Smaller cars may be "the new black," to borrow a fashion term, but as the trend toward downsizing continues, it's hurting profits for Ford, GM and Chrysler, especially since overall sales are still declining even as more people are buying smaller cars when they do buy.

The solution? All of the "big three" carmakers plan to increase their small-car offerings in an effort to retain buyers.

John Smith, vice president of global product planning for General Motors group said last week, "We are working on a couple of programs that are small and premium."

Last month's light-vehicle sales in the US dropped by 12 percent, while sales for the first quarter of 2008 were down 8% over all. Despite this, sales from smaller cars - vehicles like the Ford Focus and the Honda FIT - increased by 3.6 percent during the same time period. According to Ford Motor Co., the segment's share rose 2.1 percentage points to represent 17.8 percent of the total industry.

The trend in downsizing isn't limited just to cars. According to spokespeople from Ford, sales of crossover vehicles - SUV type autos build on car chassis - are now almost double those of traditional truck-based SUVs, and there is a marked increase in sales of vehicles with smaller, four-cylinder engines. In fact almost forty percent of vehicles sold in March had only four cylinders, the highest monthly market share for such cars since 2002.

Ford executives are calling the change in the market a "seismic" shift in consumer buying trends, but point out that while the cars being purchased are tending toward the smaller models, customers are loading them with options and features, which customizations will help profits...a little.

One has to wonder how the big three, Ford, GM and Chrysler, will compensate for their loss of revenue and slipping profit margins and customers flock to the small-car segments dominated by foreign makers. As yet, it remains to be seen, but the future looks grim.

In the words of Christopher Ceraso, an analyst from Credit Suisse, "While overall demand is weak, mix is even weaker. The profit hit from mix deterioration will be profound."