Competitive Intelligence

DaimlerChrysler's Youth Brand: Competing with Toyota's Scion Growth Strategy

The line would be a spin-off of either Chrysler's Dodge or Jeep brands tailored for Generation Y consumers - the 65 million Americans born between 1977 and 1994, Chrysler Group chief executive Dieter Zetsche told the Detroit News Monday.

The automaker has been considering the idea for a year and has developed three concept vehicles for the marque, according to a company source who said Chrysler expects to make a decision by the end of the year.

Gen Y consumers are expected to purchase 1 in 5 vehicles in the United States by 2010, according to J.D. Power and Associates.

Marketing experts say the impact of Generation Y could rival or even exceed that of baby boomers. “This is a trend Chrysler cannot ignore,” said Michael Robinet, an automotive analyst with CSM Worldwide in Farmington Hills.

A youth-oriented brand could introduce Chrysler to buyers who might otherwise ignore the smallest of Detroit’s automakers. The average Dodge customer is 44 years old, while Jeep buyers average 43 and Chrysler brand buyers average 50, according to J.D. Power and Associates’ Power Information Network, which studies dealer sales data. The average age of buyers of all vehicle brands is 46.

“Some people feel you need to have a $12,000 car, either built domestically or imported from somewhere else,” said George Murphy, Chrysler’s senior vice president for global brand marketing. “Some people believe you’re basically served with used cars, which is 75 percent of what people under 25 buy.

“I haven’t seen much to tell me that our current brands can’t reach younger target audiences with the right products.”

Any new brand will not be affiliated with the Chrysler brand, which Chrysler is trying to move upscale with premium vehicles such as the new 300 sedan. It would be more likely a spinoff of Jeep or Dodge, which have younger average buyers.

Chrysler is likely to seek out a joint venture partner, perhaps in a low-cost country such as China or South Korea, to share engineering and parts for the new brand. Because of high labor costs, it’s often impossible to make a profit on small, low-price vehicles produced in the United States.

“You should look for some cooperation for execution of this idea,” Zetsche said, but that does not necessarily mean Japan’s Mitsubishi Motors Corp. and Hyundai Motor Co. in South Korea. Both companies are partially owned by DaimlerChrysler and linked with the automaker on several existing vehicle projects.

Toyota rolled out its youth-oriented Scion brand last year. The compact and uniquely-designed cars start at around $16,000 and are meant to be a test case for Toyota as it tries to discern the preferences of up-and-coming buyers. Toyota hopes to sell 100,000 Scion vehicles in the United States in 2005 after a staggered roll out this year.

“Toyota is breaking new ground that is likely causing most other mainstream manufacturers to take a look at their youth strategies,” Robinet said.

While Ford Motor Co. has won over young buyers with its Focus sedans and hatchbacks and General Motors Corp. has reached Gen X and Y customers with its Saturn brand, neither has launched a nameplate aimed squarely at those groups. Honda has also found room for the youth-targeted Element SUV within its lineup without creating a whole new brand.

But there are no guarantees that youth-driven brands or designs will ultimately attract youthful drivers. Scion draws more Gen Y buyers than any other marque — 19.1 percent of sales are to consumers 25 and under — but the average age of Scion buyers is still 40, according to J.D. Power and Associates. And Honda’s Element has an average buyer age of 43.

In the end, Chrysler may decide that adding another brand is too costly and too risky, given the already crowded landscape of vehicle nameplates in the United States.

But if Chrysler rolls out new, low-cost cars, Dan Frost believes he can sell them. “We don’t offer (young buyers) a car at all,” said Frost, president of Southfield Chrysler Jeep. “The closest we come is a Dodge Neon.”

- Arik