Going Young at Chicago Auto Show

In their battle for primacy in U.S. auto market, GM and Toyota are pushing cars hard to the under-30s

As the Chicago Auto Motor Show opens this week, it's hard to miss the importance the top two auto makers in the U.S.—General Motors and Toyota—are placing on the youth market.

Sure, Toyota (TM) is introducing a redesigned Highlander SUV, but all the excitement around Toyota's displays will be for two new Scion models, a replacement to the xB and a new sedan, the xD. Toyota is holding onto details of the new products until its press conferences. But in a nod to the young, digitally savvy customers that make up Scion's target audience, Toyota says it will conduct a simultaneous virtual press conference, complete with computer-simulated versions of the new 2008 models, for the media and members of the Second Life community, an online gathering site at www.secondlife.com where Scion has a presence.

Toyota's Lifestyle Brand

Toyota launched Scion in 2003 because it was getting worried that the average age of its buyers was creeping up too high into the 40s. The average age of the Scion buyer today is 36, and 54% of the car's sales are to the under-35 set. The xB, as everyone has seen in hometowns and highways, has been a hit with baby boomers who like the odd youthful package. Honda saw the same trend with boomers buying its square Element SUV, which was designed around the needs of college students.

Scion is shaping up to be a true lifestyle brand within the car category, and a case study for what other carmakers looking to broaden brand appeal. Last year, Scion, which has been an unqualified sales success, launched its own clothing line and music label, as well as its Second Life campaign. And Toyota dealers, which have gotten along with small Scion showrooms mostly attached to their existing dealerships, are discussing the need to move fast to build new showrooms to handle the flow of foot traffic and sales.

Toyota's U.S. division expects all its dealers to renovate their showrooms by 2010 under an architectural plan called Image USA II. That plan calls for a greatly enlarged Scion space, including an entrance separate from the Toyota showroom. So far, 85 dealerships have made the changes.

It's no wonder. Last year, Toyota sold 173,500 Scion models. And though the breadbox-styled xB is the most distinctive and seemingly ubiquitous model around suburban byways and parking lots, it was the zippy-styled tC coupe that led the pack, with 79,100 sales. Collectively, Scion scored a 1.1% market share. Remarkably, Toyota is selling more Scions than Ford (F) sells Volvos. It almost outsells Ford's Mercury division and already sells more vehicles to retail customers than Mercury. With no crossover SUV, Scion far outsells Suzuki already. And with one more vehicle, it will likely surpass Subaru. That's all without a dedicated sales channel.

Pontiac's Go-Go G8

Pontiac may not be the most obvious choice to counterpunch Scion. But that seems to be in part what GM (GM) is hoping for the future. At this week's auto show, GM will unveil the Pontiac G8, a rear-wheel-drive sedan that will mercifully replace the awful Grand Prix, and which is somewhat restyled from GM's Australian Holden division. The last time GM tried to import a Holden to Pontiac—the GTO, whose styling was panned, with disappointing sales to follow—it wasn't a raging success.

The G8 show car unveiled this week is close to the production version of the GT model, including the 362-horsepower, 6.0-liter V8 engine and optional six-speed manual transmission. The 2008 production will offer two models: G8 and G8 GT. Each comes with a four-wheel independent suspension with traction control, electronic stability control, and 18-in. aluminum wheels (19-in. with a sport package).

The base G8 model comes with a 3.6-liter DOHC V6 with variable valve timing, rated at 261 horsepower (194 kW). It's paired with a five-speed automatic transmission with manual shift mode.

The GT's small-block V8 engine comes with a displacement-on-demand feature that alternates automatically between eight and four cylinders depending on driving conditions. The G8's interior is far superior to the Grand Prix, and is in keeping with GM's makeover of its interiors, which are increasingly on par with those of higher-priced German cars.

Online Drive

But GM is trying to restore Pontiac's image as a performance and tuner-car division, as it once was, in the hopes of drawing more young and youthful-minded boomers.

For example, Pontiac has also set up shop in Second Life in an effort to attract younger buyers in real life, setting up a virtual dealership where people spend real money trading in fantasy. Second Life claims more than 1.2 million visitors per month, and many believe it could become as big a player as social networking sites such as News Corp.'s (NWS) MySpace.com and video-sharing sites such as Google's (GOOG) YouTube.com. Nissan (NSANY) has also set up a presence in Second Life.

Pontiac's average buyer is in the mid-40s, and the typical Second Life user is a male in his early 30s. That's the heart of Pontiac's growth market, GM executives believe.

Pontiac is hardly GM's only youth opportunity at this week's show. Saturn has long been a brand GM has positioned to take customers from the Japanese and Koreans. Indeed, of all GM's brands, it has the most cross-shopping with Asian brands. But Saturn's most recent entry-level model, the Ion, hasn't been well received by the auto press or young car buyers. To remedy that, Saturn is dropping the Ion as of this fall and replacing it with the Opel Astra, which GM sells in Europe.

Targeting Youth with a Hatchback

"The Astra rounds out our portfolio with a smart-driving, well-equipped small car that shares the European designs evident in all our new vehicles," said Jill Lajdziak, Saturn general manager. The new Aura sedan, too, was developed by Opel, though it's not a rebadged Opel car like the Astra (see BusinessWeek.com, 10/4/06, "Saturn's Awesome Aura").

The Astra, whose price won't be set until later this year, is Europe's second best-selling car after the Volkswagen Golf. GM's Opel and Vauxhall divisions sell more than 500,000 Astras per year. But that doesn't mean it will be a hit in the U.S. Volkswagen, for example, struggles to sell the Golf, recently renamed the Rabbit, in the U.S. There's a feeling among some carmakers that the coming generation of first-time car buyers will demand versatile hatchback cars more than their predecessors. The U.S. can be a hostile climate for subcompact hatchbacks. In fact, Ford, disbelieving the forecasted trend, is dropping hatchbacks from its redesigned Focus lineup this fall.

The Astra will come with an electronic stability control system and traction control standard on all three-door Astras and available as an option on five-door models. A 1.8-liter, four-cylinder engine will deliver 140 horsepower. Safety features include six standard air bags, active head restraints, and collapsible pedals that help protect occupants in a front-end collision. Optional features include a large, two-panel sunroof only available on five-door models, heated cloth or leather seats, and a seven-speaker sound system.

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