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.
Coronavirus Outbreak Takes Toll On U.S. Auto Sales
Buyers began steering clear of showrooms in mid-March to avoid interactions with others and possible exposure to the virus.
A collapse of showroom traffic in March led to a big drop in U.S. sales for major car companies in the first quarter, illustrating how quickly the coronavirus outbreak has dented business for one of the nation’s largest industries.
Fiat Chrysler Automobiles NV reported a 10% drop in first-quarter U.S. sales, saying strong results in January and February were more than offset by the impact of the virus in March.
General Motors Co. said its U.S. sales were down 7% in the January-to-March period, citing similar reasons, while Nissan Motor Co. reported a 30% drop in the first quarter.
Hyundai Motor Co. ’s U.S. sales were off 11% for the first quarter and Toyota Motor Corp. reported a nearly 9% decline.
Ford Motor Co. will release its first-quarter sales results Thursday.
The weaker first-quarter results provide a window into what is ahead for the U.S. car business as the outbreak continues to shut down large parts of society. Analysts in recent weeks have rushed to cut their U.S. sales forecasts, and executives and dealers expected the sales declines to only deepen in April with a rebound not likely until the summer, at the earliest.
“Consumers obviously and understandably shifted their priorities,” said David Kershaw, Nissan’s U.S. sales chief. “The situation is very fluid right now and everybody’s trying to get their arms around where and how this is going to play out.”
Car companies already had been grappling with collapsing sales in Europe and China as the virus spread around the globe earlier this year. But new-car demand in the U.S. has held strong, all the way through the first half of March, analysts and dealers said.
The turning point came midmonth, when buyers began steering clear of showrooms to avoid interactions with others and possible exposure to the virus. U.S. car factories went dark soon after and many dealers have since temporarily closed their locations to comply with stay-at-home orders.
For March alone, analysts are expecting sales to have decreased by about a third compared to the same month last year. Toyota’s sales last month fell nearly 37%, while Hyundai’s dropped 43%.
“This is a sign of things to come,” said Jessica Caldwell, an analyst with car shopping website Edmunds.com. “April is going to be another tough month. It’s going to be hard for any company to move the needle.”
Some retailers are trying to stimulate business by promoting online sales and at-home delivery services, allowing buyers to purchase a car without having to leave their homes. That has helped some, analysts say, but the bigger challenge is customers are delaying purchases altogether.
Auto makers, rushing to salvage business, have also responded by reviving sales promotions used during the 2007-09 recession, such as no-interest loans, delayed first payments and protection plans that give buyers relief if they lose a job.
Fiat Chrysler on Wednesday said starting in April it will offer customers 0% financing for seven years and deferred payments for three months.
Those kinds of no-interest finance deals helped lift pickup truck sales for the Detroit car companies in March, said Tyson Jominy, a J.D. Power auto analyst. But it is unclear if such promotions helped business more broadly because many were rolled out late in the month.
One point of relief for the industry, dealers and analysts say, is that while demand craters, nearly all U.S. factories have also closed due to parts shortages orders and to curb the spread of the coronavirus. That will help auto makers avoid unwieldy stockpiles of unsold cars.
The U.S. auto industry entered the year with expectations that vehicle sales, while slowing from a peak of 17.6 million in 2016, would remain healthy. Now, some forecasters are predicting sales could dip as low as 13.5 million in 2020—a level not seen since 2010 when the industry was only starting to emerge from the financial crisis.
Dealers who remained open last month saw business nosedive as buyers canceled appointments and avoided showrooms.
George Waikem II, treasurer of Waikem Auto Family, a dealership chain in Ohio, said store traffic was off 60% last month compared with February and he doesn’t expect it to improve anytime soon.
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