Americans’ Love Affair With The Automobile Headed For Divorce (#GotBitcoin?)
If teenagers are any guide, Americans’ love affair with the automobile may no longer be something car makers can bank on. Americans’ Love Affair With The Automobile Headed For Divorce (#GotBitcoin?)
In a challenge for Detroit, teens put off getting their licenses and buying cars.
The percentage of teens with a driver’s license has tumbled in the last few decades and more young people are delaying purchasing their first car—if buying one at all, say analysts, generational experts and car industry executives. About a quarter of 16-year-olds had a driver’s license in 2017, a sharp decline from nearly half in 1983, according to an analysis of licensing data by transportation researcher Michael Sivak.
Whereas a driver’s license once was a symbol of freedom, teenagers are reaching their driving age at a time when most have access to ride-hailing services such as Uber and Lyft to shuttle them around town. At the same time, social media and video chat let them hang out with friends without actually leaving the house.
When they reach their 20s, more are moving to big cities with mass transit, where owning a car is neither necessary nor practical. And of those who do buy a car, many more than in older generations opt for a used one, according to J.D. Power.
One reason for that is rising new-vehicle prices. Detroit has jettisoned many of their lower-priced compact and subcompact cars like the Ford Fiesta and Chevy Cruze that have traditionally been starter cars for young buyers. For the auto makers, the strategy makes sense: Sport-utility vehicles or trucks have steadily become more popular over the past decade, and also have much better profit margins.
Now, a new mind-set among many Generation Zers—roughly those born after 1997—is confounding parents and stumping auto makers at a time when new-vehicle sales in the U.S. are slowing.
“That freedom of getting your own wheels and a license—and that being the most important thing in life—is gone,” said Brent Wall, owner of All Star Driver Education in Michigan, a chain of drivers’-ed schools. He said the average age of students in his class is rising. “It used to be the day they turned 14 years and eight months, everybody was lining up at the door. Now I’m starting to see more 15- and 16-year-olds in class.” He frequently hears from parents that they’re the ones pushing their children to enroll.
David Metzler, of Culver City, Calif., is baffled that his 16-year-old daughter June sees no reason to get her license.
“I went out and got it immediately” upon turning 16, he said. “I wanted to get out of the house and go places. For her, getting a license is more like planning for the future.”
June Metzler says she is content with inviting friends over or hanging out with them after school. “Going out to eat is hard, but I can live with it,” she said.
Auto-industry executives say they are attuned to the shifting sentiment—even hearing it from their own children—and are adapting some of their marketing strategies. Japanese auto makers are keeping their lower-priced sedans as a way to attract young people to their brands. But Detroit is betting that even if young people wait longer to buy a car, they eventually will when finances improve and they start families. And then, they’ll buy an SUV or truck.
Some industry analysts aren’t so sure Detroit will be proven right in its bet on larger cars.
“It’s a gamble,” said Mark Wakefield, a global co-leader of automotive and industrial practice at consulting firm AlixPartners, saying that for the auto makers it’s no longer workable to offer a vehicle for every price point. “With urbanization and the cost of ownership going up, those two things combined with the fact that it’s a mature market certainly could put a damper on car sales,” he said.
“Gen Z buyers’ participation in the new-car space is declining year after year,” said Tyson Jominy, an analyst with research firm J.D. Power. “We expect to see them get their first job” and buy a car. “But we’re not seeing this.”
J.D. Power estimates that Gen Zers will purchase about 120,000 fewer new vehicles this year compared with millennials in 2004, when they were the new generation of drivers—or 488,198 vehicles versus 607,329 then.
Cost is increasingly a challenge. The average price paid for a new vehicle was $32,544 in 2018, up from $25,490 a decade ago, according to J.D. Power. The average monthly payment on a new-car loan reached $535 a month last year, or more than 10% of the median household income, a level most Americans can’t afford, said Cox Automotive.
Generation Zers grew up during the financial crisis and tend to be more budget-conscious, according to researchers who study generational trends. In addition, many face substantial student-loan payments, making them more cautious about big-ticket purchases. Total student-loan debt has soared to $1.5 trillion, surpassing Americans’ credit-card and car-loan bills.
The process for teenagers is also getting more expensive. State budget cuts have meant that many public schools no longer offer free driver’s training and a private course can cost upward of a thousand dollars, say driver’s-ed professionals.
On top of the shortage of small cars, auto makers are also packing more technology into vehicles, contributing to rising prices. The new extras also make cars more expensive to repair, helping to drive up car-insurance costs, another deterrent for many teens and 20-somethings.
Bob Carter, Toyota Motor Corp.’s North American sales chief, says that auto makers are aware young people face different financial pressures than previous generations. “We just got to be prepared that getting their license is going to happen later” than has been the norm.
To adapt, some car companies are expanding into new transportation ventures, such as car sharing and electric scooters, to better compete with the ride-hailing options offered by Silicon Valley. But to fund costly investments in new technology and ventures such as electric and self-driving vehicles, auto makers need to keep sales of traditional cars growing.
That may prove tricky if a different mind-set continues to take hold.
In 1983, the first year Mr. Sivak began analyzing the ages of drivers based on licensing data, the percentage of 16-year-olds with driver’s licenses was 46%. By 2008, it had fallen to less than a third and in 2014, it hit a low point of 24.5%. It was up slightly to 26% in 2017, which Mr. Sivak said was likely due to the economy improving.
Even among those in their early 20s, fewer are getting their licenses. About 80% of 20- to 24-year-olds were licensed drivers in 2017, compared with 92% in 1983, Mr. Sivak found.
“The topic comes up in cocktail conversations all the time,” said Stephanie Frazier, a parent of an 18-year-old in Hawaii who she says has no interest in getting a driver’s license. “When I was that age, I wanted wheels and freedom.”
Lizette Dominguez, a sophomore in Westfield, Ind., who turned 16 this month, says she hasn’t gotten around to getting a license yet. “I have after-school activities, homework and clubs.” The cost of driver’s education also deterred her. “It costs almost $400.”
Ms. Dominguez said she uses Uber or has one of her older friends give her a ride to the movies, a friend’s house or the mall.
To appeal to younger consumers, several auto makers. have recently debuted small, sporty crossovers priced under $25,000.
Hyundai Motor Co. , for example, rolled out a new Kona small utility last year that comes packed with technology—including a seven-inch touch screen—for a starting price of $19,000. The Korean auto maker revealed an even smaller crossover, called the Venue, at the New York Auto Show this month.
Volvo Cars two years ago launched a vehicle-subscription service to attract millennials and Gen Zers who don’t want to own a car outright. Subscribers pay about $700 a month to drive a Volvo model for a year and then can swap it out for a different one. Unlike a traditional leasing contract, there are no financing charges and insurance is included.
Meanwhile, appealing to Gen Zers was part of the motivation behind Ford Motor Co.’s purchase last year of electric-scooter startup Spin, says Sheryl Connelly, Ford’s manager for consumer trends. She said the auto maker is also looking to invest in other urban-mobility ventures such as electric bikes, as well as ride-hailing and car-sharing services.
The cost challenges have sent many young car buyers to the used-vehicle lot, and analysts say this trend is likely to continue even as they get older. About 60% of car shoppers in their early 20s bought preowned cars last year, up from 57% five years ago, according to J.D. Power.
Neika Daniel, a 17-year-old high-school student in Little River, Texas, said she is focused on price more than anything else. With help from her parents, she recently bought a used 2016 Volkswagen Beetle for $2,500, and while not fancy, it gets her around.
“It was a relief to avoid car payments and debt,” she said.
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