Autos: Not Your Father's...Whatever
When it comes to young car-buyers, the '70s and '80s haunt Detroit like a ghost. During the oil shock, the Big Three were late making the move toward small, fuel-efficient cars, and handed a new generation of penny-pinchers to Toyota (TM ) and Honda (HMC ). Later, U.S. auto brands compounded their error, offering horrible styling and quality to newly affluent baby boomers. Many fled to Mercedes-Benz (DCX ) and BMW. The resulting love affair fueled import growth for almost 30 years. The Big Three bled market share and eventually had to kill struggling brands like Oldsmobile and Plymouth.
That epic shift in loyalties explains why U.S. and foreign auto makers devote so much attention to Generation Y, today's 16- to 24-year-olds. The group already buys 850,000 cars a year, about 6% of U.S. vehicle sales. According to Toyota, about 63 million kids will be driving by 2010. "This generation is bigger than the boomers," says James Press, COO of Toyota Motor Sales USA Inc. "We need to build the same relationship with them that we have with their parents."
Imports still have an edge with kids. Because Toyota, Honda, Nissan (NSANY ), and Hyundai refresh their small-car lineups more frequently than Detroit, many of their models boast younger average buyers. But no brand -- import or domestic -- has truly locked up the loyalty of the youth market, despite millions spent on wild designs and brash marketing. The most aggressive looks, from cars like the Pontiac Aztek, Chrysler PT Cruiser, and Toyota Echo compact, all struck out with kids. Honda Motor Co.'s boxy Element hit the market with a splash last year, but it has lured more fortysomethings than hipsters. "A big mistake car companies make is they assume that because kids have three piercings that they want to drive something obnoxious," says Wesley R. Brown, an analyst at Iceology, a trend research firm.
LONG WARRANTIES. In truth, carmakers are discovering yet again that the primary selling points for kids are the same as 30 years ago: price and value. The average sticker price for a new car sold to buyers under age 24 (most of them buy used cars) is $15,000, says CNW Marketing Research Inc. Says Eric Noble, president of The Car Lab, which has studied the market for auto makers: "A youth car is just a cheap car."
Little surprise that two South Korean cars -- Hyundai Motor Co.'s $10,000 Accent and $13,000 Elantra -- have the youngest average buyers of any on the market, at age 24. It helps a lot that Hyundai has seriously improved the styling of its cars in recent years. But the company's biggest advantage comes from playing up its long warranties. Hyundai guarantees its cars for five years and 60,000 miles -- at least a year longer than a standard warranty. Engines and transmissions carry a 10-year, 100,000-mile warranty. Says Hyundai Motor America marketing director Paul Sellers: "That removes one element of risk." It also keeps ownership costs low for years.
Hyundai's long-term strategy is much like that of Toyota 25 years ago: Get younger buyers to graduate from its econo-cars to bigger and more expensive vehicles. In fact, the average age of Hyundai's buyers has been rising as it sells more SUVs, midsize cars, and its XG350 "near-luxury" sedan. Meanwhile, Hyundai hopes to secure its hold on young drivers by launching a low-priced compact SUV, the Tucson, this fall.
Toyota's Scion family of cars may be the industry's most radical step toward offering young buyers great value in an unconventional package. But even it has had just modest success. The jarring, slab-sided Scion xB compact sport-ute comes standard with automatic windows and locks, remote keyless entry, and a premium sound system that can read MP3 sound files, for just under $15,000 -- about $3,000 less than Honda's Element. Toyota sold 11,000 Scions in just five months, even though it was available only in California. And the cars attract younger buyers than Toyota's current 40-plus average. Still, the xB can hardly be seen as a teen magnet: Its average buyer is 29, and the more plain xA compact's average buyer is 32, according to CNW. That will rise even higher for the bigger, more expensive Scion tC sports coupe, which arrives in July.
And that's with Toyota practically hiding the cars from older buyers. Scion buys little network TV airtime; most ads run in select shows on Comedy Central and MTV. "We choose our programming very carefully," says Scion sales and promotions manager Brian Boulain. Scion also uses lots of "buzz" marketing, holding test drives at restaurants and popular music and clothing stores.
LONG IN THE TOOTH. Scion offers so much for such a low price that Toyota probably won't make money on the brand this year. And it'll have to hit sales targets of 100,000 vehicles just to make a slim profit by '05. Toyota has the strongest balance sheet and biggest cash hoard in the industry, so it can afford to sell loaded cars at little or no profit. "We take a long view," says Press. "We're lucky that we can operate this without having to worry about how much money each car is going to make."
U.S. auto makers, however, don't have that luxury. With their higher cost base and emphasis on big-margin trucks in recent years, GM, Ford, and Chrysler (DCX ) devoted little attention to the small-car market. All the domestic carmakers offer deep discounts on compact cars, but most of those models have grown long in the tooth. General Motors Corp. (GM ) will try to change that this fall, when it finally replaces its decade-old Chevy Cavalier with the Cobalt, a fresh-looking compact with interior craftsmanship that makes it competitive with Japanese models. GM has had some success targeting younger buyers with the $17,000 Pontiac Vibe -- the average age of Vibe buyers is 38, vs. 46 for all Pontiacs. Ford Motor Co. (F ) has no discernible youth strategy but sells its Focus compact and a stripped-down Mustang for below $17,000. The all-new Mustang coming next year will cost a bit more.
Detroit has tried to make up the lost ground in other ways, with little success. GM is importing the Chevy Aveo from its Korean operations -- a move that faltered when the car was temporarily pulled from the market for safety checks. GM also tried to leverage the huge inventory of used cars by styling some sporty body accessories and performance parts for second-hand Chevy Cavaliers and Pontiac Sunfires. But the effort flagged when GM didn't back it up with marketing dollars. Meanwhile, Detroit has yet to fully tap its big advantage: GM, Ford, and Chrysler could use their strong reputations for trucks by coming out with cheap SUVs. CNW's survey says 70% of young buyers want a truck of some kind.
Even if aging brands like Toyota and those from the Big Three figure out a way to reach kids, it's tough to keep them. GM grabbed young buyers when Saturn was launched in 1991, but the fledgling division couldn't keep them. Toyota could have the same problem once its thirtysomething Scion buyers move on. Surveys show that young buyers most admire BMW, Mercedes, Lexus, and Volkswagen. That is, they like the brands that consistently come up with great cars. In that way, they're just like their parents.
By David Welch in Detroit