This week’s Momentum is a guest post from Joey M. which looks at upcoming changes in the demographics of car buyers.
Don’t look now, but there’s another dynamic shift underway in the automobile marketplace. The car-obsessed baby boom generation—those born between the mid-1940s and the mid-60s—is finally about to be overtaken by millennials—those born between the early 1980s and the early aughts—when it comes to auto sales. For the first time in history, millennials bought more new cars that boomers in California, the single biggest U.S. market, according to 2016 figures compiled by J.D. Power and Associates.
For years, the industry has puzzled over the fact that, unlike boomers, millennials have not appeared to show much excitement for car ownership. Conventional wisdom had it that the technological leaps that enabled the “gig economy,” from ride-sharing startups to Zipcar alternatives, had inexorably disrupted demand and would ultimately be the death of car manufacturing. But a funny thing has happened on the way to the industry’s funeral: As millennials have aged, they’ve suddenly warmed to the idea of owning a new car, and their share of the market has jumped from just 17% in 2010 to 28% in 2016.
For a generation that lives at home longer, marries and has children later than their parents, delayed car ownership is a concept that may also take some getting used to. But it’s clear that obituaries for the auto sector were written prematurely.
“Millennials are going to be the main generation we will cater to as an industry,” John Humphrey, J.D. Power’s senior vice president of global automotive operations told the Chicago Tribune.
In order to do so, we must come to grips with the fact that millennials—who now outnumber boomers in terms of overall population—hold a different set of cultural beliefs than their parents. The boomers’ love of cars is, and may always be, unsurpassed. The industry has not only banked on that relationship, it deluded itself into believing it might go on forever. That’s somewhat understandable. In 2011, for instance, adults over the age of 50 bought nearly two-thirds of the new cars sold in the U.S., according to a study conducted by the AARP.
As a result, car makers remain largely focused on the boomers, continually adding features like exterior cameras or heated steering wheels that are designed to help keep aging drivers on the road as long as possible. Fair enough, but it would be foolish from a business perspective to ignore the burgeoning market of younger car buyers whose needs and priorities demand a new way of doing business.
Millennials come to the marketplace with a very different mindset than the boomers. They’ve recently endured the high unemployment of a harsh recession and are regularly asked to adapt to a rapidly changing employment market, changing jobs an average of four times in their first decade out of college. They’ve been the beta-testers for a new way of receiving information and buying products, and are witnessing frightening environmental degradation that has given rise to a different relationship to consumerism, and indeed the future itself.
“I see a lot of people my age have affordable, reliable cars,” Branden Matlock, a 32-year-old real estate agent in San Diego, told the Los Angeles Times. “I bought my Prius because I wanted to get great gas mileage.”
While an emphasis on affordability isn’t exactly a new phenomenon for younger car buyers, the underlying predicament necessitating it is. The median household income for Americans between the ages of 25 and 34 stands at $54,243, the Chicago Tribune reported. At the same time, however, the average 25-year-old is today saddled with $20,000 in student loan debt, according to research conducted by Goldman Sachs. Yet, the car industry has continued to look at millennials as boomers-in-training. In the first quarter of 2017, the average price of a new car hit $31,400 after incentives, according to figures compiled by J.D. Power. Simply put, that entry point is too high.
Though some luxury brands have released models with reduced sticker prices—say $35,000 as opposed to $70,000—think for a moment about the impact a new vehicle with a base price less than $8,000 would have on the market. And though Toyota has done well to lure buyers with the promise of the Prius’ 53 miles per gallon fuel efficiency on the highway, imagine the lure of a car that achieved 84 m.p.g. These aren’t theoretical goals, they’re within our reach, and they have the potential to upend the entire industry.
By and large, millennials have been remarkably clear about what they’re looking for as car buyers. While there are some signs that they are simply edging closer to the buying patterns of their parents, it would be wise for manufacturers to come to terms with the fact that the days of adulation from a car-obsessed consumer base are over. Like every historical juncture, this one presents peril and opportunity. Everything about our world is changing, and millennials will indeed shape our industry in the decades to come. The question is whether we’re ready to meet their demand with the cars that they desire.