to recent strong profits but clouded by the European government debt crisis, which has depressed consumer optimism and growth forecasts for the year ahead.

But this year's 64th International Motor Show will nevertheless be in sharp contrast to the last show in 2009, when the recession cast a pall. Organizers say 1,007 exhibitors have signed up, compared with 781 last time, and the confidence of the home carmakers is such that VW luxury brand Audi is splashing out for its own test track.

The show opens to journalists on Tuesday and Wednesday at the Frankfurt Messe exhibition center. Chancellor Angela Merkel will open it to the general public on Thursday, after which it will run through Sept. 25.

VW, Daimler, BMW and luxury carmaker Porsche AG all turned in strong earnings so far this year, marked by fat profit margins on strong sales of high-margin luxury vehicles and SUVs in emerging markets such as China, Brazil and Russia. But growth in emerging markets is expected to wane, and the U.S. recovery that fed export earnings is also now in doubt.

Moody's analysts lowered their outlook for automakers to stable from positive. They think governments in emerging markets may have to take steps to curb overheated growth and ward off inflation, while rising prices of raw materials will shave profit margins. They estimate U.S. demand will grow 8.1 percent instead of the 12 percent in a previous forecast while Western Europe is seen growing a meager 0.3 percent.

New small car offerings face a highly competitive European market, where there are lots of difference makes and low prices and profit margins. But subcompact and compact cars are increasingly popular, with 38 percent of the market up 5 percentage points from 10 years ago.

They are also in demand among the emerging middle class in developing countries who don't yet have the money for high-margin luxury cars.

When it goes on sale later this year, Volkswagen's tiny, gas-efficient Up will play an important role in the company's bid to overtake Toyota as the No. 1 carmaker by volume by 2018. It offers maximum interior room on a minimum carbon footprint and technology usually found on bigger cars such as a braking sensor to help prevent low-speed collisions.

VW is trying to position the Up as much more than a bare-bones, low-cost vehicle by equipping it with technology and safety features more associated with larger cars, such as City Emergency Braking, in which sensors detect imminent collisions at low speeds and automatically apply brakes.

At 3.54 meters, the Up is about the same size as the Fiat Cinquecento, but bigger than other competitors such as Toyota's 2.98-meter iQ and Daimler's 2.69-meter Smart fortwo. Short front- and rear-wheel overhangs give it a long wheelbase for its small size and help maximize room inside, and the pronounced "smile" on the front grille adds a whimsical touch.

New three-cylinder, 1-liter gasoline engines give what the company says will be mileage of 4.3 liters per 100 kilometers, or 55 miles per gallon, for the bigger, 75-horsepower version. An electric model is planned.

Analysts at IHS Global Insight think VW could sell 300,000 VW-badged Ups, with more under the company's SEAT and Skoda brands. The less successful Brazilian-made Fox, by contrast, peaked at 200,000 in 2007.