Despite Hefty SUV Sales, Small Cars Are Surging, Reversing a Sales Slide

Brandweek, May 15, 2000 by Jeff Green

The fervent efforts of two aging auto giants are having the unexpected side effect of re-invigorating a car segment that many analysts and car companies had given up for dead: the workaday world of small cars. Many observers credit the aggressive marketing efforts behind the Toyota Echo and the Ford Focus with helping kick start sales in the small car segment this year, reversing a trend fueled by defections to trucks and larger, low-mileage vehicles coming off lease.

Sales of the new Toyota Echo compact car have nearly single-handedly moved the so-called lower small sub-segment into triple digit gains (104%) for the 2000 model year and nearly as aggressive sales improvements (94.1%) so far in calendar 2000, according to Ward's Automotive Reports.

While Ford's Focus hasn't had as dramatic an impact on its own segment within the small car market, sales of the Focus and its aging sibling, the Escort, are far surpassing the performance of the Escort alone and the subsegment is up 3.5% for the year.

Overall, small cars are up 7.7% this year, after barely holding steady in 1999.

Both Ford and Toyota have invested heavily in marketing dollars and are staking their reputations on using small cars to lure early buyers of the huge echo boom into one day becoming loyal customers of their more profitable larger car and truck divisions.

Toyota spent $14.7 million toward the end of 1999 and $4.2 million through February on Echo, according to Competitive Media Reporting. Ford spent $42.8 million in 1999 and $18.3 million this year, per Competitive Media Reporting.

Toyota sequestered seven under-35 employees into its Genesis group (Brandweek, Nov. 8) to create the "Revolution" campaign that touted a trio of models, including the Echo, Celica and MR2 Spyder. The project has since been revamped with some members now in other departments.

Ford, on the other hand, loaned cars to trendsetters, experimented with live TV spots and has created dozens of customization options in an attempt to create a buzz around Focus.

Though the live spots with TBS' Dinner and a Movie host Annabelle Gurwitch did not score well with critics, they apparently did not hurt Focus sales, which Ford maintains have met or exceeded targets. For the second round of Focus ads beginning in March, Ford ditched Gurwitch in favor of an Internet-based campaign allowing consumers to choose what scenarios should appear in the TV ads.

But while Echo and Focus have done well, it's really too much to ask of the first generation efforts to tap immediately into the fountain of automotive youth, said Wes Brown, auto analyst for Thousand Oaks, Calif.-based Nextrend.

While both models are good first efforts for auto companies plagued with quickly aging buyers, Brown still pegs Volkswagen as the company best positioned to win new customers with cars that attract the youngest buyers for its trendy Golf, Jetta and Beetle models. Jetta alone garnered $117 million in marketing dollars in 1999.

"The next generation is going to have more money than any generation before and they are likely going to be less loyal than their parents to one particular brand," he said. "They'd [all automakers] like to have them in as early as possible."

While Brown expects the next generation of Focus and Echo to come closer to the mark, for now, VW has captured that coveted position.

Honda, which has its Civic entry and is due for a new model next year, attracts the next youngest buyers--with a median age in the mid-30s-- but like VW, doesn't yet have as much of an investment in the larger vehicles that Toyota and Ford hope to move prospects up to as they age.

"Right now Volkswagen has such a lock on the segment for buyers under 35 that everyone else is a distant second," Brown said. And it's a lot easier to build vehicles to satisfy buyers as they age than to try and build youth vehicles at an automaker with old buyers."

Ironically that was how Toyota captured its share of the U.S. market in the first place, offering low-priced small cars to struggling baby boomers as they started to claim their piece of the American dream.

When the boomers hit it big, they retained their Toyota affinity and bought their way up into Camrys, Avalons, Lexus and, most recently the Tundra pickup trucks. Thanks to the steady growth in boomer income, Toyota has one of the strongest emerging truck lineups and a cadre of ultra-loyal buyers willing to follow it into each new segment.

Unfortunately, as is the case at Ford, DaimlerChrysler and General Motors, those buyers also are getting older.

At 47, Toyota buyers are much older than those at rival Honda and with most of the smallest cars from the big four appealing to older, pragmatic buyers, many of the youthful buyers have turned instead to ultracheap Korean imports entering the market.

The emerging group of Gen X and Gen Yers that Toyota likes to call the "Net-Gen" are going to be larger in five years than the baby boom, said Steve Sturm, vp-marketing at Toyota.

Echo is already tracking at about 37 years old for early buyers and the Celica is hitting as low as 32, he said.