Young, Funky, Hip...Toyota?

It's aiming umpteen new models at the youth market

With a flick of Atsutoshi Shibuya's wrist, a dart sails effortlessly into a board mounted next to a shiny new Toyota at the Mega Web showroom in central Tokyo. Shibuya, 33, is a leading dart player in Japan, and darts is a sport that's considered hot among young Japanese. So Shibuya, wearing an unbuttoned yellow bowling shirt with his name emblazoned across the back, is here to give young passersby a tip or two on their game--and maybe lure them into taking a closer look inside at the brand-new WiLL VS models. With their sharp styling and dark colors, the cars bring to mind the elegant menace of stealth fighters. Young guys like stealth cars, you see.

Hip hobbyists, "fun" marketing, stealth autos: Does this sound anything like Toyota Motor Corp., supreme marketer of the blandly consistent and provider of wheels to a class of buyers best described as well-heeled and middle-aged?

In a word, no--but the company's top brass sure wants to change all that. For all its prowess--and its $100 billion in annual sales--the carmaker has a glaring problem, admits President Fujio Cho: "Our cars haven't been funky enough to appeal to young drivers." In Japan, Toyota's recent share of twentysomething buyers hovers around 30%, vs. 45% in 1987. A similar trend holds true in the U.S., where the average Toyota buyer is 47, vs. 40 for Volkswagen and 44 for Honda Motor Co., two other hot importers.

Toyota's inability to click with young drivers stunted sales growth in its home market for much of the 1990s and contributed to a worrying loss of market share. In Japan, Honda has been more successful appealing to the young.

But Toyota's domestic sales are picking up sharply, so much so that its market share in Japan, which accounts for 40% of sales, is back to record levels. That's because Cho and other top executives have been racing to close the generation gap for several years, targeting young buyers with the distinctive-looking Vitz compact and the MR-S sports car (called the MR-2 Spyder in the U.S.).

The momentum is picking up. Over the past 20 months, Toyota has rolled out six new cars designed specifically for young Japanese auto buyers. And signs are proliferating that Toyota may want to make a bold move to win the youth vote in the U.S. The elements of its strategy: accelerating the rollout of new wheels--and, possibly, the creation of a whole new brand of autos--targeted at budget-minded buyers in their 20s and early 30s. "We really feel the need to target models for a younger generation," says Cho. He says the company will reach a decision on the third brand soon.

A new brand would be a radical move, and it's not clear if Cho would go that far. Sources inside Toyota Motor North America Inc. say the American division does not want a third brand, which would require an expensive new dealership network. Also, margins would be nowhere near as fat as on the Lexus. Besides, strategies targeting fickle young buyers have a way of backfiring in the U.S.: "The only kind of cars that carmakers make are new cars, and the real youth market is for used cars," says James M. Hossack, vice-president of market researcher AutoPacific Inc. Even the youthful Toyota Echo has had only middling success in the U.S., while in Japan, where it sells as the Platz, it has taken off.

STUBBORN. But Toyota is one stubborn carmaker. It will be chasing the young and the restless with whatever it takes, including millions in marketing campaigns and many, many more models. Next up: the Matrix, a sport wagon based on the Corolla and designed in Toyota's California studio.

This strategic shift is most evident in Japan, where the company is willing to submerge the Toyota brand altogether to clinch a sale with someone under 30. Already, popular Toyota youth cars there, such as the bB hatchback (that stands for "black box") studiously avoid any signs of their parentage, except for a lone Toyota symbol adorning the steering wheel. The avant-garde WiLL VS has no obvious markings identifying it as a Toyota model. That does little to build customer loyalty to the Toyota badge, but it does attract car buyers wary of purchasing a mainstream brand.

The bB and WiLL VS are just two of six cars based on the Corolla or Vitz that Toyota has launched in Japan since the middle of 1999 to capture young buyers. These entry-level models are heavy on attitude but light on the wallet, averaging around $12,000. To keep costs down, both cars share platforms with other models. The Europe-designed Allex, which was launched in January, is a youth-oriented derivative of the new Corolla, the best-selling car in Japan, and the bB is one of five models sharing a platform with the No. 2-ranked Vitz.

Toyota officials say they see a payoff already. "We've started to resonate with the youth market," says Cho. Toyota won't disclose numbers on the age of its customer base in Japan, so it's hard to say just how much of a lift has been provided by the youth market. But healthy demand for its entry-level cars indicates greater buzz among the younger set. Toyota dealers say they see more fresh faces at their outlets. Customers aged 20 to 30 now account for 30% to 40% of all buyers at Toyota's Vista sales outlets nationwide, up from 20% to 30% five years ago.

As a result, Toyota's sales in Japan have picked up at a time when many other auto companies are stuck in the doldrums. No less than seven Toyota models dominate the Top 10 list of best-selling cars for the year ended last month, including the boxy bB and its sibling, FunCargo, a compact with retractable rear seats for hauling bulky objects such as snowboards. "Toyota has succeeded in appealing to young people in general," says Howard Smith, an ING Baring Securities analyst.

CINDERELLA WHEELS. So far, Cho has not pursued a separate brand strategy in Japan as he chases the youth market. But he is experimenting with a different way of selling. One of Toyota's five dealership chains has been rechristened Netz and now targets entry-level buyers. That means tearing up the usual marketing plans. One Netz outlet in suburban Tokyo lures customers with an on-site pizza parlor and playground. If Cho ever does push for a third brand in the U.S., a Netz-like dealership network would have to be developed.

The company has had its misses. One model designed to appeal to young women was deemed just too cute by young female buyers--it was supposed to look like Cinderella's pumpkin carriage.

And now, the next challenge is to reach out to Tokyo's angry young men--the guys with orange tea-colored hair who are the self-appointed arbiters of cool. To accomplish that task, Toyota has something else in mind: the WiLL VS model, the brooding compact with the sharp edges that made its debut earlier this month. "We made a car that doesn't look Japanese," remarks Tatsuhide Hoshi, a ponytailed member of the WiLL VS design team. And someday, somewhere, the company may make a new line for the young that's not even called Toyota.

By Chester Dawson in Tokyo, with Larry Armstrong in Los Angeles

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