Photographer: Daniel Acker/Bloomberg

Toyota Finally Gives Up on Its Scion Brand

  • U.S.-only brand's models to be sold as Toyotas as of August
  • Sales have declined three straight years to one-third of peak

Toyota Motor Corp. is discontinuing Scion, the U.S. youth-targeted brand just entering its teen years, as sales slump to less than one-third their peak reached a decade ago.

As of August, Scion models will be sold as Toyotas, according to a statement Tuesday. The world’s largest automaker started selling Scions in 2003 and used the brand to train top U.S. executives and try out sales and marketing promotions including no-haggle pricing and prepaid maintenance plans.

The case for keeping Scion around as a test bed for funky cars and change-of-pace retailing practices was becoming increasingly difficult to justify as sales lagged. After the initial xA hatchback and xB wagon drew strong demand, deliveries peaked at 173,034 units across just three models in 2006. Last year, Scion sold just 56,167 vehicles, including a small number in Canada and Puerto Rico.

“Scion didn’t get the support it needed to recover from the 2008 recession,” said Stephanie Brinley, an analyst at IHS Automotive. “And one of the problems in trying to appeal to young people is they got hurt by the recession as well. They haven’t been buying cars.”

Toyota didn’t specify how the company will support the 1,004 dealers selling Scion vehicles. Resolving franchise agreements with dealers of discontinued brands can be costly: Ford Motor Co. reported a $339 million charge related to dropping Mercury in 2010.

Bob Carter, head of Toyota’s U.S. operations, told reporters Wednesday that he doesn’t expect a special charge against earnings to pay for ending Scion. Costs associated with the decision will be minimal because Scion operates in dedicated sections of existing Toyota showrooms, he said.

Dealer Reaction

John Horton, president of San Francisco Toyota & Scion, said the company hasn’t told him whether or how dealers will be reimbursed for their costs while building up the brand. He also said he’s glad Toyota will be able to focus its resources on a single non-luxury division.

“When they brought out Scion, they didn’t have the pinpoint advertising that the digital age has brought us,” Horton said. “The brand is not as important today as it was then. They can go after the buyers they want for each model individually.”

Jim Lentz, Toyota’s North American chief executive officer, said in the statement that “Scion has allowed us to fast-track ideas that would have been challenging to test through the Toyota network. Our goal was to make Toyota and our dealers stronger by learning how to better attract and engage young customers,” and that was accomplished.

After beginning sales of the FR-S sports car in 2012, Scion went through a dry spell for new products as Toyota prioritized its namesake brand and the Lexus luxury line. The company dropped the iQ and xD small cars, then introduced the iM hatchback and iA sedan last year. The latter model is a re-badged Mazda2 built by Mazda Motor Corp.

The brand showed some initial signs of life after iM and iA debuted. Scion had its best fourth quarter in seven years, boosting deliveries by 42 percent to more than 16,500 units. At 32 years old, its buyers are still the youngest on average in the U.S. market. The brand was targeting about 80,000 deliveries this year, Andrew Gilleland, Scion’s vice president, said in an interview last month at the North American International Auto Show in Detroit.

Sustaining Scion’s late-2015 momentum with an all-car lineup was going to be challenging with nationwide gasoline prices approaching $1.50 a gallon for the first time since 2009.

New Generation

Toyota launched Scion to appeal to Gen-X customers who liked anything except what their parents were buying, said Michelle Krebs, a senior analyst at Now, the Millennials, a bigger and younger generation born starting in the early 1980s, are having a bigger effect on auto purchases.

“Millennials have gone mainstream,” Krebs said. “They aspire to well-established, highly respected global brands like Toyota and luxury brands like Audi and BMW.”

During 2015, 27 percent of Toyota’s U.S. buyers were Millennials, Carter said. “Of those buyers, Toyota as a brand is more aspirational than Scion was,” he said. “That’s definitely good news.”

In addition, Carter said, some potential Millennial buyers were unaware of Scion or confused about the kinds of cars it offers.

Product Plans

Scion dealers had at least one future product to look forward to, called C-HR, that may have met American consumers’ growing demand for compact crossovers. Instead, the model will be positioned below the RAV4 in the Toyota brand’s lineup. C-HR was due to begin sales around May 2017, Gilleland said last month.

The only model that won’t make the jump from Scion to the Toyota brand will be the tC sports coupe, which ends production in August. 

Scion’s 22 dedicated employees will have the opportunity to take on new jobs at Toyota’s U.S. sales unit, as will the brand’s regional sales representatives. In addition to Lentz, other high-ranking Toyota executives that worked for the Scion brand include Mark Templin, now an executive vice president for Lexus International; and Jack Hollis, Toyota’s U.S. marketing chief.

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