February 9, 2016 / 11:06 PM / 2 years ago

Millennials are shifting car ownership model; ask Toyota

The Scion C-HP concept car is displayed at the North American International Auto Show in Detroit, in this January 12, 2016 file photo. REUTERS/Mark Blinch/Files

TOKYO (Reuters) - When Toyota Motor looked to the future at the turn of the millennium and aimed its new, edgy Scion small-car brand at twenty-somethings, it could not have guessed that the model would be dead after just 12 years.

In killing off the brand last week, the Japanese company was responding to the changing habits of millennials - those born in the 1980s, 90s and 2000s - who are reshaping the traditional model of car ownership.

“Surveys we do tell us young buyers are less interested in owning cars,” one of those behind the Scion brand told Reuters.

“They either don’t have the financial leeway or they’re substituting car ownership with ride-sharing or car-hailing services like Uber [UBER.UL],” he said, adding Toyota would redirect its Scion resources to its Toyota and Lexus models.

Toyota launched the Scion brand hoping Generation Y-ers would become the grown-up Toyota buyers of tomorrow. It worked, for a while, with the brand selling 173,000 cars in 2006, but sales dropped to just 56,167 last year, prompting the world’s biggest car maker to call time. Some Scions will be re-badged as Toyotas.

“I don’t think my generation hates cars, but the way we look at cars is different now,” said Brandon Perez, an 18-year-old construction management major at California Polytechnic State University in San Luis Obispo.

“For my parents’ generation ... buying a car was a big goal. Cars are still important and kids in my age group still want to drive, but we’re not as auto-centric.”

Perez also feels young people today are practical and don’t mind buying used cars. “Cars are so reliable now, and more durable,” he said.

He thought Scion failed to live up to its billing as an aspirational brand. “They were kind of like re-styled Toyotas. They look different, but otherwise the Scion tC, for example, isn’t that different from driving a Corolla.”

MAKING A CONNECTION

Scion cars are on display at the LA Auto Show in Los Angeles, in this November 17, 2010 file photo. When Toyota Motor looked to the future at the turn of the millennium and aimed its new, edgy Scion small-car brand at twenty-somethings, it could not have guessed that the model would be dead after just 12 years. REUTERS/Mario Anzuoni/Files

Faced with the demographics of a ‘sharing economy’ and a generation that is - very broadly - still living at home with their parents, juggling debts and marrying later, the auto industry is having to shift gear to respond. Also, technology companies such as Apple, Alphabet and Uber are muscling in to control cars of the future.

In the biggest Detroit-Silicon Valley crossover deal to date, General Motors is investing $500 million in Lyft, a privately-owned ride-hailing service in the United States, and plans to develop an on-demand network of self-driving cars.

Others are responding, too, to the disruptive waves from technology and tech-savvy millennials, who increasingly want their cars to be as connected as their homes - though Paula Poveda, a 19-year-old student in Tallahassee, Florida, thinks today’s connectivity acts against the need to own a car.

“We’re more connected than my parents’ generation and technology allows us to be in contact with friends constantly. We don’t have to go out and see them all the time,” she said, adding she doesn’t need to own a car, and when she does she’ll probably buy a used model or get a hand-me-down from her parents.

At the recent Consumer Electronics Show in Las Vegas, Toyota and Ford said they will adopt the same SmartDeviceLink (SDL) software to link smartphone apps to car dashboard screens, and invited other automakers to join them. Toyota is also exploring its own ride-sharing business model, designing smaller, easier to maneuver i-Road vehicles, which could be used specifically for city car-sharing services.

ONE-CAR FAMILY

The marketing chief of one Asian automaker said the changes prompted by ride-hailing and car-sharing services were a major factor in his firm’s recent move to overhaul its premium brand strategy. As these apps and services gain traction, more households are likely to limit themselves to just one car, said the executive, who didn’t want to be named because he is not authorized to speak to the media.

“Day to day, for short commuting and doing errands, they can use Uber or similar services. Those households would more likely buy just one car and spend more money on that car. That would most likely be an upscale car. That’s where our growth is going to come from,” he said.

“A lot of my generation aren’t so good at saving money,” said Daniel Scarpato, a 25-year-old e-commerce worker who recently moved to Beijing from California.

“The job market for us isn’t great, and most young people I know are in debt. Buying a new car is a bit of a luxury.”

Reporting by Norihiko Shirouzu, with additional reporting by Naomi Tajitsu; Editing by Ian Geoghegan

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