Are smaller cars coming to the US?

I noticed a few reports floating around about a potential partnership deal between Euro auto manufacturer Fiat and the US auto manufacturer Chrysler. A discussion of the possible partnership is discussed in this article.

So who benefits from this deal? According to the article, and my own views, it looks likely that both companies would benefit. Fiat is likely to gain access to US markets and will hold an equity stake in Chrysler, while Chrysler will have access to a small car line-up with little capital invested.

Consider the top-down analysis approach (macro and industry). What is happening in the economy that potentially effects the auto-industry? If we think back to last summer, the media was somewhat fixated on the price of gasoline...

So are smaller cars likely to be in greater demand? If so, who is already in this market?

As a side note, the Treasury is loaning Chrysler $1.5B to support it's financing arm. In this article, the author notes that Chrysler "plans to offer zero-percent financing on several models and expand lending to car buyers with less than ideal credit" what does this tell you about Chrysler's customer acquisition policy? Is this consistent with the current economic climate?