A recent article in The Atlantic discussed the growing concern of automakers caused by dismal sales figures within the Gen-Y demographic. Apparently, young people are shying away from the responsibility (and financial burden) of purchasing a new car. According to CNW research, ‘adults between the ages of 21 and 34 buy just 27% of all new vehicles sold in America, a far cry from the 38% in 1985.’ So what’s the deal with America’s youngest working cohort? Why don’t they want a set of brand new wheels to show off to their friends?
Well, there are some obvious reasons for this shift in purchasing behavior, namely a lack of financial resource. Many members of Gen-Y are unemployed or underemployed; at a rate far above that of Gen-X and the Baby Boomers. They are also coming out of college with massive amounts of student loan debt, and are faced with the dilemma of investing for their future or paying off the exorbitant amount of debt they have created in their short lifetime. Nowhere in that decision-making process does ‘adding even more debt’ by purchasing a new vehicle make much logical sense. Now some will still argue that Gen-Y does have strong spending power & potential, and in many ways, that is a valid argument. Roughly 30% of Gen-Y is moving back home with their parents after college, which does give them some more financial flexibility. However, as an automaker, it’s more important to consider not the real spending power of the generation, but the perceived spending power that they have for themselves. What I mean to say is that even though Gen-Y may have the ability to spend money on new items such as a car or a home, they don’t feel as though these are sound investments, and would prefer to spend more conservatively just in case something happens and they no longer have a source of income. Last year, I bought a brand new car, nothing flashy (Nissan Altima), or too expensive, but it was still a nice little chunk of change. The thought of losing my job and still having to pay a few hundred dollars per month for the foreseeable future on a car (that I have nowhere to go with) would be a fairly frightening scenario.
This is a generation that grew up watching their parents lose their jobs, their homes, and their personal savings. They are by-and-large much more conservative investors than their older counterparts, and tend to delay milestone events that carry financial commitment, such as marriage or the purchase of a home. I don’t know who came up with this notion, but I’ve often heard that you should be prepared to have to live off of your savings for at least 3 months. Well, for Gen-Y, that number is probably much higher. As they continue to be unemployed or underemployed for 6, 8, 12 months after graduation (Student loan payments often start kicking in 6 months after the date of graduation) they are preparing to have to live off of savings for much longer than the young professionals of the past.
And the financial burden isn’t the only issue facing automakers. As the article points out, more young people are living in cities, where cars aren’t as practical. Also, not mentioned in the article, young people are more conscious of both their personal health and the health of the environment, which encourages them to walk and bike more often in lieu of driving everywhere. So, what can automakers do? Well, they can start as GM has done by attempting to create younger ‘looking’ cars, with colors such as lemonade, denim, and techno pink. But colors alone won’t sway the youthful shopper. Car companies have to convince Gen-Y that owning a new car is a practical and safe investment, by creating cheaper, smaller, more urban-friendly options. They must focus on developing hybrid technology, and infusing new technology into vehicles that make cars more than a mode of transportation. The challenge is large, but with the right insight, automakers may be able to crack the code to this ‘walking generation.’
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