Recent announcements from Toyota and Nissan indicate new competition in the small-car segment. Toyota leads with the Yaris, a small bubble of a car that will appear in the United States as a 2007 model in spring of 2006. Nissan isn't far behind, with the Versa, another small car that will be available in sedan or hatchback versions. The hatchback version looks particularly good and will probably meet with the most success. The Versa will also employ some tech we don't usually see in the shallow end of the pool, such as Bluetooth cell phone integration and satellite radio capability. Nissan also has a small concept roadster called Urge, which should debut at the Detroit Auto Show.
Although Honda hasn't announced anything yet, it sells the diminutive Jazz in Japan and should have an easy time introducing it in the United States. The driving factors for this market are certainly high gas prices and probably also the increasing urbanization of the United States, where most people live in areas where parking and traffic make smaller cars more practical. I would also expect interest in this segment to drive DaimlerChrysler to finally decide to release the smart car in the United States.