I really chalk it up to arrogance and denial. They have underestimated the Japanese and American buyer's loyalty to domestic brands. They honestly believed we would buy American even to our detriment. I think that mentality exists even today in Ford, GM and the UAW. There is still a lot of denial in GM and Ford's corporate offices.
The Scions aren't really all that exciting, IMO. They look good, run decent but Toyota delivers the car at the optimum price point for first time new car buyers. They give a lot of value for the price and the car will give mostly trouble free service to the buyer. Ford and GM have lost two consecutive generations to the Japanese. I really don't know how they get it back other than selling better cars for way less money. It will take at least a decade to win back any appreciable market share they have lost.
Actually they did for a couple of years. Then they were too busy plotting the death of the Focus to bother with it anymore.
For this to work though it requires good entry level cars or what I call bread and butter vehicles. If they never get these buyers then they won't have then moving upscale later. Ford and GM have ignored car sales for so long I think they have forgotten how to play the game.
I think it is a good move. They need a Thunderbird too.