DETROIT (Bloomberg) -- It's a sign of the times when Cadillac is staking its comeback on a compact car that boasts fuel economy approaching 40 mpg.
Cadillac's ATS sedan is one example of how carmakers at the Detroit auto show are putting new emphasis on small, powerful models with more fuel-efficient engines as SUVs and even hybrids take a back seat.
General Motors Co.'s luxury brand brags that the ATS will run on a turbo-charged four-cylinder engine that kicks out 270 horsepower while still offering robust fuel economy.
At the same time, Ford Motor Co. said it's dropping plans for a hybrid version of its popular Escape SUV.
While past auto shows have been stocked with gas-electric hybrids and SUVs, slow hybrid sales have brought a dose of reality to the industry.
Carmakers are realizing they can give buyers what they want and avoid the expense of electric motors and batteries by shrinking cars and wringing better fuel economy from traditional gasoline engines.
"The advantages of hybrids are getting harder to justify," said Scott Corwin, a vice president with consulting firm Booz & Co. in New York. "It's the cost differential. Consumers are rational and they understand the cost of ownership."
Hybrid sales slowed last year to 2.2 percent of U.S. auto sales, from 2.4 percent in 2010, according to researcher LMC Automotive.
The challenge with selling hybrids is that gasoline engines have become more efficient and the cost of hybrids haven't come down fast enough to justify the added expense for many buyers, said David Champion, senior director of the Auto Test Center at the Yonkers, New York, magazine Consumer Reports.
He pointed to Honda Motor Co.'s Civic, which gets 32 mpg in combined city and highway mileage, and the Civic hybrid, which gets 44 mpg.
The hybrid version of the car saves a consumer $322 in fuel a year, according to the Environmental Protection Agency.
Given the added sticker price, it would take more than six years to get the money back on a similarly equipped car at today's fuel prices.
Mike Jackson, chief executive of auto retail chain AutoNation Inc., said that 75 percent of customers come into his showrooms and want to talk about hybrids.
Only about 2.5 percent of AutoNation sales are hybrids.
"What happens from the 75 percent consideration to the 2.5 percent commitment?" Jackson said. "They look at the price premium for the technology, which is already subsidized and discounted, and say 'the payback period is too long; not for me.' It's a back-of-the envelope conversation on the part of the American consumer."
After 10 years of hybrids in the U.S. market and oil near $100 a barrel, consumers still aren't ready to pay the premium for hybrid models, said Reid Bigland, president of Chrysler Group LLC's Dodge brand.
Bigland this week introduced the Dodge Dart, which won't have a hybrid version when it begins production in the second quarter.
"The delta you get in fuel-economy lift with a hybrid is continuing to shrink because of the efficiencies with the internal combustion engine" through direct engine, turbochargers and advanced transmissions, Bigland said. "The pure economics are a tough case."
The Chevrolet Volt plug-in hybrid gets people into the showroom, said Chris Perry, Chevrolet's vice president of U.S. marketing. With fewer than 8,000 sales last year, consumers often went to a Chevy dealer to look at the Volt and bought something else.
Half the price
Often, buyers will look at the Volt and then opt for a Cruze compact or Equinox SUV. The Cruze starts at $16,740 and gets a combined 30 mpg or more depending on which version of the car the consumer chooses.
That's about half the price of a Volt even after a $7,500 federal tax credit.
"Some people come in and say, 'The Volt is fantastic but for my needs the Cruze is better,'" Perry said.
Carmakers are even trying to squeeze more out of their expensive sports cars.
Mercedes-Benz is bragging about fuel economy for its vaunted SL coupe.
On the eve of the Detroit auto show, Daimler AG CEO Dieter Zetsche bragged that the new $119,000 coupe is lighter and more fuel efficient that its predecessor.
"Saving weight means saving gallons," Zetsche said.
The new 2013 SL is 22 percent more efficient that the car it replaces, Zetsche said. With the 306 horsepower V-6 engine, the car gets about 35 mpg, Mercedes said on its website.
Role of hybrids
Hybrids will still be an important part of every automaker's strategy. Ford showed off two new hybrid versions of its Fusion family sedan at the auto show.
At the same time, the company said it would cancel plans for a hybrid version of the Escape.
Toyota's new Prius C, meanwhile, costs just $19,000 and gets 50 mpg.
The biggest opportunity for fuel efficiency remains with the gasoline engine, not electric cars or hybrids, for the next decade, said Xavier Mosquet, a senior partner at Boston Consulting Group in Detroit who was one of the advisers to the U.S. bailout of GM and Chrysler.
The battery in an electric car still adds $10,000 to the price of a car at current technology costs and it will be difficult to reduce that penalty in the near future, he said.
By contrast, improvements in an internal combustion engine may improve fuel economy by 40 percent with costs of $2,000 to $2,500 per model by 2020, according to a July 2011 Boston Consulting study Mosquet helped write comparing costs and benefits of gasoline engine improvements versus hybrid and electric car technology.
Other changes such as weight reduction and better aerodynamics may cut fuel use by 5 to 10 percent each for costs ranging from $100 to $250 per car by 2020, Boston Consulting said in the study.
The challenge for carmaker will be long-term fuel economy goals. Environmental Protection Agency regulations mandate that carmakers meet a fleet average of 54.5 mpg by 2025.
Sergio Marchionne, CEO of Fiat SpA and Chrysler Group LLC, said the skepticism over electric cars and plug-in hybrids "is well justified."
At the same time, he said, "if anyone thinks they will meet future EPA rules solely with internal combustion engines, they are smoking an illegal substance."