Millennials, Gen Y, under 30s – whatever you want to call them, this demographic’s lack of enthusiasm for car purchasing is causing serious concern. Rachel Boagey investigates
2013 has been the year of the Millennial. Across all business sectors, their attitudes and habits have been carefully monitored – but none more so than in the automotive industry. Younger buyers are a lucrative segment for OEMs and although they may not have much money just now, they will in a few years and at that time they will be looking for a brand they trust. The key is to target them early and build manufacturer loyalty.
At the Centre for Automotive Research’s Management Briefing earlier this year, General Motors’ lead economist, Mustafa Mohatarem warned that Millennials are becoming increasingly disinterested in buying cars – or even having driving licences.
The surge in consumer electronics, including smart phones and tablets, is a cause for concern for many sectors of the consumer market, but the possibility that the recent absence of young people in the new car market may have something to do with a greater interest in communicative technology is one which has comes as quite a surprise for the automotive industry.
Data from the University of Michigan’s Transportation Research Institute (UMTRI) suggests that young Americans are much less interested in car ownership than their older siblings, parents and grandparents: consumers in the 35-to-44 demographic were the most likely to be purchasing new cars four years ago, today it is the 44-to-65 baby boomers buying cars with the most frequency.
From 2007 to 2011, the share of US sales to car buyers aged 18 to 34 fell nearly 30%, and, based on figures from January through August 2013, the percentage of new cars bought by Millennial buyers has fallen to 11.4% from a short-lived 12.6% in 2012.
Money troubles
So why is there a decline in young people buying new cars? Edmunds.com Chief Economist Lacey Plache believes employment is the main factor at work here. In 2012, the US economy created an average of 30,000 new jobs each month for older Millennials (those between 25 and 34). But in 2013 (to August), there were only an average of 4,000 new jobs created for this age group each month.
The slowed housing market is also at work. The US averaged just 500,000 new households formed per month in the first half of 2013, compared to 1.4 million new households per month in 2012. Younger adults are living at home with parents or with roommates, and these situations result in less call for a vehicle, making it easier to share with others in the household. “But young adults living on their own are more likely to need their own cars, and they’re more likely to be able to afford them,” noted Plache.
Another reason highlighted by Mohatarem, was the suggestion that, “Despite the improvement in the overall auto market, young people are not as active as they typically are. Some people have suggested socio-economic reasons for that; you’ve probably heard them say that young people are much more into Facebook and using their phones to communicate.”
In his CAR presentation, Mohatarem highlighted the different factors affecting young people purchasing new cars in the US, drawing specific attention to the levels of unemployment recorded in May 2013 : 24.5% for 16-19 year olds is a rather worrying figure, considering unemployment levels for this age bracket were closer to 15% in 2006.
He continued, “When I look at the numbers, what stands out is…unemployment for young people, it is really higher than it has been in recent history. Young people just aren’t working in the numbers that they typically would be, they are having trouble getting jobs. So that is a number one reason why they aren’t participating in the vehicle market.”
Mohatarem did however attribute the slowdown in car purchasing to temporary economic causes rather than a permanent shift in demographics: “It’s not a permanent withdrawal from the market, it’s more of a delay.”
But this little glitch has not stopped GM from trying to keep young people interested in purchasing cars in recent years, continuously attempting to attract 18-to-34-year-olds through a blend of social media campaigns, video game placements and peer-to-peer advertising. At the Detroit Auto Show in 2012, General Motors also introduced two Chevrolet concept vehicles, the Chevrolet Tru 140S and the Chevrolet Code 130R, in response to extensive research into the mindsets of young car buyers.
But while some may assume that a Millennial would only be attracted to low-cost, smaller cars, Clemson University analysis has found that, when a group of students were asked to design their ideal concept car, less wealthy Gen Y consumers do not necessarily like entry-level or bottom-of-the-line cars, but want more expensive cars – even though they may not be able to afford them.
The disinterested generation
However, some OEMs have accepted the idea that Millennials may be uninterested in buying cars due to a bigger interest in spending their money on the latest technology. BMW is a prime example: its recently released Genius programme uses artificial intelligence to interact with potential customers of the BMW i3 EV or i8 PHEV in a live question and answer format. The system works on a mobile platform in the UK, a potentially appealing feature to young buyers seeking the latest technology in their new car.
Similarly, Scion has announced a standard touchscreen audio system in all new models. According to Vice President Doug Murtha, “a standard touchscreen audio system across the entire Scion line-up stays true to the brand’s innovative nature and responsiveness to the desires of its youthful drivers.”
Thankfully, sitting up and taking notice of millenials is having positive results: according to President of Infiniti Johan de Nysschen, the compact crossover segment is being driven by the demographic.
“The new Millennials are driving growth in the premium segment, but particularly in this segment. These young people have grown up, if not in affluent homes, at the very least in upper middle class homes, accustomed to premium brands. Whether it’s electronics, technology, fashion or purses, it doesn’t matter. And their parents may well too have been driving some kind of premium automobile brand. But now, as they venture out into their own world, they don’t really want to compromise any of these attributes. Since many of them will be early in their careers, they may not have immediately disposable income to go for the very top tier of those brands. That is why manufacturers recognising this trend are creating vehicles that, in all the product attributes, exhibit premium brand qualities but at a price point that is more accessible to these new buyers.”
Indeed, AutoTrader.com’s recent study on the next generation of car buyers confirmed de Nysschen’s observations, revealing that Millennials are highly aspirational and image-conscious, more open to import brands, and certainly do have an interest in vehicles and driving.
“This generation represents the future of our industry, so it’s essential to have a deep understanding of their wants and needs,” said Isabelle Helms, Senior Director of Research and Marketing Analytics at AutoTrader.
The AutoTrader.com study also discovered that a slowdown in car purchasing has not drastically affected figures of Millennials buying cars, showing that they make up 75m of the US population, and in fact purchased 25% of all vehicles in 2012.
Mobility alternatives
It is still true to say, however, that young drivers have started to move towards cheaper ways of motoring, due to increasing car prices and sky-high insurance for drivers who have recently passed their test. Britain’s largest independent car club, The City Car Club, has noticed a significant rise in users under the age of 30 joining their ‘book in, jump in, drive away’ scheme, with 15% of their membership now under 30, compared with 11% in 2011.
“We’ve been operating in the UK for eight years now and have definitely seen an increase in the number of members who are under 30,” a spokesperson said. “It helps that we allow anyone with a year’s licence to join our club and drive any of our vehicles, including vans, where most ‘traditional’ rental companies have age limitations of either 21 or 25. Add the significant increases in insurance costs this age group is facing for their own vehicles, and it’s easy to see why we’re becoming more popular.”
Although the millennial generation’s interest in buying new cars has declined, younger people have certainly not lost their interest in cars altogether. The annual US sales rate for 2013 is at 15.4 million, and is only set to climb in forthcoming years.
The future direction for this demographic will hinge on economic developments. On a promising note, the US economy is expected to continue to expand at a moderate pace over the next two years. “If the government can make progress on its outstanding fiscal issues, the key remaining drag on the economy, millennials could find more job opportunities, enabling them to set up more new households and buy more new cars,” concluded Plache.
Rachel Boagey
