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Forbes

Will Scion Change The World?
Jerry Flint, 06.26.07, 6:00


Toyota Motor's Scion--a division within a division--could be the new millennium version of the original Volkswagen Beetle. The Beetle, when it came to the U.S., was like nothing else on the road. The two-door sedan was small, ugly and underpowered. The earliest versions do not even have a blinking turn signal. What the Beetle did have was an attractive price, just $1,600 back in 1958.

In the Beetle's heyday, most of us in Detroit did not understand why all those college kids were buying that ugly, noisy car that could hardly make it up a hill even with the wind on its tail.

Nevertheless, that Beetle was the Beginning of Something Big--actually several big things. It marked the success of the small car in this market, and the revolt against fins and "longer, lower, wider." It was also in the vanguard of the foreign invasion. Today, foreigners account for more than half the car sales in the U.S. and are now gaining sales and market share in light trucks.

That early Beetle sold 100,000 cars in 1959 when total U.S. car sales were about 6 million. VW's (other-otc: VLKAY - news - people ) biggest year, when it had a few more models besides the Beetle, was 1968, when it sold 569,000.

The Scion model we all think of, the box-shaped xB, is also like nothing else on the road. The first xB was small, ugly and underpowered, but like the early Beetle, it was affordable and lovable in its own funky sort of way.

Last year, the entire Scion lineup sold 173,000, but only 61,300 were the xB. That is 61,300 sales for the whole year out of a total U.S. market of 16.6 million cars and light trucks. Last year, the best-selling Scion was actually the tC, a small, attractive, low-priced coupe, with 79,100 deliveries. Unlike the xB, the tC is conventional in appearance.

The third Scion model in the original crop, the xA, was a simple four-door hatchback that looked like an old Korean design and sold about 33,000 a year. I would call that a flop.

Contrary to some of my earlier pronouncements, I now admit that Scion all together is a success. In marketing Scion, Toyota (nyse: TM - news - people ) downplayed traditional advertising venues such as newspapers and magazines. Instead, it focused on Internet advertising, displaying the car at special events, such as parties, concerts, art shows and public test drives, and word-of-mouth "viral" advertising, which some think is the way to get your message out to a young, hip crowd.

Oh yes, Scion's premium auto system will play short animations and video clips. I do not understand the value in this. Then again, I am not going to see Pirates of the Caribbean 3, either.

Toyota sells Scions at a fixed price and, allegedly, with no bargaining (like Saturn). All models are well equipped to start. On the xB, the buyer only chooses the color and transmission. Standard are air conditioning, cruise control, side curtain airbags and an iPod adapter. Even stability and traction control are standard.

Scion buyers can also choose from a list of accessories, which Toyota adds at a port facility or the dealer installs. The typical buyer takes $1,000 worth.

At present, Toyota builds all the Scion models in Japan, where, thanks to that undervalued yen currency, they come here priced low. If the division is to grow, to 300,000 annual sales or more, it is reasonable to think that Toyota will someday build at least some models in the U.S.

Scion is now at a turning point, as it going through its first model change--something that Toyota management promised it would do frequently, to help maintain the buzz with its trendy buyers. We will know in a few years whether this strategy has been successful or whether Scion has become just another slowly growing mainstream operation.

The new Scion xB, just on sale, is nowhere near as boxy as the original model. It's 167 inches long, which still is short, but is a foot longer than the original xB. It is also three inches wider, so inside room is up 36%, and the back seat is spacious. The horsepower, 158, is up significantly from 103 in the first-generation xB. The price is up, too, to an average sticker of $18,000 (versus $16,000 for the previous version). I wonder whether the new, less quirky xB will attract more customers or just turn off Scion loyalists.

One area where the new xB is a disappointment is gas mileage. My editor writes me: "That new xB gets 28 miles per gallon on the highway. From a four-cylinder with 158 horsepower? My Acura TL gets 29 on the highway and has a V-6 with 258 hp."

It's true, the xB's fuel economy is not exceptional--a sore point for a vehicle designed for price-sensitive customers, especially since it's being introduced just when gas prices are near an all-time high.

Late this summer, Toyota is replacing the second original Scion model, the old xA, by something called the xD, a vastly better little four-door hatchback. I predict healthy sales for this model, but it will face fierce competition from other small cars from Honda Motor (nyse: HMC - news - people ), Nissan (nasdaq: NSANY - news - people ) and Toyota.

I do not know which way Scion will go, but I think that the nameplate is at a turning point.


I have to agree with this guy. The xB's mpg is poor for a four cylinder. Not a good move on Scions part with gas prices where they are and where they are going.