Say good-bye to the Honda Element

FORTUNE -- Death notice: American Honda announced it will stop making the boxy and beloved Element after the 2011 model year. Cause of death includes apathy by the manufacturer, competition both internal and external, and an inability to connect with target customers.

The end was premature, and it didn't have to happen this way. Honda introduced the Element in 2002, back when the automaker didn't make mistakes. Despite its milk-truck shape, the Element looked like a slam dunk. It was created by hip young American engineers, who had intensively studied the U.S. market, and it was based on proven Honda mechanicals. Better still, it was the right vehicle at the right time. Just when the industry collectively woke up to the fact that the average car buyer had reached middle age, here was Honda launching a product designed for 20-somethings.

"The Element proved that ultimate functionality can often come from thinking inside the box," John Mendel, executive vice president of American Honda, declared in December. "It made boxy vehicle designs cool."

Maybe that was the real problem. Honda decided the Element was cool before its customers had a chance to weigh in. Their verdict didn't line up with Honda's, and the Element never recovered from the mismatch. For one of the first times in its storied history, Honda had created a vehicle not conceived by engineers to provide affordable transportation but by marketers to fill a niche.

The marketers got it wrong. Element sales peaked at more than 84,000 in 2003 when it was introduced and have fallen steadily since then. Honda sold fewer than 14,000 Elements in the U.S. last year.

The Element combined the attributes of a sport-utility vehicle, pickup-truck, and RV. It could be used to carry surfboards, haul dirt-bikes, or provide a place to just hang out. Its target was the 22-year-old single male who was hip, social, well-traveled, and loved extreme sports such as surfing and snowboarding

Honda had studied the concept intensively. The Element was based on a concept vehicle called Model X, developed by a small group of young R&D engineers in 1998 and first shown at the 2001 Detroit Auto Show. They conducted focus groups at colleges, beaches, camp sites, and in the mountains and concluded that young men, in particular, liked to carry their stuff around with them and needed a vehicle that would enable them to do so.

Based on the popular CR-V, the Element was designed to haul just about anything. You could even sleep in an Element. The rear seats reclined absolutely flat after you removed the headrests, and the front seats did likewise. Honda's chief product boss Tom Elliott called it a dorm room on wheels.

With rear side doors that opened outwards from the front to create unobstructed access for side loading, the Element had the capacity of a moving van. There was no carpeting inside; the floor was coated with textured urethane so the Element could be hosed out between trips. Honda officials like to say the Element was designed "from the inside out" with utility being one of its highest priorities.

"Consumer interest is high for new and functional approaches to exterior and interior designs, Dick Colliver, American Honda's executive vice president, said at the time. "The Element "resonates with a younger audience."

But as any parent knows, 22-year-olds don't have a lot of money and often don't like what older adults say is good for them. Honda quickly discovered that instead of eager Gen Y buyers, the Element was appealing to their parents, the Baby Boomers: old people not young.

A survey of sales in 2003 found 67% of buyers were over 35, 38% were women, and the median age was 42. As the Element reached the end of the road, the median age of its buyers had risen to 52.

With buyer interest waning, Honda stinted on improvements for the Element and invested its product development dollars elsewhere. It didn't help that sitting right next to the Element in Honda dealers' showrooms was the more conventional CR-V, which carried an additional passenger, got better mileage, and was easier to drive. Honda has already sold 180,000 CR-Vs this year.

The whole Element episode evokes unfortunate memories of a few years earlier, when another manufacturer tried to combine the best attributes of an SUV, cargo hauler, and minivan in order to create an "active lifestyle" vehicle. Available equipment included a tent and inflatable mattress, a seatback-mounted backpack, and racks for various kinds of outdoor activity. Styling in the traditional sense was subordinated to functionality.

Such was the Pontiac Aztek. Just as Honda was to learn, snaring 20-somethings may be attractive to marketers but they resist typecasting and are hard to corral. When you finally do reach them, you discover they are broke. After a five-year-run -- during which it won the additional distinction of being dubbed the ugliest car in America -- the Aztek was retired.

And now, so will the Element. R.I.P.