Friday, September 13, 2013

The Millennial Question

Cars aren't cool anymore. That is the verdict of a broad swath of Generation Y. …Smartphones take them to virtual hangouts with friends.” 1

“Some young people shun driving because it interferes with their texting…” 2

“More young adults today would rather hit the information highway than the open highway...” 3

In the past few months “conclusions” such as those above have played out across the internet as front-and-center issues for our industry. These generalizations arose from a Zipcar study about consumer behavior; it implied that Millennials value their mobile devices over auto ownership. Story-hungry media misinterpreted some parts of this study to explain Gen Y’s reluctance to purchase new vehicles and dealer service. True or false? Let’s first look at the study itself.

In early 2013, Zipcar released findings of a survey examining attitudes and behaviors of Millennials regarding transportation and technology, particularly the perceived value of car-sharing and mobility services, like Zipcar. Let’s focus on the two most cited (and misinterpreted) questions:

The question on the left has generated such headlines as: “The Cheapest Generation” 4 and “The End of Car Culture.” 5 However, the reality is not so black-and-white. The truth is that a young college student or a young professional living near public transportation can get by without a car, but their laptop is their livelihood. What good is a car if you don’t have a phone or laptop to arrange meetings and make appointments? Remember, Millennials typically do not have landline phones, so all communication is facilitated through their mobile phones and computers. Does this mean they don’t value cars? Of course not.

The media and the public seem to have drawn grand conclusions from question two, on the right, with one article stating “They'd rather hang out with their friends on Twitter than get in a car to go see them.” Again: look at the survey. The key word in the survey question is “sometimes”. Sometimes, Millennials responded, they chose to visit friends online rather than drive to see them. That’s true for most people, and no different than the car-crazy baby boomers who, back in their youth, phoned friends rather than drove to see them. Online communication and social media, not to mention the telephone, are supplements to in-person communication, not replacements.

So then, why aren’t Millennials buying new vehicles? It’s a convoluted issue, but really boils down to one thing – the economy. The truth is Millennials are being hammered by low wages, low employment, and skyrocketing student debt.

The median income for a 25 to 34-year-old has increased by over 170% since 1980. Meanwhile, the cost of America’s best-selling vehicle – the Ford F-series – has increased by over 257%. In 2011, payments for an F-150 accounted for 83% of a 25 to 34-year-old’s income, as compared to only 63% in 1980. Clearly, the cost of new vehicles is outpacing income.

But median income only paints part of the picture. What about employment rates for the younger generation?

The above data includes college students who are often, and understandably, not employed. However, it is clear that employment rates are strikingly low for this generation and actually shrank more than 3% in the past year. The job market isn’t what it once was. Consider the field of engineering – a degree in engineering used to guarantee a great job after college. Today, it’s increasingly difficult for recent engineering graduates to find jobs. Many companies are seeking seasoned engineers, instead of green, unproven grads, to keep training costs low and output high.

The final nail in the coffin is student debt. College loans are now the second-greatest source of debt in America, with mortgages being number one. How much cash are we talking about? The Consumer Finance Protection Bureau reports $1 Trillion. Furthermore, according to the Federal Reserve, over 14 million borrowers are under 30: the Millennials. What’s the median debt look like? Well over $20K per person for both private and public universities and growing quickly, and over 60% of students are borrowing. These numbers dwarf the kinds of education-related debt Gen X experienced.

The Millennials aren’t buying cars, but not because they don’t care and not because they don’t need them. No, it’s because they’re broke. New vehicle prices are much higher than what previous generations paid, relative to their incomes. High unemployment rates for Gen Y further reduce potential buyers. Finally, the Millennials are in debt. College graduates who have over $20K in student loans, with dangerous interest rates, will delay costly life decisions such as purchasing a home or a new vehicle.

Bottom Line: Millennials don’t hate cars – they’re broke and pinching pennies. As they pay off loans they will begin to purchase new vehicles, new homes, etc. In the meantime, face the fact that the nature of debt and the makeup of the labor force represent significant obstacles to new vehicle purchases.







No comments: