As the first wave of Gen-Y kids graduate from college, the race is on to sell them their first cars. And taking the lead are the carmakers their parents first fell in love with when they were that age–Honda and Toyota. They’re laying down big bets on new models aimed at young drivers–$200 million for Honda and more than $1 billion for Toyota–in hopes of making a lifetime connection with a new generation. Honda’s rolling dorm room, the $16,000 Element, hits the streets in December. Six months later Toyota will go after Gen Y with an entirely new line of funky low riders, named Scion, as in wealthy offspring. And that sums up this moneyed and materialistic new generation, who at 75 million strong match the boomers in size, and will, ultimately, rival them in influence. For now, half this cohort (ages 8 to 25) can’t even drive, let alone buy a car. But by the end of the decade, carmakers expect Gen Y to account for more than one quarter of the U.S. car market–spending $80 billion on cars each year. By 2020, they’ll own almost half the market.
These kids have expensive tastes. Gen Y came of age in an era of unprecedented affluence, and its members were reared by indulgent boomer parents. “They are an entitlement generation,” says market researcher Madeline Hochstein of DYG Inc. “They expect everything.” And that includes fully loaded cars designed just for them. (With Mom and Dad picking up the tab, of course.) “We’re a generation who has everything,” says Georgia high-school student Kiera Robbins, “but has nothing of our own.” Carmakers are struggling to appeal to luxury tastes and subcompact budgets. Admits Scion chief Jim Lentz: “I don’t think any of us know for sure what this buyer wants.”
They’re plunging ahead anyway. And for all the mystery surrounding this age group, Honda and Toyota have come up with remarkably similar cars, though they’ll try different strategies for selling them. Toyota, which misfired with earlier youth mobiles like the stubby Echo subcompact, determined it had to ditch its name. To Gen Y, Toyota is the Japanese Buick–a car for their aging parents. Toyo-ta hopes Scion models loaded with ’tude will appeal specifically to the urban techno crowd, and plans to show them off at raves. Lentz says Toyota selected the Scion name because “it had a high-tech feel,” even though most kids can’t pronounce it (sigh-en) and three quarters don’t know what it means. The $15,000 Scion bbX debuting next summer is a version of the bb (as in Black Box) already popular with Tokyo hip-hoppers. The squat, cube car has an industrial-strength stereo and “looks like a boombox on wheels,” says one rival. An edgy coupe and a low-slung convertible will join the lineup by the time Scion rolls out nationwide in 2004. Scion won’t be sold in separate showrooms like Toyota’s Lexus line. To save money, Scion’s chrome and black showrooms will be tucked inside Toyota dealerships. “Scion is trying to be hip and trendy, but you still have to walk into a Toyota dealer,” says auto consultant Wes Brown of Nextrend. “That’s really going to be a big hurdle.”
Honda figures its name still has enough street cred to attract Gen Y. Sure, the Accord sells to middle-aged suburbanites, but the Civic has long been a favorite of the tongue-pierced “tuner” crowd who chop and customize cars. (Indeed, a new Honda ad features a traffic jam of tricked-out Civics.) So Honda became its own tuner. It pulled apart its CR-V mini-SUV and flattened the floor, raised the roof and squared off the corners to give it the dimensions of a baby Hummer (Gen Y’s dream SUV). To accommodate what Honda calls “sidegate parties,” the Element’s doors swing open like a clamshell, exposing a cavernous interior with rear seats that flip up out of the way.
Honda and Toyota’s breadbox designs have elicited love-it-or-hate-it responses. “The younger generation is not looking for ugly cars,” sniffs Mitsubishi U.S. president Pierre Gagnon, who argues that Gen Y covets the nitrous-oxide-injected street racers in videogames. Honda and Toyota say a risky design is what it takes to capture the Gen-Y trendsetters. After checking out the Element online, Ryan El-Khoury, 20, a big fan of the Gen-Y muscle-car movie “The Fast and the Furious,” said: “The Honda just became my new dream car.” But Scion’s Lentz admits his 15-year-old son recoiled when he first saw a bbX brochure. “In print, it doesn’t look as nice,” says Lentz, who eventually won his son over by bringing home a bbX. But not everyone’s dad works for Toyota or Honda. Says 16-year-old Robbins: “I’ve seen the future, and it’s tacky.”
Notably absent from the battle for Gen Y is Detroit, which won’t roll out anything for it until mid-decade. Confident Motown execs say there’s plenty of time to curry favor with these new kids. “You reject the cars your parents drove, so we ought to be in good shape,” says Chrysler market researcher David Bostwick. “They’ll be bailing out of Honda and Toyota.” Despite Detroit’s bluster, the entire auto industry is riveted by Toyota’s and Honda’s first entreaty to Gen Y. “This is the baby boom all over again, only bigger,” says Ford VP Chris Theodore. “It’s an opportunity no right-minded company will pass up.” The question is: which car companies will Gen Y pass up?
