Buying a New Car – Millennials Do It Differently

By April 11, 2016 September 24th, 2016 Automotive
Saint El Camino: Our Lady of Internal Combustion (David Stephens, 2013)

A few years ago I was consulting one of Detroit’s automakers on developing what the company dubbed “a new digital strategy”. Management summarized its point of view on the topic by saying “we need to upgrade the IT infrastructure and increase the storage quota because millennials need more space for email”.

That was a while ago. Now even that management team knows that, in fact, millennials don’t use email all that much and prefer the directness and immediacy of instant messaging and social media channels. But the point behind this short anecdote is still extremely important: demographic shifts are having a profound impact on many aspects of all businesses and require a deeper understanding and considerations that go deeper than merely allowing more storage space for emails.

Car Buying Demographics Shift as Baby Boomers Age

For those who grew up in the United States during the second half of the 20th century, the car was a symbol of independence, of status.

But unlike their parents—the Silent Generation that was born before the 1940s—aging baby boomers are not giving up driving and are buying new cars. Market research data shows that over the last decade, baby boomers have become the largest group of car buyers and account for over 60% of new car registrations.

At the same time, younger consumers—the millennials that were born in the 1970’s and later—don’t seem to have the same passion for owning a car and driving. Just 79% of people between 20 and 24 had a driver’s license in 2011, compared with 92% in 1983. Coupled with low buying power, millennials contribute a meager 13% to new car registrations.

Automakers Do Not Know Their Buyers

According to Advertising Age, in 2014, General Motors spent $3.1 billion on advertising. GM is the third largest spender on advertising in the U.S. (after Procter & Gamble and AT&T). Among U.S. automakers, Ford Motor Company is second with $2.5 billion annual spend, followed by Fiat Chrysler Automobiles ($2.2 billion).

Despite such massive investments in market research and advertising, automakers prove repeatedly that they hardly understand their buyers. Not only some cars sell very poorly and never reach profitability, but many successful models sold best in a vastly different consumer segment than the one they were targeted for.

The Honda Element sport-utility vehicle with clamshell doors and rubber floors that could be hosed out by action-seeking drivers made little impression on young drivers. Instead, it was a favorite of aging boomers.

Chrysler’s PT Cruiser was also designed with young drivers in mind, but was purchased mostly by those that had childhood memories of panel trucks from the 60s.

Here is another, lesser known but highly illustrative example: the maligned Pontiac Aztek. Despite all evidence that the market would have no interest in the new car, Don Hackworth, who was in charge of product development, was quoted by GM’s iconic executive Bob Lutz to have said:  “Look. We’ve all made up our minds that the Aztek is gonna be a winner. It’s gonna astound the world.” The Aztek, of course, was a miserable failure.

But that’s not the end of the Aztek’s story.

While new car sales during its 5-year production run were abysmal 120,000 units, the Pontiac Aztek became a favorite among young used car buyers. According to Edmunds used car sales data, the car accounted for 25% of used cars bought by millennials in 2015.

Missed the market, again.

Automakers are spending billions to design and market cars to the wrong demographic!

Money Down the Drain

Cars are positioned in advertising and public relations as products for the under 30-year-old population, a cohort demographic that does not have the propensity nor the buying power of much older demographics.

Automakers still think in vague, broad terms that are enslaved to old-school thinking. They are facinated by infotainment technology that they hope will attract the technology savvy, always-connected millennial generation. As Mark Field, Ford COO sees it: “Generation Xers and millennials are leading the migration to luxury globally.”

But the evidence doesn’t quite support Field’s view, certainly not in the U.S. And the luxury vehicle segment represents only 12% of sales anyway (although, admittedly, this segment is expected to grow, especially in China where nouveau riche millennials are spending heavily on new cars).

The billions the auto industry spends to try to woo the elusive millennials would be better spent if targeted at older drivers that have both automotive passion and pocketbooks.

Gettin’ to Know You, Gettin’ to Know All About You

There’s only one answer: get to know your customers—both drivers and passengers—better.

Instead of biased and stale opinions about buyer markets big data analytics is the only practical way for automakers to gain deep and objective understanding of patterns and trends of customers. Comprehensive market data will not shield against personal biases and political agenda, but will attenuate their impact.

Indeed, automakers are beginning realize the potential value offered by the rich information harvested from a variety of sources: connected vehicles, dealer information systems, manufacturing and quality records, enterprise repositories, shopping advice websites and social media.

In fact, data analytics is critical not only for the sole purpose of targeted advertising and selling more cars. It helps understand consumer behavior and sheds more light on the complex interactions between drivers and passengers and the vehicle they occupy. In the long run, it can also contribute to improve the infrastructure around cars: roads, traffic control and overall smarter transportation.

Let’s just hope that decision makers follow what the data is telling them. There’s always the risk of another Don Hackworth killing the messenger: “I don’t want any negative comments about this vehicle. None. Anybody who has bad opinions about it, I want them off the team.”

 


Image: Saint El Camino Our Lady of Internal Combustion David Stephens 2013. Photography: Joe Barkai