Dean Barber

A Ho-Hum Opinion of Cars May Be Part of the Problem

In Corporate Site Selection and Economic Development on May 14, 2017 at 9:59 am

If you were to believe much of what you hear and read about this seemingly monolithic group called millennials, you might wonder if they are not an alien bunch from outer space.

Indeed, marketers and consultants have determined there is much money to be made if they can convince us that millennials have special wants and needs and cracking the code is critical if we are going to reach them

While I acknowledge there are some generational differences in how we all see the world, I suspect that much of what we are being told about millennials, which is shorthand for young Americans, is a crock.

Never mind there is no consensus on what a millennial is. Some say millennials are anyone born between 1980 and 1995 while others say it is between 1982 and 2000.

Don’t Put Them in Box

More to the point, we seem obsessed with generational labels and stereotypes.

“There’s about 80 million millennials right now and some of those millennials are CEOs in Silicon Valley, and some of them are illegal immigrants in the Midwest who are waitressing somewhere,” said Jessica Kriegel, author of Unfairly Labeled: How Your Workplace Can Benefit from Ditching Generational Stereotypes in an interview with USA Today.

“You really can’t put them all in a box. And what we do is, we put them all in a box, and that box is really based on a middle-income, white, American person and then we just say that’s the only kind of millennial that exists right now.”

We have been told ad nauseam that millennials would prefer not to own and will thereby drastically shape our future consumer society. And while there may be a kernel of truth to that, the bigger aspect is that digital technologies are changing how and what we buy via online transactions, and tech savviness has much more to do with socio-economic status than age.

They Actually Do Own

Fifty-three percent of millennials actually do own homes and overall, 88 percent of millennials who don’t hope to one day, according to a survey conducted by Qualtrics, a Provo, Utah-based survey software firm, and venture capital firm Accel Partners (a Qualtrics investor).

Nearly 80 percent of millennials own cars and 75 percent of millennials who don’t own a car aspire to own one, the Accel + Qualtrics Millennial Study 2017 found.

In last week’s blog, A Rocky Road Ahead for the Auto Industry, I wrote about how some industry analysts believe auto sales have peaked and are set to trend downward. Without trying to put them into a box, young people’s attitudes toward cars might be partly responsible.

A Softening of Drivers Licenses

One major truth facing the industry is the fact that a lower proportion of young people have drivers licenses today compared to their counterparts in the 1980s.

In a 2016 report examining changes in driver licensure in the U.S. from 1983 to 2014, researchers at the University of Michigan found a continuous decrease in the percentage of those under age 45 with a license.

About 87 percent of 19-year-olds in 1983 had their licenses, but more than 30 years later, that percentage had dropped to 69 percent. Even the proportion of Americans ages 45-69 with driver’s licenses have declined overall since 2008, following a 25-year rise.

Delayed Buyers

One could surmise from this study that millennials could bring about a historic collapse in auto sales because they will reject vehicle ownership entirely in favor of car-sharing, on-demand services and, in a few years, shared autonomous vehicles.

In fact, the share of the new-car market jumped to 28 percent for those between 21 and 38 percent in 2015, according to the J.D. Power Information Network, which defines millennials as those between 21 and 38.

That’s a big improvement from 2010, when millennials — who make up around 30 percent of the population — bought just 17 percent of new cars. That had auto executives wondering aloud if the trend would be permanent.

Still, it is probably true that many millennials simply cannot afford to buy a new car, because they are under employed and/or saddled with tons of college debt. They will either resort to buying a used car or hold off on car ownership entirely.

This is particularly true in large cities where housing prices are high, public transportation and Uber or Lyft are available and where just parking a car can be a major expense.

Even if and when these young, carless urbanites become middle-aged and move to the suburbs, thereby requiring their need for a car, the fact that they have postponed buying a car poses a problem for the auto industry. It likely means they will buy fewer cars during their lifetime.

The Utilitarian Aspect

I grew up in the generation of the “muscle car,” exclusively Detroit-powered V-8s known for creating a little havoc on the streets. The closest I got to one was a 1968 Pontiac Firebird 328. It was red with a white convertible top.

My next vehicle would be a 1969 Volkswagen bus. Even though they were vastly different vehicles, both the Firebird and the VW bus represented freedom of sorts for a dumb kid venturing out into the world.

Many of today’s young people view cars less as a status symbol and more like a utilitarian thing, like a pipe wrench. A survey last year by NerdWallet reported that while 75 percent of millennials who own a car plan to buy another within the next five years, 43 percent said owning a car is a hassle.

In short, car ownership appears not have the appeal or fascination with many young people today as it did with my generation. In a recent trip to Austin, I was struck by how many bicycles were parked outside of neighborhood bars and restaurants.  Made total sense to me now.

But again, it is lazy thinking to lump all young people into the millennial box with the belief that they think one way. A young man growing up in rural Oklahoma will likely see the world somewhat differently from a kid growing up in Boston.

For the kid in Oklahoma, that first set of wheels may indeed represent freedom, whereas the kid in Boston or Austin may be thinking, “I’ll get one if and when I have to.”

Carless in Seattle

Census data show that from 2010 to 2015, the percentage of Seattle households that own a vehicle declined, according to a report last week by The Seattle Times.

During that five-year span, car ownership among the city’s young , those younger than 35, had declined by about 3 percentage points. The data suggests that young newcomers to the city are, more often than not, choosing to forgo owning a car.

It’s a combination of economics and priorities.  As Seattle housing costs rise, cars are one expense that many young city dwellers are willing to sacrifice, Mark Hallenbeck, director of the Washington State Transportation Center at the University of Washington, told the newspaper.

“If you get away from the high set of fixed expenses that go with owning a car — monthly payments, parking, insurance — you can pay for the apartment … ,” he said. “You can go out to bars to meet your friends, and you can get around everywhere you need to go.”

Aside from the fact that many young people, particularly those living in large cities, have a rather ho-hum opinion of cars, there are likely other factors contributing to a cooling of car sales.

Too Many Cars on the Road

Deutsche Bank said in a recent report that the combination of rising interest rates and a slide in used-vehicle prices, make for a potentially not-so-good scenario for the auto industry.

Today’s cars are much more durable than in the past and fewer are being taken off the road. Scrappage has declined to about 11 million a year from about 13 million to 14 million a decade ago. Total vehicles in the U.S. have increased to 270 million, from 249 million at the end of 2012.

“This has led us to question whether the U.S. is broadly oversupplied, and whether trend demand in the 17 million range is fundamentally supported,” the Deutsche Bank analysts wrote. “If it is not, the oversupply should be self-correcting — the U.S. market will experience declining used-vehicle prices, pressuring new vehicle sales.”

Faced with the shifting consumer tastes of some (not all) millennials, an oversupply of cars on the road, and declining used-car prices, it would appear the auto industry faces some major headwinds that could result in softening sales and industry layoffs.

But this has long been a cyclical industry, with ups and downs. It should weather the storm much better than it did during the Great Recession.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com

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