The unexpected way millennials will affect the auto industry in years to come
It is the right, nay, the privilege of the older generation to disparage those who follow. Admit it. If you are older than 45, you’ve probably called out Gen Y millennials as pampered, couch-surfing, narcissistic Trustifarians.
Hey, it happens. Gen X was considered too snarky and cynical and didn’t respect the gravitas of the world we live in. Parents of boomers looked askance at these dirty hippies turned greedy Yuppies. And so forth.
It is this sort of thinking that has colored the conversation about the future of the car industry. You can’t avoid the screeds about how millennials would rather have an iPhone than a car or how they’re just fine having Uber or light rail fulfill their transportation needs instead of driving themselves. They’re just indifferent about cars, right?
There’s an element of truth there. Many millennials have had to delay acquiring new cars for major financial reasons: They came of car-buying age in the midst of the Great Recession and have suffered through years of McJobs—all while carrying staggering amounts of student-loan debt. And the average transaction price of a new car now represents a greater percentage of average incomes.
Who has money for a car—a used one, much less new—if making rent is a challenge? Any savvy investment adviser would tell you to dump a depreciating asset that sits idle 90 percent of the time.
As a result, driver’s license applications have declined for the Gen Y cohort at similar times in their lives compared to their elders. A 2016 University of Michigan study showed about 87 percent of 19-year-olds in 1983 had their licenses, but that percentage has now dropped to 69 percent. However, the study showed the proportion of license-carrying Americans ages 45 to 69 has also declined since 2008 following a 25-year rise. So it’s not just millennials who are taking a step back from driving, especially as the repopulation of urban centers puts more people back into mass transit.
But at some point reality creeps in. For millennials in their early 30s, marriage and kids means moving to the suburbs, where public transportation options are fewer. It’s a pain to take the bus to your prenatal care appointment. For the younger set, who wants Mom driving you and your sweetheart to a concert if the arena isn’t accessible by public transport? And what if it takes 90 minutes by rail-bus-bike to get to your inconveniently located job but only 25 minutes by car? Time is the new luxury, after all.
Gen Y is a demographic powerhouse, now the largest living generation in the U.S.—with the leading edge now in and advancing in their careers. Even if relatively fewer of them are driving compared to their elders, their stunning purchasing power is now being borne out.
A recent survey of 1,500 millennials by Mizuho Securities showed that just 5 percent had no interest in owning a car, 31 percent already owned their own wheels, and 64 percent were going to buy a car in the next two years.
Research by J.D. Power shows that between 2011 and 2016, millennials have grown to account for 29 percent of car purchases. That’s up from 20 percent. It’s also more than Gen X, which represented a steady 24 to 25 percent in that period. Meanwhile, boomers have shrunk to 36 percent (from 42 percent) of the car market in the same timeframe. (One additional note: Those figures are for buyers, not drivers, so if a parent bought or co-signed a car for a millennial, it’s not counted in that 29 percent.)
What’s more, millennials aren’t just buying cheap, practical cars. They are elbowing their way into auction houses and displacing boomers as top bidders for pricey classic cars, said McKeel Hagerty, CEO of the eponymous insurance firm, in an interview with The Arizona Republic.
So parents, remember when you were young, how you swore you would never become like your mom or dad? Well, if car-buying habits are any indication, your kids are becoming more like you. And that’s a good thing.