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Millennial Mobility

How a Generation is Transforming the Auto Industry

Millennials have been accused of causing the demise of everything from dinner dates to bar soap. Often maligned as killers of industries, millennials’ preferences differ distinctly from prior generations, and as a result, many industries’ have struggled to attract the attention of this important buying block.

But their effect on the auto industry is proving to be more transformational than fatal.

The most highly-educated generation in human history, millennials – born in the 1980’s and 1990’s – are nonetheless entering their 20’s and 30’s in a time of vast change and uncertainty. Saddled with student loan debt with stable employment and affordable housing harder to come by, an increasing number are forgoing traditional expenses, from rent to car payments.

Physical mobility is still important to this on-the-go generation, and automobiles remain a large part of that mobility. How they interact with autos, however, and the experiences they expect (demand) are evolving as the auto landscape changes. Four key disruptive technology-driven trends are emerging in the automotive industry:

  • Disparate mobility methods
  • Autonomous driving
  • Electrification
  • Connectivity

Each of these trends will have a substantive effect on how millennials (and the rest of us) approach the mobility market.

Willing to share

Outside major metropolitans with public transit systems, individual car ownership was once an assumed necessity for nearly everyone. The growth of car sharing services, however, has provided a new alternative for many people. By early 2017, almost 2 million American were members of a car sharing program, and that number is projected to grow to 10 million by 2025.[i]

The shared mobility market is expected to expand deeper into peer-to-peer lending platforms (think Airbnb for cars!) as well. OEMs are starting to stake out their own portion of this growing market, and that is expected to increase.

Car sharing services aren’t the only disruptive technology – subscription services are a new option. These services offer you the use of a car (or a changeable choice from a suite of cars) for an all-inclusive monthly fee. While each service differs, they offer lower-commitment/higher-variety options than leasing while still providing more continuity of use than car sharing.

Millennials seem to be more open to shared assets than past generations. Much like their embrace of Airbnb, their eagerness to adopt services such as Uber and Lyft reflects a deeper willingness to share the benefits – and burdens – of costly asset ownership. The potential repercussions to the auto industry could be daunting: each car sharing vehicle can displace up to 15 vehicles on the road and lead a quarter of members to delay an individual car purchase. [ii]

But does their willingness to share mean millennials aren’t interested in buying cars? Surprisingly, no. Most millennials treat sharing services as a secondary form of mobility to supplement a vehicle they own. In fact, a whopping 80% of millennials say they plan to purchase a vehicle in the next 5 years.[iii]

Even the Jetsons had to steer their own cars…

Human error currently contributes to 94% of all traffic accidents.[iv] Self-driving vehicles do not spell the end to all motor vehicle accidents, of course – a driverless Uber made the news recently when it struck and killed a pedestrian – but what if technology could significantly reduce those 2 million accidents each year?

Autonomous cars are becoming less futuristic musings and more near-future reality. In fact, manufacturers are devoting massive resources to make them a part of everyday life. General Motors alone plans to spend $1 billion in this area in 2018,[v] and the Brookings Institute estimates that global investment to date from all stakeholders tops $80 billion.

What could this mean for consumers? Vastly improved mobility, lower human and financial costs due to accidents, and greater freedom from no longer needing to focus on the road. Of course, gone will be the glamour of the independence and freedom associated with driving your own car on the open road, but smart manufacturers will undoubtedly find a way to build this self-expression into their autonomous vehicles. To appeal to millennial drivers, they’ll have to – 48% want a car that reflects their personality and expresses something about them.[vi]

Plugging in

Still small compared to traditional combustion engines (only 0.2% of passenger cars on the road today are electric), the growth in the electric vehicle market is strong nonetheless. New registrations of electric cars hit a record high in 2016 with over 750,000 sold worldwide, and there are more than 2 million on the road today.[vii] The U.S. previously made up the largest portion of these sales, however, China took over the pole position in 2016. Home to about a third of the world’s current electric vehicle stock, China is a dominant force in the future trajectory of electric vehicles.

As global emissions standards continue to rise, the importance of electric vehicles in manufacturers’ inventory will continue to grow. Regulatory pressures, technological advances and changing consumer preferences could make the end of the era of combustion engines become less a question of “if” and more a matter of “when.”

Millennials are deeply interested in combustion engine alternatives. While they are noted for their interest in the environment, studies indicate that the fuel savings is actually the strongest driver. 65% of millennials say they would pay more for electric or hybrid systems, though their limited budgets mean that most would not pay over $2k more.[viii]

The internet of (every)thing

Digital connectivity has gone from an enticing perk to a common expectation. An estimated 82% of cars shipping in 2021 are expected to be IoT connected,[ix] and the market for in-vehicle connectivity is expected to reach about $149 billion dollars by 2020.[x] But this huge opportunity comes with significant challenges for auto makers – faster development cycles, new business models and a “tech first” mindset.

All this technology isn’t just for consumer in-car benefit. Connected vehicles that can communicate with each other and with future roadway infrastructure could lead to safety benefits and provide manufacturers with valuable (and monetizable) data on vehicle usage. But for consumers, the most value will come from services that allow them to always be connected, no matter the location.

Millennials especially value advanced vehicle technology. Nearly 75% state that infotainment features like navigation and cell phone integration are must-haves when purchasing a car.

Capitalizing on millennials desire for more

Despite headwinds in finding job security and affordable housing, millennials aren’t buying fewer cars than their predecessors. In fact, they’re buying/leasing vehicles at a greater rate than Gen Xers did at the same age – 21% more than their elders at the same age.[xi] While the recent housing crisis made home financing more difficult to attain for millennials, auto financing remains accessible and with attractive rates which has led to strong auto sales in this demographic. Millennials also drive more miles per year than any other generation (an average of 13,725 miles per annum).[xii] They’re expected to make up about 40% of the U.S. new vehicle market by 2020 (up from 29% today).

So how can the automotive industry best gain a share of the millennial auto purchasing market?

  • Leverage digital: Millennials love to research products and shop online. In fact, they spend an average of just over 17 hours shopping for cars online before they ever step foot into a dealership.[xiii]
  • Create an experience: In a world so heavily filled with digital experiences, live, in-person experiences stand out – and millennials more than the generations before them will create gigabytes of user-generated content after experiencing a brand. This output doesn’t disappear in a vacuum; user-generated content accounts for a quarter of the searches for the top 20 brands.[xiv]
  • Be creative: Be prepared to evolve and transform your marketing approach to younger generations as the industry evolves. Test and learn from new strategies that can help millennials along the purchase journey while communicating with them in the manner of their choosing. Successful companies will be those that adapt to millennial needs and don’t sit back waiting for millennials to fit the traditional purchasing narrative.

And remember, once you figure out how to market automobiles successfully to millennials, Gen Zers are hot on their heels – the frontrunners of the next generations are beginning to reach their 20’s!

 

About the Author

Elise Kern is the Vice President of Insights and Analytics for TideSmart Global. She holds a B.S. from Northwestern University, as well as an M.B.A. from the University of Notre Dame. She leads Confidential Consumer, a division specializing in measuring Customer Experience via mystery shopping, consumer research and data analytics, as well as all internal and external-facing research, reporting, and analytics functions for TideSmart. Kern has a decade of experience understanding consumer behavior in the Retail and CPG industries, including at Walgreens and Kraft Foods. Most recently, Kern managed Customer Insights and Analytics for Walgreens, where she leveraged behavioral data from over 120 million customers to develop insights-based strategic recommendations to optimize retail offerings for Walgreens and major CPG partners like Mars, Kimberly-Clark, Lindt, and Campbell’s.

[i] Frost & Sullivan, “Future of Carsharing Market to 2025”, Aug 2016

[ii] Environmental Protection Agency, “Carsharing Trends and Research Highlights”, Susan Shaheen PhD, June 2016

[iii] Deloitte, “Global Automotive Consumer Study – The changing nature of mobility”, 2014

[iv] US Dept of Transportation National Highway Traffic Safety Administration, “Traffic Safety Facts”, Feb 2015

[v] GM 4Q17 earnings call

[vi] CDK Global, “Millennial Car Shoppers”, 2015

[vii] International Energy Agency, “Global EC Outlook 2017”

[viii] Deloitte, “Global Automotive Consumer Study – The changing nature of mobility”, 2014

[ix] Business Insider, “The Internet of Things: Examining How the IoT Will Affect The World”, Dec 2016

[x] Boston Consulting Group, “Connected Vehicles and the Road to Revenue”, Dec 2017

[xi] TransUnion, “Generation Revealed: Decoding Millennial Financial Health”, 2017

[xii] TransUnion, Performance Analytics Database, 2017

[xiii] CDK Global, “Millennial Car Shoppers”, 2015

[xiv] US Chamber of Commerce, “The Millennial Generation”, 2012

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