Millennials Are Buying Cars After All
Automakers probably had a record year in the U.S. That should lead us to question the conventional wisdom that millennials don't like to own cars. After all, if the most numerous generation in the U.S. labor force isn't buying cars, who is?
The notion can be traced to "The Cheapest Generation," a 2012 article by Derek Thompson and Jordan Weissmann in the Atlantic. The idea went viral. "Millennials have been reluctant to buy items such as cars, music and luxury goods," a recent Goldman Sachs presentation said. "Instead, they're turning to a new set of services that provide access to products without the burdens of ownership, giving rise to what's being called a 'sharing economy.'" Who needs a car when there's Uber and Zipcar?
The market research company J.D. Power has been making the opposite case. In 2014, it first reported that millennials had passed Generation X in new car buying. Last spring, it said millennials' share of new vehicles bought had rocketed to 27 percent in 2014 from 18 percent in 2010. This prompted some soul-searching from Thompson, one of the authors of the original theory, who admitted that millennials' demand for cars was growing quickly -- but he still expressed doubt that this generation would buy as many cars as baby boomers.
The misleading part of this discussion is that the definitions of what constitutes a generation is slippery. To J.D. Power, millennials are those born between 1977 and 1994; another definition is 1982 through 2004. Then there's the question of what matters more: that millennials are less enamored of cars than boomers, or that millennials are more numerous? Or is the question of generations even relevant? The car sales numbers may simply reflect the end of a recession and a growing number of people who are able to afford nice things.
One way to answer these questions is to use Consumer Expenditure Survey data from the Bureau of Labor Statistics. The 2014 numbers, released recently, show that people of all ages have grown much more frugal when it comes to buying cars:
In inflation-adjusted dollars, all active age groups are spending much less on new cars today than they did in the late 1980s:
Yet they are spending about as much on used cars:
This pattern doesn't appear to be generational. People across the age spectrum generally have less money to spend on cars, and there are few obvious arguments in favor of new ones. Sales are breaking records simply because the U.S. population increased 29 percent between 1989 and 2014.
That doesn't mean the generational aspect isn't important. Small SUVs such as the Chevrolet Trax and Jeep Renegade sold especially well last year. AutoTrader.com reported that in picking cars, millennials "consider what they identify as 'practical' vehicles, yet they aspire to brands they describe as 'sophisticated,' 'innovative' and 'stylish.'"
Both that AutoTrader.com report and a recent one from J.D. Power suggest that Internet connectivity and other modern technology play a major part in millennials' car-purchasing decisions. They expect the same conveniences in their vehicles as in their living room.
The car industry doesn't face a steep drop in demand because of millennials' love affair with the sharing economy. There are plenty of people in this huge cohort who want to own a car. One of the few reasons they'll pick a new model over a used one is tech that wasn't available on older models. That means carmakers must make investments in alternative fuels and autonomous driving. They also should stake a position in the sharing economy, as General Motors did with Lyft, BMW with DriveNow and Daimler with Car2go. The perception that a brand is progressive goes a long way with the new buyers.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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