NINETY EIGHT REGENCY

They'll Buy Anything We Build

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They'll Buy Anything We Build

Jerry Flint

FORBES.COM

Losing the small-car market to foreign manufacturers was easy. In the past half-century, Detroit never built great small cars or great 4-cylinder motors, never thought of little cars as a profit center and just did not like them. It is understandable how the Europeans first, then the Japanese and now the Koreans grabbed this business.

What is more puzzling is how those foreigners took the top and the middle of the American car market. I am talking about near luxury, the luxury and the ultra-luxury segments--the cars with the big profits. Ever since the demise of marques like Cord and Duesenberg in the 1930s, U.S. manufacturers had little presence in ultra luxury. Yet it was not that long ago that General Motors (nyse: GM - news - people ) dominated the first two luxury groups. Ford (nyse: F - news - people ) and Chrysler (nyse: DCX - news - people ) were never as strong as GM in that part of the business, but they, too, have fallen way behind.

Start at the very top: the $150,000 to $400,000 cars. The market is tiny but important because it represents "the best." Detroit does not have a single entry. Maybach comes from Daimler; Rolls-Royce (other-otc: RYCEY - news - people ) from BMW; and Bentley from Volkswagen. Cadillac displayed a super luxury show car a few years ago, the "16." Everybody seemed to love it but GM, apparently, cannot afford to build it.

A much more important class is the luxury group running $70,000 to $120,000. Mercedes, BMW and Lexus created this modern day luxury segment, a group with few entries from Detroit--and I am being generous by including such models as the Corvette Z06 and the slow-selling Cadillac XLR roadster.

In the 1970s and 1980s, Cadillac was too interested in building sales volume than pushing prices up the luxury ladder. Detroit's leaders forgot that key rule in war: Never let your enemy take the high ground. The Lexus LS, Mercedes S Class, BMW 7 Series and Audi 8 are the victors, while Porsche and Aston Martin will soon introduce four-door luxury sedans. I do not see any signs that Detroit is moving into this space.

Just below the $70,000 level are excellent entries such as the Mercedes E Class, BMW 5 Series and Audi 6 models. Cadillac is attempting to gain ground in this segment but has had limited success. The division's sales are off 7% through the first five months of this year and were down all of last year as well.

It was not that long ago that Ford's Lincoln division outsold Cadillac--for one year, anyway--but that nameplate has been in full retreat. Lincoln killed its sporty rear-wheel-drive sedan, the LS, at the start of the 2006 model year, and has failed to update the big Town Car, which at one time earned the division $1 billion a year, and its newest Lincolns are little more than dressed up Fords with more leather, chrome, trim and sound-deadening material. Early sales numbers for these new Lincolns are encouraging, but they are not C- or E-Class challengers.

The sales numbers tell the tale. Mercedes' total car and light truck sales are 99,000 for the first five months of this year; BMW (not counting Mini) 119,000; Lexus, 131,000; and Nissan's (nasdaq: NSANY - news - people ) Infiniti division, 53,000. Contrast those figures with Cadillac's sales of 81,000 and Lincoln's 61,000.

Most of the best-selling foreign passenger cars are not oversized vehicles, but compact and intermediate models, such as the Mercedes C Class, the Lexus ES and the BMW 3 series. While some of these cars list for $30,000, it does not take much in the way of options to push window stickers into the $40,000 or even $50,000 range. What's more, some of the foreign cars have full lineups, including 4-door sedans, coupes, wagons and convertibles, which increases their appeal to a wider range of buyers. Every American entry that I can think of in this price range comes in only one body style.

Detroit has been in full retreat from this near-luxury segment. Although both divisions also offered some cheaper models, GM's Oldsmobile division once sold 1 million cars a year, while Buick was good for three-quarters of a million units. Now Oldsmobile is dead. Buick's one upper-class car, the Lucerne, is on Consumer Reports' recommended list but has only 32,000 sales in five months. The Chrysler 300 has 51,000, the ancient Mercury Grand Marquis 27,000. One sign of hope: the Cadillac CTS sedan, the replacement CTS, coming this fall, promises sexier styling, a better interior and a high-output V-6.

Foreign rivals are chewing away at the near-luxury market. The Lexus ES has 33,000 five-month sales; the Toyota Avalon, 32,000; the BMW 3 series, 60,000; the Mercedes C Class, 23,000; and the Acura TL, 25,000. Other competitive models include the Nissan Maxima, Infiniti G and Audi 4. Next year Hyundai plans a model with a V-8 option to compete against those cars.

All this is different from the 1960s and 1970s, when American upscale cars were big, beautiful and powerful. Little by little, European manufacturers won over U.S. consumers with vehicles that emphasized ride, handling and engineering. Meanwhile, the Japanese gained market share by offering quality, value and economy.

Money was not an issue in the ‘60s and ‘70s and even in the ‘90s. Then the market turned toward trucks and that is where all of Detroit's efforts went.

I also blame arrogance:

"They'll buy anything we build," was the attitude. Manufacturers made a few half-hearted attempts to produce some cars that a new generation might like, such as the "T Types" from Buick, the all-wheel-drive models from Pontiac and the Lincoln LS. Unfortunately, the financial types on top never understood the importance of investing in and nurturing this part of the business.

By selling uncompetitive small cars, the U.S. companies indirectly helped the growth of nameplates such as Lexus, which offered vehicles for satisfied consumers to aspire to when they were ready to move up from a Toyota Corolla or Camry. Today, this weakness at the upper end of the market leaves Detroit's loyalists few options when they are ready to move on up to the big time.

Of course, Detroit still can make a handsome car: That Chrysler 300, for example, won back some customers but the industry needs a lot more success stories like the 300.

Edited by NINETY EIGHT REGENCY
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They'll Buy Anything We Build

Jerry Flint

FORBES.COM

"They'll buy anything we build," was the attitude. Manufacturers made a few half-hearted attempts to produce some cars that a new generation might like, such as the "T Types" from Buick, the all-wheel-drive models from Pontiac and the Lincoln LS. Unfortunately, the financial types on top never understood the importance of investing in and nurturing this part of the business.

Actually decent article and he tells a vivid story.

What I like most, however, is the above statement. It's genious.

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Actually decent article and he tells a vivid story.

What I like most, however, is the above statement. It's genious.

In fact, his focus on the high end of the market is totally incorrect. The beginning of the demise came when they ceded or at least did not make an honest attempt to fight for the low end of the market. If they had, there would not have been the revenue (and more importantly profits) to grow Toyota to what it is today. If Detroit had made the effort, they would have snuffed out the air supply that has allowed Toyota to grow and yes prosper at Detroit's expense.

I have said it many times on this forum, the game is essentially over once the profits are gone.

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Actually decent article and he tells a vivid story.

Yet, like most entertaining stories, wholly inaccurate in parts.

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We can all play armchair critic, for sure. When I first saw the Acura Legend, I laughed at it, figuring it was just a dressed up Accord with leather seats. Of course, up against the nasty, ugly Cadillacs of the same era (and who could forget the last gasp of the Imperial nameplate - ugh!), it is clear that the old geezers in Detroit were building what they wanted to drive.

For better or worse, this is what happens in an open society. Since we make it so easy for foreign companies to operate here, they were able to use our own openness against us. While Detroit focused on "landau roofs" and "over-stuffed" seats, the Germans and the Japanese tapped into the American market with fresh, open minds. The "style-by-commitee" attiudes of Detroit were slow to react to the changes in the car market....but they did see the truck bubble coming and that is something that the Germans and Japanese missed until recently. It makes me wonder why Detroit was able to tap into the truck market so well, yet not the car market. It has to be more than just the profit angle.

Would we only be allowed to do that in Japan.................................

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More of Flint bitching at Detroit..... Although I do agree with the article a lot, two thoughts come to mind:\

1) It just isn't that simple... There were more factors at play than simply deciding to become uncompetitive.

2) Hindsight is ALWAYS 20/20... Just because it's plain as day now, it probably wasn't back then.

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I don't like the man, but Flint is not far off on this one.

The middle market 'squeeze' of consumer items is ravaging the center of the market Detroit once comfortably called home. Combine that with flexible financing putting 'luxury' items within reach of the proles and you have the recipe for disaster that detroit is now facing.

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No there really was a certain ignorance around Detriot. The article has that right, but products like the Lucerne, CTS and even the DTS give me faith. The first one and the last one need a MCE with more power and 6spd. auto. That is all.

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Honestly I think Flint is dead right on almost everything he mentions. Let's face it, GM didn't know whether they were coming or going for the longest time (I could argue in some ways, they still don't), and they let the Japanese just run rabid over their entire market. I think GM will be okay, as the die hards (like us) will still buy their products and give them the benefit of the doubt, but winning back Toyota and Honda buyers will be next to impossible, if not completely impossible. Not because GM doesn't build fine cars, but because Toyota and Honda build good cars too, and those buyers have essentially been brainwashed into thinking that anything other than buying import, would be foolish. Unfortunately, that's how the cookie ended up crumbling due to some major mistakes that GM, Ford and Chrysler made a long time ago. They're totally paying for it now.

Let's look at Cadillac and the (lack of) GM rear drive cars:

I mean, let's face it - where were the rear drive, sporty sedans that we all were practically begging for (like the upcoming G8, and hopefully the Impala and (Holden) Park Avenue) - back in the mid 90s? Where was the uber-Cadillac - rear drive (not old fashioned bof, but honest to God really well made uni-body constructed, all modern) Caddy that should have been out competing against the LS400 and 5 and 7 Series Bimmer back in the 90s? Caddy had one rear drive car, the old Fleetwood, up until 1996. That was it. Even Lincoln had the Mark VIII, which was a pretty descent ride actually (which they foolishly killed off in 1997). But seriously, how many customers did Caddy slowly lose to Infiniti, Lexus and Bimmer during the 90s because they failed to realize that people with money wanted rear drive, luxury performance cars? When did we finally get a rear drive Caddy again - 2003! And it only had a V6. Sure, the V Series is sweet, but we had to wait until 2005 until we could get a rear drive V8 powered Caddy with an automatic - something the Japs and the Germans had been selling here for what seemed like generations at that point. How could GM take that long to finally realize, "hey, nobody is buying Caddy anymore? hmmm. Lets see what Lexus is doing...oh, they're building rear drive performance cars, maybe we should do that?". Well duh! Isn't that what Cadillac's are supposed to be? I love GM, my dad worked there for many, many years, but anyone with half a brain could have told the GM product planners that they were getting it all wrong during the 90s when they kept putting out front wheel drive $h! boxes and charging big bucks for them. Luckily GM realized their treachery with Caddy, and now they're finally pretty friggin' sweet again. But now, they lost an entire generation of rich people (baby boomers) because they couldn't see beyond the enormous profits they were making on Suburbans and Sierras back in 1997. Caddy has some product, and luckily, they still have a good name - I don't think too many people associate it with junk (like import lovers do with brands like Chevy). But man, had GM waited another 2 or 3 years to come out with the CTS, it would have been curtains for that brand, I know it. Thankfully the CTS (and the Escalade too I guess) put that brand back on the map, because had they not took that chance with the CTS, America would have no luxury brand at all, and that my friends, would be more sad than an early 60s Bob Dylan song.

And really, it's a shame. Buick and Caddy and Olds, these were all really sweet cars back in the 60s and 70s, and it's a shame that GM management didn't just stick to the old formulas of offering a wide variety of sweet cars. Like they didn't do during the 90s. They really had a chance to not let Toyota (with Lexus) become the more desirable brand. Now they have to fight to get old baby boomers to remember that they were here first, and they also to fight to get people with high incomes that are now 35 and 40 to give them a shot again - people that have been driving Nissan and Toyota since the 80s and haven't stopped. It's going to be very difficult I'm afraid. Who knows though, maybe it will happen. It looks like the focus is once again on product (like it was in the 60s)...maybe the times are changing for the better for the Big 3. Lets hope.

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The lack of a production SIXTEEN sickens me.

Stop making excuses GM. Such a caN'T do attitude! <_<

Edited by Sixty8panther
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I guess gramps went off the Volt pill.

When Chrysler wanted to built the ME four 12 the very press which he is proud to be a part of pooh-poohed about who will buy a quarter million dollar CHRYSLER.

I am not condoning what Detroit did. But, even when Chevy wants to build a $100,000 Blue Devil, media is pooping out bad words. And yet Nissan is given green light for a $70,000 GTR? At least Chevy has something close to the 80K territory, Crapsan has nothing passing 50K. This very press will sing good words if Toy brings Supra and charges $80,000 for it. The problem is that media on its part did give people the perception about Detroit, what it is now in people's eyes.

When STS came out there were the same media folks complaining that they cannot imagine someone paying $50k+ for a Cadillac Sedan.

He may be accurate in showing the data (which any one can do, see our dear old friend GXT does that all the time), but the reasoning he is giving is not proper. If a writer cannot support the data with the conclusive verifications, then it is like 5 month old kid mumbling Van Halen music.

Edited by smallchevy
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Honestly FWD was what the Japs brought in... Okay Camry, Accord, Tercel, Civic and all this other small stuff. They pushed FWD GM took the bait. Everything from Grand Prixs, to Deville's went FWD. So actually they did what they Japs did. I will make this point again Deville sales outsold RWD Caddy's in the late 90's early 90's like 4 to 1. I don't think it was FWD that screwed them, it was not getting more gears in gear boxs. They finally starting taking customers seriously with the 1998 Seville for its time that was a car right on par. And the new DTS has a suprisingly nice interior, and great quality as evident by having won the VSA award and just needs a new 6spd. auto. Honestly for the next generation just get it a new FWD platform, there is still a market for these things. So don't just bash Cadillac because it didn't have enough RWD vehicles, and the last thing they need is to have all there eggs in one basket. A FWD Caddy and varied port-folio makes sense!

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No, the Europeans had FWD compacts before the Asians. In fact, the Corolla was RWD until 1983! Honda Civic was the 1st volume FWD Japanese car.

The old British Minis were the first 'modern' FWD compacts, then the VW Rabbit, etc....

Oh, and one more thing, CAFE regs forced Detroit to swtich to FWD, the had the X cars out before most Asians. But they were junky, so buyers started to flee.

Edited by Chicagoland
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Okay but you saw more FWD Jap cars than Euro vehicles. At least in my area. The point you make is correct sir.

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one thing you cannot underemphasize here (and enzl hints at it) is the demise of the middle class.

face it, a young sexy college gril grad with great titznass gets a real paying job and she's off shopping Lexus, not Lincoln. Mr. hairgel preppy with college degree and the ability to say yes 100 times in an interview to whichever middle manager will listen to runs off and charges his card for groceries as long as he can finance the 3 series.

in the meantime, Jose and Ricardo flipping meat at wendy's can only afford to get that kia spectra, if they can even afford that at all.

the premium family segments, have been overtaken by SUV's and premium crossovers as well as trucks. A family will probably only be able to lease one or somehow otherwise go 6-7 years on the loan or tap home equity just to get the keys.

what's left of the moderate family car segment and personal sedan markets is so overwrought with penny pinchers or people obsessed with consumer reports that the accord and camry have half that market locked up.

the people who are left who might want a new american vehicle in reality are just not able to foot the bill for a car that an import buyer will sacrifice their checkbook for. people will shell out 5g extra for a camry......but otherwise, much of the America I know is left buying off lease and program cars like grand prixs and taurus on five year loans and hope there's life in them. when all these fleet camrys hit the market they will probably buy those too.

back at the beginning of the decade, the press was all over detroit for not chasing every little market niche. hence we got thunderbirds, ssr's, crossfires etc. then the press grilled detroit for not trimming models and consolidating platforms. looks like now they are back in 'chase every niche' mode. there is some truth to what flint is saying, but GM and Ford cannot justify selling frivolous crap when they need to fix the bread and butter segments...they are still not there.

detroit needs to innovate and bring style and luxury and features to the masses. they don't have to make Cayenne's or Q7's although a 16 would be nice. I would like to see the Cien, personally. I truly believe with a new global focus and development, GM and fORD can eventually match the import names in volume segments.

ANd hey, why didn't flint mention the Ford GT? Sounds like he conveniently forgot that one.

I would rather see an STS beat out a 5 series before we see that Cien or 16. I would prefer to see GM try to outdo the Scion line (as stupid as it is). I'd like Pontiac to offer near BMW like driving for everyman prices. I would like to see chevy's history and backing make people who consider kia's ditch the koreans and go chevy. I would like to see Saturn eat away at Honda, Toyota and VW. I would like to see Saab make buyers think BMW and Audi are inferior and overpriced.

Halo models are great, and they do generate revenue, but again FLint forgets some things.

Phaeton. Enough said, do you think the Phaeton proves his article right? I think I need to drop him a line.

Edited by regfootball
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Reading this, it just made me think that much more that this is the attitude that Toyota is taking. "They'll buy just any old thing we can build. It can look like a molested nuclear Billy Bass fish or a mutant frog, we don't care. We have this reputation of being the best the Public's money can buy. As long as it goes, we couldn't care less."

Of course, GM did have this attitude in the past. But they are learning from that mistake. However, Toyota is so ignorant, they are repeating GM's error. I'm fine with that. If Toyota is so stupid they can't learn from others and remove the rose-colored-lets-be-a-monopoly glasses, they deserve whatever punishment they can get.

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Yellowjacket has a point... Anyone actually think the Camry is a good looking car. I for one, don't and hate the styling direction Toyota is moving in. They might be driving a Camry just because it is the "best" not because they like the looks of it. It will only work for so long and Toyota's resale value that is high will just start dropping. Toyota in many ways is the GM that was 50 years ago.

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Reading this, it just made me think that much more that this is the attitude that Toyota is taking. "They'll buy just any old thing we can build. It can look like a molested nuclear Billy Bass fish or a mutant frog, we don't care. We have this reputation of being the best the Public's money can buy. As long as it goes, we couldn't care less."

Of course, GM did have this attitude in the past. But they are learning from that mistake. However, Toyota is so ignorant, they are repeating GM's error. I'm fine with that. If Toyota is so stupid they can't learn from others and remove the rose-colored-lets-be-a-monopoly glasses, they deserve whatever punishment they can get.

ES/Camry anyone? Can anyone tell them apart? We have said this before: we forgive Japan Pearl Harbour, but not Detroit the '80s. Does nobody here remember what happened in '73 and again in '79/80? GM took a huge risk in downsizing the full-sized Chevy line up in '77 and had a huge hit on their hands. Chrysler nearly went belly up because it was the last to embrace the smaller is better mantra.

The Japanese had a built in advantage even before Detroit started going to lower carbon steel and plastic everywhere to reduce weight. Had oil kept jumping like it did in the early '80s, a FWD Aveo would be the new Cadillac. Japan got lucky, in that gas prices stabilized. They only knew how to build small and medium cars and bang them out in quantity. Sure, GM can be faulted for not sensing there was a swing back to RWD larger vehicles, but then 10 years ago GM was selling every Blazer and Silverado it could build.

Blame Wall Street, not Detroit. Wagoner would have looked like a mad man if he had been investing in Daewoo in the mid-90s AND he would have probably been turfed.

The problem with democracy is that it is sometimes slow to respond. But in a crisis, we are known to pull together. America sat on the sidelines in WWII because middle America did not see any danger in what was happening "over there." Ah, but Pearl Harbor changed that, didn't it?

MAYBE HISTORY IS REPEATING ITSELF. The fat, lazy middl-Americans (and Canadians) may wake up some day soon, realize all their savings are in Japanese banks, all their kids' jobs are in China and then look out to their driveway and wonder why did they buy that Lexus.

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FWD cars got money invested in their platforms... that's why they sold,

RWD cars were left to wither away. Look at Ford's Panter chassis. More

money is invested in one small reskin on some FWD Ford econobox

in one year than has been invested in the Panther chassis in 10 years.

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If one looks at the European Market as a whole, you can see what is going to happen here in the US. Fragmentation of segments (ex. C-sized vehicles run the gamut from 1 box minivan thingies (C-Max, Golf Plus, et al.) to luxury convertibles (C70, upcoming 1-series & A3), as well as the luxury makes invading territory that the mass market used to dominate....(ex. Ford is expecting to sell less than 50% of the Mondeos they once did).

In the US, this shift has been delayed by the SUV boom....ex. a Ford Expedition rarely went out the door under $32k, so these products acted as substitutes for luxury vehicles, in a sense. If gas prices shift the marketplace, the imports are better positioned to catch this trend, whereas the Domestics will be playing catch-up.

The key to survival for the Big 3 is the development of 'must have' product, flexibly built and effectively marketed. The current prognosis isn't good in this regard, since it seems like they can only get 2 of 3 right at any one given time.

I'm optimistic that Cerberus has been getting the right people involved at Chrysler and GM seems to be waking from its slumber. Mullaly is an a$$ kicker at Ford as well, but it may be too late for 2 of these 3 companies.

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Yellowjacket has a point... Anyone actually think the Camry is a good looking car. I for one, don't and hate the styling direction Toyota is moving in. They might be driving a Camry just because it is the "best" not because they like the looks of it. It will only work for so long and Toyota's resale value that is high will just start dropping. Toyota in many ways is the GM that was 50 years ago.

There is a big difference between the old GM and the new Toyota, though: GM 50 years ago never really built an unattractive car. It wasn't until the late '70s we got a few stinkers.

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No but the point was is whatever we build they will buy it. GM had that attitude in the late 70's and it got even worse in the early 80's. By the mid 80's they were starting to figure it out.

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Honestly FWD was what the Japs brought in... Okay Camry, Accord, Tercel, Civic and all this other small stuff. They pushed FWD GM took the bait. Everything from Grand Prixs, to Deville's went FWD. So actually they did what they Japs did. I will make this point again Deville sales outsold RWD Caddy's in the late 90's early 90's like 4 to 1. I don't think it was FWD that screwed them, it was not getting more gears in gear boxs. They finally starting taking customers seriously with the 1998 Seville for its time that was a car right on par. And the new DTS has a suprisingly nice interior, and great quality as evident by having won the VSA award and just needs a new 6spd. auto. Honestly for the next generation just get it a new FWD platform, there is still a market for these things. So don't just bash Cadillac because it didn't have enough RWD vehicles, and the last thing they need is to have all there eggs in one basket. A FWD Caddy and varied port-folio makes sense!

Actually most of the first Japanese imports back in the 70's (?...right time?) were actually RWD when they came over to this country. It wasn't until a generation or two later until the Japs actually switched to FWD.

And as far as a new FWD Deville platform.....it seems the market is dictating that NO ONE is asking for that (if you scan the competition.) Just look at what's happened to the Acura RL.....a total sales dud.....and that's even with them trying to push an AWD platform (that's admittedly FWD-based.)

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I would prefer to see GM try to outdo the Scion line (as stupid as it is).

Ironically, Scion has done for Toyota in just a few years what Saturn has really never been able to accomplish since they hit the market in 1991.

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