Millennials, the group that came of age in the early 2000s, have probably been subjected to more commentary than any other generation. Websites have learned that they will get a high volume of traffic from any article or blog post that contains an analysis of what Millennials are doing and how they are impacting the society.
The speed at which these cultural assumptions are made sometimes leads to inaccuracies. Several years ago, everyone believed millennials were going to be the death of the automotive industry because they were not buying cars. The only option for OEMs, it seemed, was to embrace the post-ownership fleet model of automotive economics.
Recent studies, however, suggest that millennials actually are buying cars, at fairly normal rates. This does not mean that the fleet model is outdated. It also does not mean that it is going to be ubiquitous. It just shows that an entire generation of people will have varied needs and that, to meet these needs, the market strategies of OEMs must be equally varied.
The Millennial Myth of Car Ownership
Around 2011, a lot of think-pieces about millennials not buying cars began to appear. The research was sobering for the automotive industry, suggesting that as the youngest generation entered the traditional age for large purchases, they simply were not making any.
This trend began right around the time when companies like Uber started attracting attention and the ride-sharing model began to take off. In 2010, Uber attracted its first investment, worth $1.25 million; a year later the company was valued at $60 million. But it was not just the money; the attitude of the generation seemed to value ride-sharing. Over 50% of people aged between 18-34 have used a ride-sharing service, and this is one of the reasons that is driving OEMs to increase their investments in the fleet model. Car ownership in cities has been declining, and ride-sharing services like Uber and Lyft have been taking over.
Even so, this is not a death knell for traditional models of ownership, for two reasons:
- The difference between car buying trends in 2007 and in 2011 is not surprising when you consider the collapse of the global economy.
- Not all millennials live in urban environments that support the ride-sharing model.
Let us take a closer look at both of these factors.
The Economic Collapse
When the market collapsed in 2008, older millennials were just entering their late 20s, the time when they would traditionally start making purchases like cars or houses. Needless to say, the economic crash had an enormous impact on those types of financial decisions. Even younger millennials who were just leaving college suddenly found themselves with a huge debt (it is estimated that millennials are weighed down with a total student loan debt of nearly a trillion dollars) and little in the way of job prospects. It is hardly surprising that new car sales dipped.
Urban vs Suburban
There is also no doubt that millennials prefer to live in the cities that help transform urban areas, bringing in more technology companies and revitalizing the notion of hub-style downtowns. There are about 83 million people in this generation but all of them do not work for Snapchat.
Indeed, over the last decade, the growth rate for millennials in the suburbs reached 64%, as opposed to 12% in the urban core. Perhaps most surprisingly, the exurbs have seen 23% of millennial growth. So, while we focus on millennials in cities, most of them live elsewhere and as they start buying houses, the city-to-suburb migration will only increase.
The Meaningless Pendulum
Both of these trends point toward something important – millennials are now buying a lot of cars. In 2015, they purchased 4 million, second only to the Boomers, and articles about “the death of car culture” were suddenly replaced by equally splashy headlines about being wrong. In 2016, the number of car sales increased from the previous year. 2017 has seen an increase in electric vehicles being bought.
However, both extremes are incorrect. Rather, both are right in ways that are mutually complementary.
The fleet model, in which a private company or municipality owns a fleet of self-driving or semi-autonomous cars that can be called on-demand, is still an important factor for future markets. Urban areas remain heavily populated by millennials who are part of the ride-sharing economy. Generation Z, born in the late 1990s, is now entering college. As this generation, which grew up with ride-sharing, begins to move out on its own, the market for on-demand vehicles is likely to continue growing at a brisk pace.
However, OEMs should not write off traditional car ownership just yet. In outer suburbs, and especially exurbs, it will potentially be a good number of years before cars are equipped with level 5 autonomous features – where the car can safely navigate on its own with no human assistance. This means there will still be plenty of demand for purchasable cars that can be updated with the latest over-the-air (OTA) technology, especially if that technology specifically addresses suburban challenges, such as helping cars adapt to difficult driving conditions.
Millennials in different geographic areas will demand technology at different rates and in different ways. That is good, as long as OEMs have the flexibility to meet these demands. This generation is far more diverse than the media gives it credit for. But with the rise of self-driving cars and OTA technology, every person can become fully connected.
As the auto industry is changed by technological and economic currents, OEMs and Tier-1 manufacturers will need to partner with technological specialists to thrive in the era of the software defined car. Movimento’s expertise is rooted in our background as an automotive company. This has allowed us to create the technological platform that underpins the future of the software driven and self-driven car. Connect with us today to learn more about how we can work together.