Toyota's perky youth brand is adding dealers but losing sales as
2nd-generation models struggleMark Rechtin Automotive News March 3, 2008 - 12:01 am ET
LOS ANGELES - Toyota's cool, quirky Scion youth brand may still be hip but is no longer hot.
Sales, year-on-year, have dropped for 16 straight months. Since August, monthly sales have declined from each previous month, even though dealers have had two redesigned models in their showrooms during that period.
The first-generation Scions were hits right out of the box in 2003 and
2004. But generation two has struggled. All of which begs the question: Is this a brand built to last?The changeover of two of Scion's three models - the boxy xB and the xD hatchback - dragged on for months and helped depress sales 24.8 percent in 2007 to 130,181 units. But even with new vehicles, Scion can't seem to pull out of its slump.
"We seem to be having more sales peaks and valleys than previously," said Farlon Smith, general manager of Beechmont Toyota-Scion in Cincinnati. In the past, Scion routinely notched 15,000 to 20,000 sales per month. But January sales were 7,782 units. In January 2006, Scion sold 10,701 vehicles with about 60 fewer dealers than it has now. The average sales per outlet during that period dropped from 11.9 to 8.1.
Scion had 856 dealers as of Jan 1, 2005. But as sales soared in 2005 and 2006, more dealers piled on, even if they weren't in hip, urban neighborhoods.
Currently, 963 of 1,224 Toyota dealers carry the brand. As sales per dealer decline faster than overall volume, one Toyota insider questions whether dealers will give Scion the same share of mind as when vehicles were flying out the door.
Toyota executives insist the soft market is hurting all players and that Scion's grass-roots marketing strategy requires time for the new vehicles to gain sales momentum.
Changeover fumbled
But Jim Lentz, president of Toyota Motor Sales U.S.A., concedes that Scion mishandled last year's model changeover.
Fearing that holdovers could harm the brand's hipness, Toyota stopped production of the old xA and xB in December 2006. But production of the vehicles had already been slowing, and dealers quickly ran dry of product. Meanwhile, the carryover tC coupe was starting to show its age.
The redesigned xB didn't reach showrooms until March, and the new xD didn't arrive until August.
"We underestimated the loss of momentum from the dark period for those two vehicles," said Lentz, who once ran the Scion brand. "The way Scion is marketed, it takes longer to get traction."
The new xB's January sales of 3,319 topped the old xB's January 2007 numbers but were behind the January 2006 total.
The new xD trailed year-ago sales of the xA it replaced and is well behind where the xA was two years ago. One reason may be new competitors.
When Scion started, there was scant small-car competition outside the Hyundai Accent and Kia Rio. But last year the Honda Fit, Nissan Versa and Toyota Yaris accounted for more than 220,000 sales. Scion executives say their vehicles are aimed at a different constituency, but they do worry about the fresh competition.
"There are at least two Scion customer profiles," said Tom Libby, an analyst at J.D. Power and Associates. "One is just looking for the lowest price, and this Scion profile could be hurt by the subcompacts.
"The second profile is the young buyer who wants a Scion because it is cool," he said. "Their friends have one. For this customer, the Yaris and others have no impact. But this second customer profile is limited in size."
According to Power data, the average xD buyer is 42 years old - comparable to other cars in the category. The average buyer of the Fit is 45; the Versa, 43; and the Yaris, 42.
Lentz says Scion customers still come from the desired demographic.
"As we hit spring, I think we'll see some good sales results," Lentz said in an interview. "Sure, we'd like to see more customers, but we're still seeing the right customers. The tC's average customer is under 25 years old. The overall Scion customer is in his early 30s, and primarily he is new to the brand." Dealers say the second-generation products are good enough - the word just needs to spread.
"The changes in the product were all the things the customers said needed fixing," said Smith of Beechmont Toyota-Scion, which sells 18 or 20 Scions a month.
"Customers complained the speedometer gauges should be easier to see, so Scion went digital," Smith said. "Then they added things like a standard armrest, cruise control and more lighting."
Just the same, Smith said sales aren't what they were.
"Before, it was build your base, then increase. With the changeover and selldown, it was a different twist to not increase."
"We're still getting the urban trendsetters," he said. "We're getting a lot of repeat and referral buyers."
More new vehicles?
John Mathews, managing partner of Pat Lobb Toyota of McKinney in Texas, said most of his Scion customers are first-timers to the brand. The kids who bought first-generation Scions are still driving them, not yet ready for a trade-in.
Mathews says his store's Scion sales, days' supply and days-to-turn are "great." But he is concerned that the second-generation vehicles did not change enough.
"If we are staying with just three products, we need to replace them with something really different from the last," Mathews said. "It's important that the car is always being refreshed. But with every product cycle, it needs to be as though we were starting over."
Lentz said he would like Scion's long-term product plan to have more models - "so we don't risk that lost momentum as we go through model change."
He said the xB's awareness and volumes are on the rise but added that "the xD is not there yet."
"Ask me in 90 days and I'll tell you how comfortable I am."