The millennials are coming
During the past decade, the rise in car-sharing services,
urban living and college debt payments led to doubts about millennials'
desire to ever own a vehicle.
Not anymore. Millennials make up
the fastest growing segment among vehicle buyers and likely will
represent about 40 percent of the U.S. new-vehicle market by 2020.
Last
year, millennials -- also known as Generation Y -- purchased 4.1
million vehicles in the United States, accounting for 29 percent of the
market, according to data from J.D Power and Associates' Power
Information Network. They now drive changes in automotive marketing and
product features and are likely to influence future automotive
developments more than any generation before them, experts say.
Because
of the Great Recession, millennials entered the market later than prior
generations. As the U.S. economy hit the depths in 2008-09, millennials
were having a difficult time finding jobs, and the cost of insurance
was rising rapidly, said Mustafa Mohatarem, chief economist for General
Motors.
But as the economy improved, millennials started buying
cars, Mohatarem said: "What we see is the share of new vehicles being
bought [by millennials] is increasing significantly."
Jeff
Schuster, senior vice president of forecasting with LMC Automotive in
Troy, Mich., says millennials have shaken off the effects of the
recession.
"The millennial was the buyer that was first pushed
out of the market with the recession," Schuster said. "They were late
coming back, but they have come back. We are past that issue."
New-vehicle
purchases by millennials -- the 75 million-plus group born in the
United States between the early 1980s and late '90s -- are likely to
grow at a faster rate than any other age group in the coming years.
Since 2011, their share of U.S. retail new-vehicle sales rose nearly 9
percentage points, compared with baby boomers, whose share declined 6
percentage points during the same period, according to J.D Power.
"If
you combine Gen Z and Gen Y, they are 30 percent now, a massive
increase from just 20 percent in 2011," said Thomas King, vice president
of PIN operations at J.D. Power. Gen Z is the post-millennial age
group.
Need, not want
Unlike their wealthier parents -- Gen X's born in the mid-'60s to
late-'70s and baby boomers born after 1946 -- millennials are buying
vehicles because of need rather than want, according to a study by the
online shopping site Autotrader. They are graduating from college,
landing jobs, buying homes, getting married, and some are starting
families.
Mohatarem: GM's millennial sales rose to 19 percent of company sales in 2016. Photo credit: GREG HORVATH
Between 2010 and 2015, the share of vehicle sales for buyers under 35
has grown about 3 percentage points for each point of growth in the
market, said GM's Mohatarem: "So when you are talking about a market of
17.5 million, that is a big number."
The biggest buying segment
is still 50- to 69-year-olds, who buy more than 35 percent of all
vehicles -- but they have been purchasing fewer cars in the past five
years, Mohatarem said.
Millennials are largely buying entry
compacts and some SUVs and crossovers. "Because the buyers are younger,
typically they have lower incomes and lower credit profiles. They tend
to skew towards buying compact cars -- 18 percent compared to 14 percent
for the industry in total," King said.
Mohatarem said that at
GM, millennial sales rose to 19 percent of the giant automaker's sales
in 2016, up from 14 percent in 2010.
Millennials purchase
vehicles below the $34,000 average transaction price at GM, he said:
"When you look at the vehicles in that market, our Chevy Spark is just
under $15,000 to the Chevy Equinox that can stretch to $30,000 -- that
seems to be the sweet spot."
But give them time. "They are
shifting from cars towards SUVs," King said. "That makes sense because
the older millennials are changing their lifestyles, and they are
responding and making that shift rapidly."
AutoNation results
According to AutoNation, the country's largest public dealership
group, Toyota captured 19 percent of AutoNation's millennial sales
through last September, followed by Honda with 15 percent and Ford with
14 percent. The Toyota Corolla, Honda Civic and Honda Accord were the
top-selling vehicles, according to AutoNation.
Kim McCullough, vice president of marketing, Jaguar Land Rover
North America: "There were so many people saying millennials wouldn't
be interested in buying cars -- the difference is they aren't interested
in doing it right away."
Kim McCullough, vice president of marketing at Jaguar Land Rover
North America, said millennials are moving into the premium segment.
They accounted for about 18 percent of U.S. premium sales last year, up
from 10 percent in 2011. In the U.S., 25 percent of all sales were
premium vehicles, she said.
McCullough said conquesting buyers is
the "lifeblood" for both Jaguar and Land Rover, and millennials are a
crucial part of JLR's continued quest to become a top five luxury brand
in the U.S.
Reaching out to millennials is important for all brands in the current sales plateau, experts say.
"Now
in an environment where you don't see as much sales growth, you have to
think about every opportunity that you have and potentially be
aggressive to get those consumers," King said.
Jaguar and Land
Rover are both trying to grow sales in the United States with more
affordable, smaller and youthful vehicles. In the past year, Jaguar
launched the compact XE sedan and its first crossover, the compact
F-Pace. Land Rover's new smaller SUV, the Discovery, goes on sale in
late spring.
Half of Land Rover and Range Rover buyers are
between the ages of 20 and 48, McCullough said. With the launch of the
XE, the number of buyers under 35 has "doubled for the brand as a
whole."
Shopping used cars?
Used cars traditionally have been an alternative to new cars for
entry buyers, but they have been scarce because of the dip in U.S.
automotive sales during the recession -- and, with supply short, they're
expensive.
But as more used vehicles enter the market this year,
millennials may decide that perhaps a 3-year-old SUV is a good
alternative to the new one they covet. Adding to the pressure is the
rise in new-vehicle prices.
Rather than stretch the budget to buy
a new SUV or crossover, now millennials "may find themselves in a
vehicle that is a few years old with a warranty," King said.
He
dismisses the notion that millennials are more interested in
ride-sharing services such as Uber and Lyft than car ownership: "It is a
hot topic. I think in respect to the interest level, the need for
transportation is similar to what it has been in similar generations."
Michael
Aron, senior manager of market intelligence for Nissan North America,
agrees: "There is a lot of hype about millennials and interest in
alternative mobility solutions and that the car market is dead because
the future looks like shared car and taxi sharing like Uber and so
forth.
"The main thing millennials are limited by, up to their 30s, is budget."
"The millennial was the buyer that was first pushed out of the
market with the recession. They were late coming back, but they have
come back. We are past that issue."
Jeff Schuster
LMC Automotive
'Generational thing'
JLR's McCullough said some millennials even put off getting a
driver's license. But she attributes that to a "generational thing." A
baby boomer herself, McCullough recalled rushing off to get her driving
permit "as soon I could" because it was "freedom, woo-hoo!"
"There
were so many people saying millennials wouldn't be interested in buying
cars -- the difference is they aren't interested in doing it right
away," she said.
But they are different from the baby boomers, experts say.
"What
is important to them is different because it is such a large generation
and spanning quite a difference in age and life stage. There are a lot
of subgroupings in that generation as well," said LMC's Schuster.
"It is important that the industry addresses all of those."
Price
is probably the most important factor for millennials. Schuster said
that, unlike their baby boomer parents, millennials measure vehicle
affordability by the monthly payment rather than the total purchase
price.
"The millennial is not worried about "If I spread it across 84 months, it could cost me a lot more interest,'" Schuster said.
GM
also finds that more millennials buy rather than lease cars. "I think
it is more that they make good cost calculations on what is a better
option for them," Mohatarem said.
Subsegments differ
Subaru sees two distinct groups of millennials: younger buyers who
are looking for their first new car and an older group that's starting a
family and/or buying a home. Indeed, Subaru's marketing for the
redesigned Impreza compact is to a group it calls "young matures, folks
that are still early in life," said Dave Sullivan, the brand's marketing
manager. "They are a bit more pragmatic than you might expect someone
of that age to be."
Subaru forecasts half of the buyers of the
new-generation Impreza that went on sale in December will be under 45
and a third will be millennials.
"One of the things that struck
us talking to younger customers is they are looking for long-lasting
cars, and in the family formation, they are focused on safety," Sullivan
said.
Nissan's Aron said capturing millennials means more than
just bringing in more sales. "Our equity lies in being a more bold and
provocative brand."
"Most people, and the younger generation in
general, are stressed out by driving, increasing commute times,
increasing traffic situations," he said.
The digital generation
Marketing to millennials also is changing. TV is of less importance.
Social media, with new sites and apps popping up at a rapid pace, is far
more relevant, automakers said.
Autotrader found that millennial
vehicle buyers do 61 percent of their research and shopping online and
just 12 percent visiting dealerships. "Millennials feel the Internet is
four times more helpful during the shopping process than TV or
newspapers."
And millennials like communicating through images more than older groups, Autotrader said.
JLR
tried to capitalize on the millennial taste for photos and videos
during last year's multicity Art of Performance Tour and allowed
participants to test drive cars. Using in-car video technology and
special effects, videos were created for participants to post on social
media.
"What we did is the best encapsulation to reach this new
audience, tapping into ... millennials' desire for virtual content and
making those videos that are shareable," McCullough said.
And 37 percent of the tour participants were 25- to 32-year-olds, she said.
"You
have to take chances, and you have to learn. It is changing so fast
with things like Snapchat that weren't on the radar six months ago,"
McCullough said. "You have to dedicate some of your budget to do that
and learn."
Luring more millennials will indeed take time. As
Nissan's Aron puts it, it will be a five- to 10-year "assault on
millennials."
"You can't boil the ocean all at once, so we are
trying to leverage our brand image with our investment in connective
services and leadership with electric vehicles like the Nissan Leaf."
Lease vs. buy
According to a new Edmunds study, about 32 percent of millennials who
bought a vehicle last year opted to lease, up from 21 percent in 2011.
Millennials were the biggest group of lessees with a household income under $50,000, Edmunds said.
"Leasing
hits a sweet spot for millennials -- they can enjoy the benefits of
owning a new vehicle at a low price point with the latest features they
crave," Jessica Caldwell, an Edmunds analyst, said in a release. "If
automakers make a positive first impression with this influential group,
they have a great opportunity to build lasting relationships as brand
loyalty rates are much higher among shoppers who lease vs. buy."
Lessees
save an average of $120 per month leasing rather than financing, and
the terms average 36 months, Edmunds said. Last year, the average period
for financing was 69 months.
When millennials do finance, it's
for a longer term, generally 64 months -- which AutoNation says is the
average length of most of its buyers' contracts.
But if interest rates rise and residuals are under more pressure, leasing may become less attractive to millennials.
"If credit were to tighten, it could put pressure on millennials, which affects the market," Schuster said.
Nevertheless,
J.D. Power forecasts that millennials' leasing rates will rise "as they
get a little older and a little bit wealthier," said King.
The segment will grow in both purchasing and leasing, he adds: "They are big enough that they cover all bases."
by:autonews.com
The Millennials are Coming.............
