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Generation Y threatens auto demand

SOUTHFIELD, Mich. — The auto industry says it's concerned that financially pressed young people who connect online instead of in person could hold down peak demand by 2 million units a year.

The rate of U.S. auto sales to 18- to 34-year-old buyers fell to 11 percent in April 2012, down from 17 percent for the same age group in April 2007, before the recession, according to R.L. Polk & Co.

Though the car is still a gateway to independence for the 80 million U.S. consumers born from 1981 to 2001, according to Deloitte LLP, Generation Y has more ways to connect with the outside world than young buyers of past generations.

"A car is a symbol of freedom," said Alexander Edwards, president of the automotive division of Strategic Vision, a San Diego consumer research firm. "But unlike previous years, there are many different ways that a Gen Y person can capture that freedom."

At stake is whether the recovery in vehicle sales is restrained by Gen Y. U.S. sales of cars and light trucks rose 14 percent to 8.43 million in the first seven months and are on pace to total more than 14 million for 2012. That would be the best year since 2007. That lags the annual average of 16.8 million from 2000 through 2007.

A combination of lower wages for the youngest workers and the generation's tendency to favor gadgets over cars may cap average U.S. auto sales at about 15 million annually, said Dan Luria, a labor economist at Michigan Manufacturing Technology Center.

"Now, technology not only competes" with cars, Luria said, "it competes and wins."

The percentage of 20- to 24-year-olds with driver's licenses dropped to 81 percent in 2010, down from 92 percent for the same age group in 1983, said Michael Sivak, a researcher with the University of Michigan Transportation Research Institute.

Automakers have attempted to attract Gen Y buyers for years. Toyota created its Scion brand for the group. Ford used social media outlets to promote its introduction of the Fiesta subcompact. General Motors has set up programs with Walt Disney Co. and Viacom's MTV to train dealers in ways to attract young buyers.

"It's no longer a foregone conclusion that we will be able to sell cars to a large and emerging demographic," Mark Fields, Ford's president of the Americas, said in a January speech. "If we're going to continue to grow as an industry and as a company, it's really important we reach this consumer."

For most Gen Y buyers, also known as Millennials, skipping a vehicle purchase is preferable to forgoing technology. Smartphones, laptops and tablet devices compete for their dollars and are higher priorities than vehicle purchases, said Joe Vitale, an automotive consultant with Deloitte.

Financing, parking, servicing and insuring a vehicle all add up to a commitment that cash-strapped Millennials aren't ready to make, he said.

"A vehicle is really a discretionary purchase and a secondary need versus an iPhone, mobile phone or personal computer," Vitale said.

Technology, a weak economy and urban living are leading to fewer young people obtaining licenses, Sivak said.

"The cultural trend is a consequence of the available technology," he said. "Given that you now have the option and it is convenient, the Internet is currently replacing physical contact."

Millennials living in big cities with reliable public transit see no need to own a car, even for weekend trips, Luria said. Those who do drive can turn to rental companies.

Generation Y threatens auto demand 08/07/12 [Last modified: Tuesday, August 7, 2012 9:35pm]
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