Millennials are buying autos, despite prices
The fate of the auto industry depends on the millennial generation. Or so it seems. The largest demographic since the baby boomers has alternatively been cited as bringing about the end of America’s love affair with the automobile, yet responsible for fueling record new auto sales.
With years of bullish auto sales expected to plateau in 2017, automakers are scrambling to understand a generation that is anything but a homogeneous demographic.
“There’s a lot of diversity, both economically and ethnically,” Michelle Krebs, senior analyst of AutoTrader, says of the generation born between 1982 and 1996. “It’s really hard to treat them as a monolith.”
Also known as Generation Y, they did not rush out to get driver’s licenses like preceding generations, they eschew car ownership with car- and ride-sharing sites like ZipCar and Uber, they don’t like the commitment of a car and all its trappings, it has been said.
Yet they account for nearly 30 percent of all new auto sales.
The only consistent attribute of millennials and car ownership is shared by every generation: Cars are too darn expensive.
“There are plenty of reasons to not buy a car, but the overwhelming reason is not because they don’t like cars,” Krebs says. “It’s because they can’t afford them.”
The No. 1 reason 57 percent of millennials are not buying cars is due to cost, according to a Kelley Blue Book study (KBB and AutoTrader are owned by Cox Automotive).
The average transaction price of a new car continues to break records year over year, reaching just under $35,000 in November 2016. That is up 1.7 percent from last year, and 7.8 percent from 2012, according to KBB.
“People who are in the market buying new cars tend to pay for all the bells and whistles,” Krebs explains.
Those bells and whistles have gotten shinier and greater in recent years. Average transaction prices have jumped over 35 percent since 2000, which was the last time new-car sales broke a record, according to estimates by AutoTrader.
During that time, median income has fallen 2.4 percent.
So as a whole new cars cost more than ever before, we’re buying them more than ever before, and we have less money to do so. This might explain why in the past 15 years it has taken a population surge of 38 million people over age 18 to eclipse the previous sales record.
Per capita sales ownership is down, from one car for every 12 adults in 2000 to one car for every 14 adults in 2015.
With baby boomers accounting for fewer new-car sales, millennials and the subsequent Generation Z become all that much more vital to a century-old industry facing its first true challenge in the form of shared and semiautonomous mobility.
“(They’re) critically important because of the sheer numbers and buying power,” said Todd Brown, marketing manager for Chevy Cruze, which has an ad campaign addressed specifically to millennials. “No matter what industry, these are going to be the consumers of your goods for the next 20-30 years.”
These consumers have more information and more choices than ever, yet are wary of the traditional car buying process.
“The more you test-drive, the more confusing it gets,” said Meagan Thomas, 25, of Colorado Springs, Colo. “I chose the one that fit my lifestyle that didn’t cost too much money, and gets the same mpg as my 2001 Pontiac Sunfire.”
Thomas bought a 2015 Jeep Renegade Sport.
“In 10 years I hope to have kids and there’s room to put stuff in my car,” she said.
She teaches fitness classes at Pure Barre to make the monthly payment, and supplements her full time job in marketing and sales as a freelance writer.
Thomas admits to needing a car more than wanting one, and she might not have gotten a new car without a low loan rate through the USAA, which services loans to members of the military and their families.
It’s a pricey time to buy any auto, new or used.
Used car prices also hit a high in 2015, averaging $18,800 according to Edmunds.com, in step with the booming leased car market. The supply of off-lease cars, or those cars one to three years old returning to the used car market at the end of their lease, is growing, nudging prices down.
Some millennials would much rather buy used and avoid the dealership, another challenge facing the industry.
“The whole process of buying a car and having a dealership talk to you and try to sell you on everything makes me not want to be involved with any of it,” said Alyce Hayes, 30, of Bradley, Ill. “If I could guarantee a price and just be able to go in and check the vehicle out, I’d be good.”
What millennials want out of their cars is a lot like what boomers want, with seamless technology, advanced safety technology and a preference for crossovers.