Toyota Motor Corp. (NYSE: TM) killed off its Scion brand due to minuscule sales. The Mercedes smart brand may be next, at least in the United States.
Toyota’s description of the history of Scion was so positive that it is strange it killed the brand. In the announcement Toyota management wrote:
Scion, established as a separate brand in 2003 as a laboratory to explore new products and processes to attract youth customers, is now transitioning back to the Toyota brand. Scion achieved its goals of developing unique products and processes, and bringing in new, younger customers to Toyota. With more than a million cars sold, 70 percent of Scions were purchased by customers new to Toyota and 50 percent were under 35 years old.
What does “transitioning back to the Toyota brand” mean? The sale of a million cars over 12 years is extremely low. The huge Japanese manufacturer added:
Toyota’s decision was made in response to customers’ needs. Today’s younger buyers still want fun-to-drive vehicles that look good, but they are also more practical. They, like their parents, have come to appreciate the Toyota brand and its traditional attributes of quality, dependability and reliability. At the same time, new Toyota vehicles have evolved to feature the dynamic styling and handling young people desire.
Mercedes’ budget smart car has sold as poorly Scion, if not more so. The smart brand only produced 399 sales in January, down 18.9% from the year before. The cost to keep the brand alive is almost certainly more than Mercedes brings in.
As 24/7 Wall St. pointed out in its 10 Brands That Will Disappear in 2016:
Mercedes Benz sold 5,432 smart models in the U.S. market over the first nine months of this year, down 32.8% from the same period last year. Exotic luxury brand Maserati sold more units than the brand of tiny cars, even though some Maseratis cost more than $200,000. Smart vehicles rarely cost more than $19,000.
Smart’s greatest challenge — among the many it faces — is competition. Every major car manufacturer has a brand that competes with smart. Several of the best selling cars in the U.S. market are inexpensive, high mileage cars — reasonable alternatives to smart. The Nissan Versa, for example, which has sold more than 110,000 units in the United States so far this year, has a base price of $11,990 and gets around 36 mpg. Most of smart’s competitors also have much larger marketing budgets.
Compact fuel efficient cars have been slow to catch on in the United States. With relatively relaxed gas taxes compared to Europe and falling oil prices — crude oil fell below $50 a barrel for the first time in over five years in early 2015 — there is even less incentive for Americans to favor light vehicles over the popular SUV.