The millennials are coming

The millennials are coming

For millennials, it’s all about the payment

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 forty percent of the U.S. new-vehicle market by 2020.

Last year, millennials — also known as Generation Y — purchased Four.1 million vehicles in the United States, accounting for twenty nine percent of the market, according to data from J.D Power and Associates’ Power Information Network. They now drive switches 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 Excellent Recession, millennials entered the market later than prior generations. As the U.S. economy hit the innards 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 began buying cars, Mohatarem said: “What we see is the share of fresh vehicles being bought [by millennials] is enlargening 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 very first shoved 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 seventy five million-plus group born in the United States inbetween the early 1980s and late ’90s — are likely to grow at a swifter rate than any other age group in the coming years. Since 2011, their share of U.S. retail new-vehicle sales rose almost nine percentage points, compared with baby boomers, whose share declined six percentage points during the same period, according to J.D Power.

“If you combine Gen Z and Gen Y, they are thirty percent now, a massive increase from just twenty percent in 2011,” said Thomas King, vice president of PIN operations at J.D. Power. Gen Z is the post-millennial age group.

Unlike their wealthier parents — Gen X’s born in the mid-’60s to late-’70s and baby boomers born after one thousand nine hundred forty six — millennials are buying vehicles because of need rather than want, according to a investigate by the online shopping site Autotrader. They are graduating from college, landing jobs, buying homes, getting married, and some are kicking off families.

Inbetween two thousand ten and 2015, the share of vehicle sales for buyers under thirty five has grown about three percentage points for each point of growth in the market, said GM’s Mohatarem: “So when you are talking about a market of 17.Five million, that is a big number.”

The thickest buying segment is still 50- to 69-year-olds, who buy more than thirty five 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 junior, typically they have lower incomes and lower credit profiles. They tend to skew towards buying compact cars — eighteen percent compared to fourteen percent for the industry in total,” King said.

Mohatarem said that at GM, millennial sales rose to nineteen percent of the giant automaker’s sales in 2016, up from fourteen 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 spread 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 switching their lifestyles, and they are responding and making that shift rapidly.”

According to AutoNation, the country’s largest public dealership group, Toyota captured nineteen percent of AutoNation’s millennial sales through last September, followed by Honda with fifteen percent and Ford with fourteen percent. The Toyota Corolla, Honda Civic and Honda Accord were the top-selling vehicles, according to AutoNation.

Kim McCullough, vice president of marketing at Jaguar Land Rover North America, said millennials are moving into the premium segment. They accounted for about eighteen percent of U.S. premium sales last year, up from ten percent in 2011. In the U.S., twenty five 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 significant 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 chance that you have and potentially be aggressive to get those consumers,” King said.

Jaguar and Land Rover are both attempting 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 very first crossover, the compact F-Pace. Land Rover’s fresh smaller SUV, the Discovery, goes on sale in late spring.

Half of Land Rover and Range Rover buyers are inbetween the ages of twenty and 48, McCullough said. With the launch of the XE, the number of buyers under thirty five has “doubled for the brand as a entire.”

Shopping used cars?

Used cars traditionally have been an alternative to fresh cars for entry buyers, but they have been scarce because of the dip in U.S. automotive sales during the recession — and, with supply brief, they’re expensive.

But as more used vehicles come in the market this year, millennials may determine that perhaps a 3-year-old SUV is a good alternative to the fresh one they covet. Adding to the pressure is the rise in new-vehicle prices.

Rather than open up the budget to buy a fresh 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 collective car and taxi sharing like Uber and so forward.

“The main thing millennials are limited by, up to their 30s, is budget.”

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 telling 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 significant to them is different because it is such a large generation and spanning fairly a difference in age and life stage. There are a lot of subgroupings in that generation as well,” said LMC’s Schuster.

“It is significant that the industry addresses all of those.”

Price is very likely the most significant 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 eighty four 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.

Subaru sees two distinct groups of millennials: junior buyers who are looking for their very first fresh car and an older group that’s commencing a family and/or buying a home. Indeed, Subaru’s marketing for the redesigned Impreza compact is to a group it calls “youthful 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 forty five and a third will be millennials.

“One of the things that struck us talking to junior 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 junior generation in general, are stressed out by driving, enhancing commute times, enlargening traffic situations,” he said.

The digital generation

Marketing to millennials also is switching. TV is of less importance. Social media, with fresh sites and apps popping up at a rapid tempo, is far more relevant, automakers said.

Autotrader found that millennial vehicle buyers do sixty one percent of their research and shopping online and just twelve 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 pictures more than older groups, Autotrader said.

JLR attempted to capitalize on the millennial taste for photos and movies during last year’s multicity Art of Spectacle Tour and permitted participants to test drive cars. Using in-car movie technology and special effects, movies were created for participants to post on social media.

“What we did is the best encapsulation to reach this fresh audience, tapping into . millennials’ desire for virtual content and making those movies that are shareable,” McCullough said.

And thirty seven 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 switching so rapid 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 “brunt on millennials.”

“You can’t boil the ocean all at once, so we are attempting to leverage our brand picture with our investment in connective services and leadership with electrified vehicles like the Nissan Leaf.”

According to a fresh Edmunds investigate, about thirty two percent of millennials who bought a vehicle last year opted to lease, up from twenty one percent in 2011.

Millennials were the largest group of lessees with a household income under $50,000, Edmunds said.

“Leasing hits a sweet spot for millennials — they can love the benefits of wielding a fresh vehicle at a low price point with the latest features they covet,” Jessica Caldwell, an Edmunds analyst, said in a release. “If automakers make a positive very first impression with this influential group, they have a superb chance 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 thirty six months, Edmunds said. Last year, the average period for financing was sixty nine months.

When millennials do finance, it’s for a longer term, generally sixty four 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.”

Related movie:

Leave a Reply

Your email address will not be published. Required fields are marked *