The End of Detroit (34 page)

All across the country, buyers of all types—male, female, white, black, Asian, Hispanic and so forth—increasingly don’t use sex appeal as the key determinant in their car purchases. First of all, what gets lost in the great quest to attract male consumers is that half of all vehicles are purchased by women, and women have a say in 80 percent of all automotive purchases. Of course, women love good design, but they put many other considerations ahead of styling, including durability, reliability, safety and comfort. The flood of working women into the car market in the 1980s was a key factor in launching imports’ upward climb, and it’s a factor that the smartest import companies have never forgotten.

Second, a car or truck these days costs a lot of money. The average vehicle costs $25,000 new, and there are dozens of vehicles, particularly sport utilities, that cost well above that. A car is a major purchase for many households, and it is one that requires days, weeks or months of research. While emotion definitely gets people interested in a vehicle, and a portion of the car-buying population actually will go out and buy one based on their reaction to its appearance, the grand majority of buyers are making their decisions based on practicalities. “Emotion is what I feel when I look at a new car,” said Joe Hammell, the Atlanta BMW 5-series owner. “I would buy a car that doesn’t look good to me, but I would never buy a car because it simply looks good.”

Buyers’ behavior is changing in another way: No matter how much fun they have behind the wheel, consumers these days have far less tolerance for cars that don’t live up to their expectations for quality and value. Two German brands, Volkswagen and Mercedes-Benz, are discovering that the hard way. Only five years ago, Volkswagen was the industry’s hot car company, enjoying an enormous renaissance from a dismal performance in the mid-1990s when its American sales dropped to only 49,000 a year. Throughout the decade, there was no more hotly anticipated product than the Volkswagen New Beetle, the rejuvenated version of the mass-market car that was VW’s trademark during the 1950s, 1960s and 1970s. In 1994, when VW showed a concept version of the Beetle called the Concept One, its display at the Detroit Auto Show was mobbed. Within a week, dealers across the country were deluged with deposits for a car that VW had not yet decided to build. The strong response signaled that people were ready for the Beetle to return, and eventually, VW went ahead with plans to build the Beetle in Puebla, Mexico. It arrived in the United States in the summer of 1998, with the auto industry enjoying a banner year.

There were waiting lists for Beetles at almost every VW showroom. There were circles worn in the grass outside showrooms from the footprints of people who surrounded the car to peer inside. Beetle owners got used to being waved at, their cars admired by passersby and borrowed by neighbors for test drives. The joy over the Beetle seemed endless, and it was the linchpin of a marketing campaign that turned VW into a truly hot company. Both the Beetle and the Passat mid-sized car were blowing out of showrooms, the latter helped by a rave review in
Consumer Reports
that said it was better than an Accord or a Camry. The endorsement brought people into showrooms who had never bought VWs before, and VW added to the excitement over its vehicles with memorably quirky ads that were the talk of the industry. As the Beetle had done for VW in the 1960s, it seemed destined to do for VW in the late 1990s: make it a cult car with young consumers. Volkswagens of all kinds seemed to be what the kids wanted, and the company basked in its long-awaited glory.

It seemed too good to last, and it was. When things got particularly tough for VW in the mid-1990s, it rolled out a two-year free-maintenance plan, covering most repairs and defects that a buyer might encounter, taking a page from Hyundai in an effort to convince consumers to come back. The plan remained in place as VW sales began to swell, but what seemed on the surface to be a great selling point ultimately backfired. VW dealers, who had grown accustomed to slower business, found themselves with more customers than they could handle. Their repair bays filled up with cars from the free-maintenance plan, requiring owners to make appointments three weeks and more in advance. Moreover, owners were discovering that their vehicles weren’t as trouble-free as they expected, particularly the people who had traded Japanese vehicles for them. There would be irritating issues, like turbocharged engines that misfired because of bugs in their computer chips. There would be long waits for parts that had to come from either Mexico or Germany. And there were some major problems, too, like a widespread ignition glitch that afflicted hundreds of thousands of cars.

VW also reacted far too slowly in building on the excitement over the Beetle. It took five years for the Beetle convertible, promised when the original car was introduced, to arrive in American showrooms. (Then, in a fluke of timing, it went on sale in winter 2003 just when much of the country was paralyzed by snow.) In Germany, VW’s parent company was running into financial trouble, forced to acknowledge that it had to address the quality issues, even as it made plans to expand its lineup into much more expensive vehicles, such as a sport utility called the Touareg and a luxury car called Phaeton. VW sales fell in 2002 and dropped again in 2003, proof that its moment of heat had cooled.

At the same time that VW was enjoying its rush of excitement, Mercedes had an unquestioned hold on luxury buyers. What the 1980s had been to BMW, the 1990s were to Mercedes. The company didn’t seem to take one wrong step. It launched a series of well-received vehicles, like the E-Class sedan, the M-Class sport utility, and a series of smaller cars such as the SLK coupe and CLK convertible. No longer was Mercedes a brand that appealed to the most conservative, stodgy luxury car buyers. It was hip and happening, thanks in part to a magical advertising campaign that featured an Elvis impersonator and a chorus line of autoworkers singing “Falling in Love Again.” As it came time to introduce the next version of its flagship S-Class sedan, it seemed that Mercedes was bulletproof. But it was not. The S-Class, which debuted in 1999, immediately was beset by complaints that its quality trailed behind that of competing vehicles from Lexus and BMW. Its starting price of $72,000 was well above the $55,000 cost of the Lexus LS 430, which had reached the market to rave reviews.

Mercedes’s sales didn’t plummet, but the buzz that it had enjoyed in the 1990s began to diminish, and by 2002 it had been passed by both Lexus and BMW. Quality issues began to surface. In 2003, it actually fell behind Chrysler on a J.D. Power survey of long-term reliability, stunning the industry. Then Mercedes took a step that further afflicted its brand image. It introduced the cheapest car in its lineup, the $24,950 C-Class coupe, based on the C-Class sedan. Mercedes had always had an entry-level vehicle, but the C-Class coupe was cheaper than anything that either BMW or Lexus offered. Among buyers of more expensive Mercedes models, the coupe caused grumbling that the German company was cheapening its reputation, something that neither it nor its sister company, Chrysler, could afford to see happen, since Chrysler was pinning its future on the idea of being connected with such a heralded brand. Even worse, the cars didn’t sell and Mercedes found itself with a growing supply that it attempted to clear out with discounted leases.

It was an indication of what could happen if a company strayed too far from what its customers expected. But Mercedes couldn’t be blamed for trying to reach beyond its traditional buyers in an effort to attract younger customers into its showrooms. That’s exactly what BMW will be hoping to do, too, as it brings in the 1-series later this decade. In fact, every single player in the auto industry is trying to figure out what the next big generation of consumers will want.

The Honda Element looks like a sport utility that married a Brinks truck, with as much headroom as a Greyhound bus. Honda calls it a dorm room on wheels, with seats that can be turned around, pulled out, folded flat, hosed off and stacked with gear. It is so unlike the rest of Honda’s lineup that it stands out like a Frank Gehry building in an industrial park. And it isn’t the only such oddity. The Toyota Scion xB seems like homage to a Chrysler minivan, but shrunken and brought down to curb level. It has the dramatic edges of a Japanese
animae
cartoon, all exclamations and drama. There aren’t any controls in front of the steering wheel to distract the driver. They’re off to the center above an ear-blasting Pioneer stereo, prewired for satellite radio. The sound system’s controls dwarf the fan and air-conditioning dials.

Ye Chen, a 25-year-old graphic designer from Brooklyn, is enamored of both, especially the Honda. “The Element is different. It’s not pretentious. It’s not trying to look good. It’s a box. I like it,” said Chen. Alisha Broberg of San Antonio isn’t interested in either of them. “I think the Scion is awful,” she said. “When did designers start thinking that boxy equals cool for the under-30 set?” Given an unlimited budget, Broberg, 24, said she’d replace her 1990 Jeep Cherokee with a Nissan 350Z, a Honda Accord or a Toyota RAV-4 SUV. Such polar-opposite reactions are just one illustration of how perplexing it can be for car companies to figure out what will appeal to buyers under age 25. Known to marketers as Generation Y, these customers have little buying power now, purchasing only 5 percent of the 17.2 million cars and trucks sold in the United States last year.

But just wait. By 2010, buyers born after 1977 will constitute 25 percent of the car market. And by 2002, they’ll be 40 percent, which, if sales stay at roughly the 2002 rate, means they’ll be purchasing 8 million vehicles a year. In an industry fraught with competition, and beset with marketing experts who dissect buyers’ behavior to the specificity of a DNA molecule, it isn’t too soon for the auto companies to start worrying. Honda and Toyota, otherwise known for their general conservatism, are employing the most radical approaches. One of the biggest champions of Honda’s approach is its recently retired chief executive, Hiroyuki Yoshino, who believes Honda needs to keep a fresh supply of customers coming into its showrooms. “If you’re young, you have a young future,” said Yoshino. Consumers in his generation “have only so many years left. For example, cars like Cadillac capture a certain generation and they age with the car. You’ve got to get them young.”

Honda has a secret weapon, he said, in its robot, Asimo, who is an icon with Japanese children and is becoming widely known in the United States as well. “Small kids are so attracted to that robot,” said Yoshino. “If small kids come to like Honda because of him, it will be a help to us later.” It’s no accident that Asimo, who walks and talks, moves his arms and legs, and nods in recognition, is four feet tall and proportioned like a child. That’s so children will find him approachable, Yoshino said. “We’re not just miniaturizing a large robot,” he said.

Toyota’s approach is different but just as unique. In 2003, it created an entirely new nameplate, Scion, which will eventually house a collection of vehicles meant to appeal to the trendiest slice of the Generation Y market. Scion went on sale in June 2003 in California, and was set to roll out nationally over the next year. Its initial lineup includes the xB and the xA, a subcompact car that seems to be a marriage of a Toyota with a VW Golf. Both Scions are based on cars sold by Toyota in Japan, where the xB is sold as the BB and the xA is called the Ist (pronounced “east”). Toyota hasn’t introduced a new brand since Lexus in 1989, and there was plenty of debate over whether it needed to add another brand, or whether the original Toyota nameplate would suffice.

Opponents of the separate approach noted that in the 1970s and 1980s, Toyota did great with baby boomers, so there was no need to branch out. But the company’s research, and surveys by industry analysts, showed that Toyota had a fairly stodgy image with the children of those buyers. Even though Toyota’s buyers, at an average 41.1 years of age, are younger than their counterparts at GM, Ford or Chrysler, the company decided that it had to do something different to appeal to Gen-Y. And one of the biggest advocates of the idea was Fujio Cho, Toyota’s chief executive. He admitted that he had no feel for the market himself. “I’m not the kind of person who can tell [what young customers want],” he said at the 2003 Detroit Auto Show. But he added, “This will have a tremendous strategic influence 10 or 20 years in the future. If we can capture them at 15 to 24 [years of age], we can enjoy their business for years to come.”

Toyota, in its typical way, has studied these consumers inside and out—literally. It knows that they’ve gone to the movies more than seven times in the previous six months, spend up to 30 hours a week listening to music another 7 to 10 hours a week playing sports, eat out three times a week and visit a museum maybe once every six months. They may don hot-colored jackets for outdoor activities, but they don’t like bright colors in cars, so the Scions will be offered in the same muted tones that are on Lexus automobiles. To start, Toyota has relatively low expectations for Scion. It hopes to sell about 100,000 a year eventually, once it fills out the lineup with another car, the xC, which will reach the market by the time the company goes national with the brand. It priced the first two cars daringly low, given that the average vehicle in the country costs $25,000. The Scions each will cost less than $14,000. And there’s a twist. Scion buyers will be able to pick out all kinds of features for their cars, kind of like outfitting a condominium. They can choose between a manual or automatic transmission; select the style they want for the wheel covers; choose the colors of the lights behind the dashboard gauges (you can have an amethyst radio display), and choose among different reflector lights and seat covers, which are available in a leopard print. Toyota dealers, who are spending $125,000 each to set up separate Scion displays in their showrooms, will relay the choices to Toyota and then the car will be outfitted at one of the company’s shipping centers and sent to the dealer within seven days. This customizing process, known as “tuning,” is a widespread trend in California, where Honda has been one of its biggest beneficiaries. (The phrase is borrowed from the process of tweaking the valves of an engine so that it features a distinctive roar.)