Demographic Shifts: Shaping the Future of Car Ownership
Cars have been at the heart of American culture for more than a century. Until recently, getting a license and buying a car were considered rites of passage, and the car you chose was widely regarded as an expression of your identity, reflecting your priorities and revealing your status.
All that is now changing. The advent of car sharing, ride-hailing and self-driving vehicles presages a radical transformation in consumer behavior. The future of personal transportation will be determined by technological advances, informed by the needs and desires of the people who use them. Our understanding of who those consumers are and what choices they are likely to make is changing in surprising ways.
Car-loving Boomers Are Headed for Cities
Consider baby boomers, the generation born between 1946 and 1964. They may no longer be the largest generation in the U.S. (their kids, the 19- to 35-year-old millennials, now outnumber them slightly), but boomers are likely to continue playing a major role in shaping the future of the auto industry and the rapidly evolving “sharing economy.”
Given the boomers’ affection for cars, it’s not surprising that adults over 50 bought nearly two-thirds of the new cars sold in the U.S. in 2011, according to an AARP study. Unlike earlier generations, today’s seniors “are refusing to follow their parents’ lead and go quietly into the car-buying night,” according to a 2013 article in Bloomberg News. In fact, nearly 93% of Americans between 60 and 64 had driver’s licenses in 2011, up from only 84% in 1983.
What is surprising is that seniors are participating in the well-documented mass migration to urban centers. Despite the common assumption that millennials will dominate the urban landscape in the coming years, recent studies suggest that boomers are also locating there in droves. “Instead of migrating south en masse to retirement communities in the Sunshine State or the wilds of Arizona,” wrote Realtor.com, “more and more baby boomers — a particularly urban-savvy group of Americans — are moving back to the metro areas they abandoned when they began raising families.”
And these older urbanites are anything but sedentary. Rather than retiring, 87% say a shorter commute to work is a major reason for their move to the city, according to a recent Zipcar study. Moreover, when they are not working, the study said, “An overwhelming 90% are seeking to boost their cultural experiences, with easy access to a variety of restaurants, shops and fitness facilities.”
“Millennials have a lower rate of car ownership than previous generations at their age.” –Sam Abuelsamid, Navigant Research
All this activity makes urban boomers active consumers. “Between 2015 and 2030, the 60-plus age group in the United States, for instance, is projected to contribute 40% or more of consumption growth in categories such as personal care, housing, transportation, entertainment, and food and alcoholic beverages,” reported a 2016 study by the McKinsey Global Institute titled “Urban World: The Global Consumers to Watch.”
For boomers who keep their cars in the city, ride-hailing offers a valuable source of income. A 2015 Uber study found that nearly a quarter of its drivers were older than 50. For many, the primary motivation is extra income, often needed to supplement retirement savings. But there are other benefits as well.
Uber driver Maureen Mahon, 59, enjoys the flexibility and sociability of the work. “I meet businessmen, college kids on their way out for the night, folks going to parties, pretty much the whole range,” she told The New York Times. “You can drive as much or as little as you like. If the weather’s bad or you have a doctor’s appointment, you just don’t turn on the app.”
Personal car sharing, too, is becoming attractive to some urban car-owning boomers. Moreover, peer-to-peer car sharing firm Getaround has formed partnerships with car manufacturers to provide members with discounts on new car purchases.
Of course, many of those who move to urban centers are likely to give up their cars in the process. Paul Eisenstein, publisher of The Detroit Bureau and a contributor to CNBC, said that in today’s congested cities, “car ownership is viewed more as a hassle than an entitlement.” Suburbanites may feel stranded without a car in the garage, but for people living in higher-density environments, according to Scott Kelley, a post-doctoral fellow at the University of Michigan’s Energy Institute, “it’s becoming more convenient to not have a car. In fact, we’re already seeing some shift away from private ownership in dense urban centers.”
While taxis are the traditional choice for carless boomers making short trips within the city limits, the growing presence of car-sharing and ride-hailing services is just as likely to appeal to seniors, said Wharton management professor John Paul MacDuffie. “I don’t see those at the more elderly end of the spectrum — at least if it’s suburbanites coming into the city — being turned off by the techie-ness of it. I see them actually liking it if it solves a problem for them.” A recent Zipcar study supports his view: 69% of urban boomers surveyed said mobile apps make their lives easier, and 81% were users of Facebook.
Millennials Take a Pragmatic View of Cars
Until recently, automakers had feared the inevitable loss of the boomer market. Millennials, the boomers’ children, have seemed far less interested in cars than their parents. “In 2009 and 2010, there was a lot of consternation in the auto industry about this problem,” said Sam Abuelsamid, a senior research analyst at Navigant Research.
But it turned out that the concern was largely misplaced. According to an article in Wards Auto, the weak sales were less a reflection of the generation’s attitudes toward cars and more the result of the Great Recession and the younger generation’s lack of resources. Millennials are only now entering their peak car-buying years, the article said.
“Millennials buy cars more pragmatically. … They are forever going to be more on the pragmatic car-as-commodity, car-as-appliance part of the equation.” –John Paul MacDuffie, Wharton
In March 2016, the Associated Press reported that “millennials — especially the oldest ones — are these days buying cars in big numbers. They just had a late start.” The article pointed out that in California, the country’s biggest car market, millennials outpaced boomers for the first time as car buyers. Millennials’ share of the new-car market jumped to 28% in 2015.
Like their parents, millennials appear to be defying conventional expectations. Fortune points out that too many have mistaken the presence of millennials in cities as an indication that they prefer urban living. According to the 2016 National Association of Realtors Home Buyer and Seller Generational Trends study, a growing share of homebuyers are millennials, and more of them are purchasing single-family homes in suburbia.
But not everyone is convinced that millennials are necessarily headed for suburbia and car ownership. “They’re living in cities more frequently than their parents,” Abuelsamid said, adding that millennials have “a more flexible lifestyle enabled by technology” and “don’t have the need or the desire to own a car, even though they increasingly have the financial ability.” That may change, he noted, but it’s too soon to tell.
University of Michigan’s Kelley agreed: “It appears that younger people are willing to treat transportation as an on-demand service, rather than paying the fixed price of owning a car.” But cities, he said, “have sprawling suburban areas around them,” and how mobility will change there is still not clear. According to a recent McKinsey report on disruptive trends in the auto industry, in rural areas “private-car usage will remain the preferred means of transport by far.”
What is clear at this point, Abuelsamid said, is that millennials have a lower rate of car ownership than previous generations at their age. Some see a generational shift at work. Wharton’s MacDuffie postulated that “millennials buy cars more pragmatically. Maybe they missed that moment as teenagers when you deeply fall in love with cars, or a car, or personal autonomous transportation. And they are forever going to be more on the pragmatic car-as-commodity, car-as-appliance part of the equation.”
Zoë Hoster, a Wharton MBA candidate, agreed. “My generation grew up with a much more ambivalent relationship to cars than previous generations. A lot of us were just shuttled around by parents in the backseat of cars; we grew up taking public transportation to school.”
In addition, many experts point to the fact that millennials have grown up in the so-called “sharing economy” and appear to be comfortable with car-sharing and ride-hailing. That perception is borne out by Getaround’s demographics. According to co-founder and vice president Jessica Scorpio, owners who rent out their cars are concentrated in the 25 to 45 age group. Renters skew younger, at 19 to 40 years old.
Customers who rent a car from Enterprise Holdings’ brands are 55% more likely … to purchase a new vehicle within six months of their rental.
Whether millennials ultimately continue their move to the suburbs and car ownership or gravitate, along with their parents, back to cities and alternative modes of mobility, remains to be seen. All that seems certain is that it is difficult to predict the future car-buying patterns of Americans, especially when the auto industry itself is going through such profound changes.
The Future of Car Buying
While there may come a day when people no longer buy cars, that outcome is far from certain. In fact, U.S. car sales in 2015 beat the record set 15 years ago, according to The Wall Street Journal. But while consumers’ appetites for cars may remain strong for some time, their shopping and buying habits have already changed in significant ways.
One definite trend is that a growing number of consumers prefer to start the buying process online. Social media is playing an increasingly important role. According to a 2013 study by Dealer.com and GfK Automotive Research, 84% of car shoppers are on Facebook and 24% of them have used Facebook as a resource for making their vehicle purchases. More generally, 38% of consumers say they will consult social media in making their next car purchase.
For the third year in a row, the annual Automotive Social Media Trends Study found that car buyers ranked social networks as more important than dealerships’ websites in their auto selection process. And social media is only one of the ways today’s auto consumers shop online. Sites like Edmunds.com and Cars.com also rank high among the resources consumers consult before ever setting foot in a dealership.
According to Digital Air Strike’s 2015 Automotive Social Media Trends Study, 75% of car buyers found Internet research, including social media and review sites, to be the most helpful medium when selecting a car dealership. And it’s not just dealerships that people are researching online. A recent survey released by CDK Global found that 83% of car shoppers expected “online buying technology would help them narrow down their vehicle choice and determine what is affordable.” Eighty percent said they would likely configure a payment online.
Eventually, consumers may visit dealers to test drive a car before making their final decision and completing the purchase online. “Factory showrooms make sense, with the emphasis on ‘show,’” said The Detroit Bureau’s Eisenstein, “so people can go try out a car and then buy it online.”
Indeed, both car rentals and car-sharing offer test-drive opportunities. In 2013, Polk conducted a study for Enterprise Holdings, the largest car rental company in the world and operator of the Enterprise Rent-A-Car, National Car Rental and Alamo Rent A Car brands. The study found that customers who rent a car from Enterprise Holdings’ brands are 55% more likely than the average consumer to purchase a new vehicle within six months of their rental. Polk’s analysis revealed that 1.2 million new cars (out of 11.4 million in retail sales) were purchased by consumers within 180 days of renting from an Enterprise Holdings brand. “People do rent cars now to try out vehicles,” says Eisenstein. “And I’m sure more people will do that in the future.”
Joe Hinrichs, Ford’s president of the Americas, concurred, saying in a 2016 interview with Automotive News: “We have great relationships with our daily-rental companies. … It’s good business. Customers get a chance to experience our vehicles.”