Scion and MINI: The best of times, the worst of times by Alex Taylor III @FortuneMagazine December 12, 2014, 5:38 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons They began life with the automotive equivalent of silver spoons, the offspring of two fabled brands with long records of success. Their early years were filled with promise, and they were hailed as harbingers of a new automotive era: car brands that were specifically designed for a defined segment of the market. One would be aimed at capturing younger buyers while the other sought to establish a foothold based on novelty and heritage. But after a rush of buyers early on, both brands are suffering. They have become victims of strategic missteps and parental inattention, as well as macroeconomic forces beyond their control. Now, both have a deep hole out of which to climb. Reason: At a time when Americans want larger cars, trucks, and SUVs, they specialize in miniaturization. They mostly make small cars. I am talking, of course, about Toyota’s TM Scion and BMW’s MINI. Their shortcomings have become especially glaring this year. Even as car sales motor to their best year since 2007, up 5.5%, they have become industry laggards with big declines. Size counts in this market. In addition, both suffer from increased competition by mainstream makers of small cars and both produce niche vehicles with limited mass appeal. They leave their parent companies with an uncomfortable dilemma: Do they continue to follow the strategy that led to their initial success—or abruptly change lanes? The auto market is tough to crack, and established manufacturers run into trouble when they diverge from what made them successful in the first place. Toyota and BMW are known for popular cars that are reliable and sporty, not brands narrowly focused on market niches. History is clear on this. You can draw a line from Ford Motor’s F Edsel to Daimler’s Maybach and Smart, with a stop in between for Chrysler’s FCA Eagle, all of which failed. Their common denominator is that they were driven by marketing considerations rather than an engineering advantage. SCION Scion was launched in 2003 to attract younger buyers who associated the Toyota brand with their parents. It adopted a gritty urban vibe in its marketing and produced small cars with unusual and distinctive styling like the boxy xB, promising quick design changes to keep the brand trendy . Its novel positioning struck a chord with its target market and U.S. sales peaked in 2006 with sales of 173,034. Four years later, Scion sales had fallen to a fourth of that number. The economic downturn took a particularly heavy toll on its target market of millennials. At the same time, Scion had attempted to broaden its appeal and, in doing so, had blurred its identity. Designs grew staid and even worse, stale. “Scion’s vehicles are stylistically distinctive, yet what started off as a refreshing change actually seems to have become as much of a deterrent for shoppers,” says Jeremy Acevedo, analyst at car shopping website Edmunds.cocm In the most egregious example—and one that was widely criticized at the time—Toyota replaced the popular xB with a second generation model that was larger, less stylish, and got worse mileage. The move was supposedly based on American buyers’ “wants,” but sales of the new xB plummeted. Other trends in the U.S. market were ignored. Small crossover SUVs were exploding in popularity, but none found their way into the Scion lineup. After Scion added a more expensive sports coupe to its lineup, Scion sales slowly recovered, climbing to 73,501 in 2010. The move sparked a reevaluation of the brand, as executives pondered moving Scion upscale to target Mercedes and Audi small car buyers. In the end, they concluded that Scion belonged in the sub-$20,000 market and backed off. Scion has continued to sag. Toyota, perhaps distracted by more pressing matters, neglected to update its product line. Executives admit they are working through a product draught. In contrast to the initial promise of quick-change products, both the xB and xD hatchbacks have been allowed to run for seven years in their product cycle. Sales in November 2014 were 21.4% lower than November a year earlier. At the Los Angeles Auto Show in November, Scion formally unveiled a five-door hatchback concept called the iM that goes on sale next year. Designed to appeal to urban drivers, it features fuel efficiency, sporty handling and easy parking. The iM is the first new Scion design since 2012 and is the first of three vehicles Scion plans to bring to showrooms over the next three years. It is unclear whether an SUV will be one of them. MINI The current automotive market is an ill-starred one for MINI, says Edmunds.com’s Acevedo. It has found itself in a situation where shoppers have made a decided and fairly rapid transition toward larger vehicles. “It seems a bit paradoxical for the automaker that carved out a niche with its compactness, but MINI needs to get bigger.” The pioneering extra-small two-door returned to the U.S in 2002, this time under the wing of BMW, its new owner. It came with a design updated from the 1959 original and a novel merchandising premise: Instead of following the lead of Asian makers who sold small cars as cheap and cheerful, MINI would offer its cars at a premium price, based on their innovative design, clever marketing, and illustrious history. The sheer novelty of MINI propelled it to initial success. Customers loved the original bug-eyed, snub-nosed design and MINI created a seemingly endless number of model variations around it, christening them with sound-alike names like Clubman, Countryman, and Paceman. After it added two more models to its existing three-car lineup, MINI’s U.S. sales peaked in 2012 at 66,502. Then the new wore off. As gas prices fell, buyers shifted en masse to larger cars and SUVs. MINI sales through November have fallen 17% compared to a year ago. Only the success of the Countryman, a compact crossover SUV, has prevented them from falling further. A relatively late addition to the MINI lineup, coming in 2010, and the first five-door hatchback in the lineup, the Countryman is selling at a rate that nearly equals that of the original MINI Cooper. None of this should have come as a surprise to anyone who knows the car business. The experience at MINI follows a long-held automotive axiom that mainstream, vehicles with forgettable styling have a far longer shelf life than novelty or niche vehicles that depend on shock and awe. Instead of rivaling another premium small car, BMW’s 1-series for example, MINI risked being classified as another VW Beetle or Chrysler PT Cruiser. Having made too much of a good thing, MINI is reversing course. It is dropping two ultra-niche models from its lineup that were introduced as recently as 2012: the clamshell-roofed Coupe and its Roadster garage mate. In their place is coming soon a bigger MINI: A new four-door hatch that is 6.3 inches longer than the two-door hardtop. Will a maxi MINI save the brand? Acevedo is optimistic. He says new vehicles that offer MINI’s fun-to-drive heritage with more mainstream utility and appeal, specifically increased size, could expand the buyer base significantly. But MINI has been chastened. Two years ago, it was expecting to reach 100,000 unit sales by 2020. Now that it is stuck around 55,000, it is merely hoping to halt its decline in 2015.