Gen Y Eschewing V-8 for 4G Threatens Auto Demand: Cars

Photographer: Marc Serota/Getty Images

People listen and take pictures as President Barack Obama speaks on the economy at Florida Atlantic University on April 10, 2012 in Boca Raton. Close

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Photographer: Marc Serota/Getty Images

People listen and take pictures as President Barack Obama speaks on the economy at Florida Atlantic University on April 10, 2012 in Boca Raton.

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 each year.

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

4G trumps V-8 for the 80 million U.S. consumers born from 1981 to 2001, according to Deloitte LLP. Though the car is still a gateway to independence, 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 Inc., a San Diego-based 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 in Plymouth, Michigan. The peak for sales was 2000 at 17.4 million cars and light trucks.

Technology ‘Wins’

“Now, technology not only competes” with cars, Luria said in a telephone interview. “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 Motor Corp. (7203) created its Scion brand for the group. Ford Motor Co. (F) used social media outlets to promote its introduction of the Fiesta subcompact. General Motors Co. (GM) has set up programs with Walt Disney Co. (DIS) and Viacom Inc. (VIA)’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 at a Deloitte conference in Detroit about Gen Y buyers. “If we’re going to continue to grow as an industry and as a company, it’s really important we reach this consumer.”

Cash-Strapped

Young people have been slow to buy cars in weak economies, and have settled on used models or alternatives to driving. 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.

Jordan Wesolek, a Blue Man Group front-office worker from Chicago, said he pays $300 a year for Internet service and is saving his extra cash for a $2,199 MacBook Pro laptop from Apple Inc. (AAPL)

‘Not There’

The 23-year-old sound tech, who rides his fixed-gear bike to work, said he isn’t thinking about buying a car anytime soon.

“Right now, I couldn’t do it,” said Wesolek, who recently invested almost $500 for a new wheel and other parts to refurbish a bike he originally bought for $120. “And the desire to own a car is just not there.”

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,” Sivak said in a telephone interview. “Given that you now have the option and it is convenient, the Internet is currently replacing physical contact.”

Wesolek, who relies on his iPhone to communicate on the job, said it’s not practical for him to buy a car. Something from his budget -- rent, utilities, food, Internet, student loans -- would have to give.

“I would say, definitely, a data plan and all that would play a bigger role for me than actually driving a car,” Wesolek said.

‘Necessary Evil’

Millennials living in big cities with reliable public transit don’t see the need for owning a car, even for weekend trips to visit friends or family, Luria said. Those who do drive can turn to companies such as Zipcar Inc. (ZIP) that provide hourly car rentals.

For Gen Y consumers who can afford to shop for vehicles, many want their cars to be connected to the Internet. They’re willing to pay more than $3,000 for in-dash features and connectivity capabilities, according to the Deloitte survey.

For Bryan Espey, 26, who works marketing for a check- printing company in Lenexa, Kansas, the decision between a 2012 Ford Focus Titanium and a Volkswagen (VOW) Golf TDI came down to which made it easier to play the Spotify Internet music service from his Android phone, he said. He chose the Focus.

“I would prefer a carless life,” said Espey, who needs a car for his 30-minute commute to work. “I don’t enjoy paying for it. It’s kind of a necessary evil.”

To contact the reporters on this story: Hasan Dudar in New York at hdudar@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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