Business DriverPublished August 15, 2013
It’s the economy, stupid.
At a recent conference in Michigan, that was the sentiment echoed by the automaking fraternity on the question of why fewer millennials are sitting behind the wheel.
“As the economy recovers and jobs improve, younger people will be in the market buying cars,” said General Motors chief economist Mustafa Mohatarem, according to The Wall Street Journal.
Surprisingly, the defiance comes in face of a recently published report by the University of Michigan, which seems to partially point in the opposite direction.
This new data, presented by a group of researchers who have been actively tracking licensing rates among young people across several Western nations, reveals that nearly 27 per cent of American survey respondents are too busy to get a licence these days.
The study also found several other key reasons behind dropping licensing rates: able to get transportation from others (12.1 per cent); prefer to bike and walk (10 per cent); and prefer to use public transportation (10 per cent).
Of course, financial strife looms large. About 12 per cent cited the high purchase and maintenance costs of vehicles as a reason for not opting to drive.
So, in a sense, automakers are right to expect that once GenY-ers start earning a steady paycheque, they’ll start plonking down their dough at dealerships.
Also, the biggest drop in recorded ownership and licensing came during the recession years.
Data from research firm Polk shows that 18- to 34-year-olds in the U.S. comprised only 12.3 per cent of new-car buyers in 2012, down from 14 per cent in 2006.
Similarly, licensing rates among people aged 16 to 24 fell to 68 per cent in 2010, from 84 per cent in 1984. For those between 25 and 34, 95 per cent had licenses in 1984, but only 88 per cent in 2010.
The drop-off has been less drastic in Canada, where the economic downturn was milder, which reinforces the economic factor.
But, a closer look at the Michigan study points to a more unsettling trend, something that many industry insiders have suspected for years: young folks are not that into cars anymore.
I am not aware of any in-depth research that pits different kinds of aspirational preferences among young people. But, anecdotal evidence seems to suggest the allure of cars, and the mobility and independence they offer, are fading.
Mark Fields, Ford’s head of Americas, admitted last year that “it’s no longer a foregone conclusion we will be able to sell cars to a large and emerging demographic,” adding that the smartphone, not the car, has become the ultimate mobile device for the new generation.
The rise of alternatives to car ownership also stokes this trend.
Anyone who uses the TTC during rush hour may find this incredulous, but North American transit systems have grown significantly in the past few decades.
So has urbanization, which undercuts the need for personal vehicles.
Official U.S. statistics show that nearly 80 per cent of the country’s population now lives in urban areas, compared to about 65 per cent in the 1960s.
Similarly, about 80 per cent of growth in Canada’s population in the coming decades will happen in our six major urban areas.
It’s no surprise that use of public and shared transport is cited as major factors in delaying driver’s licences.
But all of this doesn’t mean people will stop buying cars. What it probably means is that the years of galloping growth in vehicle sales may be over.
As some industry watchers suggest, western nations may have reached — to echo the much-feared end of fossil fuel — “peak car.”
That should be worrisome for the industry. But my feeling is that most people — even the environment-loving, downtown hipster set — will get the behind the wheel. You just may not be able to lure them to dealer lots or tie them down to a 48-month lease.
There are hints, and early moves, from several automakers that indicate a changing perspective.
Carsharing is an obvious example. Mercedes-Benz parent, Daimler, has entered the space with its Car2Go service and is finding increasing success. GM’s peer-to-peer offering RelayRides is still a fledgling, but at least it’s a move in the right direction.
BMW is going even further, thinking beyond the business of just making cars. Through its New York-based startup funding entity, iVentures, the German maker is pumping money into novel mobility concepts, such as apps that help riders navigate transit systems around the globe and electric-car charging infrastructure companies.
Similarly, Detroit auto scion Bill Ford envisions a long-term strategy where his family’s legacy may extend beyond the assembly line to full-scale transport operation.
Welcome to the new North American dream.
Kumar Saha is a Toronto-based automotive analyst with the global research firm Frost & Sullivan. Email: email@example.com
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