Young buyers have one big problem with cars: the price

By Robert Duffer

Chicago Tribune

Millennials have alternatively been blamed for abandoning America’s love affair with the car but also credited for fueling record car sales.

Automakers are scrambling to understand a generation that is anything but homogeneous.

“There’s a lot of diversity, both economically and ethnically,” Michelle Krebs, analyst of AutoTrader, says of consumers born between 1982 and 1996. “It’s really hard to treat them as a monolith.”

It has been said this age group, which overlaps with Generation Y, did not rush to get driver’s licenses; favors car- and ride-sharing sites over car ownership; and doesn’t like the commitments that come with a car. Yet people in this group account for nearly 30 percent of new car sales.

They seem to share one attribute with every previous generation of car buyers: They find cars too darn expensive.

“There are plenty of reasons to not buy a car, but the overwhelming reason is not because they don’t like cars,” Krebs says. “It’s because they can’t afford them.”

The No. 1 reason 57 percent of millennials are not buying cars is due to cost, according to a Kelley Blue Book study (KBB and AutoTrader are owned by Cox Automotive).

The average transaction price of a new car continues to break records year over year, reaching just under $35,000 in November 2016. That is up 1.7 percent from last year, and 7.8 percent from 2012, according to KBB.

“People who are in the market buying new cars tend to pay for all the bells and whistles,” Krebs explains.

Those bells and whistles have gotten shinier and greater in recent years. Average transaction prices have jumped over 35 percent since 2000, which was the last time new car sales broke a record, according to estimates by AutoTrader.

During that same time, median income has fallen 2.4 percent.

So as a whole new cars cost more than ever before, we’re buying them more than ever before, and we have less money to do so. This might explain why in the past 15 years it has taken a population surge of 38 million people over age 18 to eclipse the previous sales record.

Per capita sales ownership is down, from one car for every 12 adults in 2000 to one car for every 14 adults in 2015.

With baby boomers accounting for fewer new car sales, millennials and the subsequent Generation Z become all that much more vital to a century-old industry facing its first true challenge in the form of shared and semiautonomous mobility.

“(They’re) critically important because of the sheer numbers and buying power,” said Todd Brown, marketing manager for Chevy Cruze, which has an ad campaign addressed specifically to millennials. “No matter what industry, these are going to be the consumers of your goods for the next 20 to 30 years.”

These consumers have more information and more choices than ever before, yet are wary of the traditional car buying process.

“The more you test-drive, the more confusing it gets,” said Meagan Thomas, 25, of Colorado Springs, Colo. “I chose the one that fit my lifestyle that didn’t cost too much money, and gets the same mpg as my 2001 Pontiac Sunfire.”

Thomas bought a 2015 Jeep Renegade Sport, which starts at $17,995, with a long-term approach to ownership.

“In 10 years I hope to have kids and there’s room to put stuff in my car,” she said.

She teaches fitness classes at Pure Barre to make the monthly payment, and supplements her full time job in marketing and sales as a freelance writer.

“Because I work three jobs, there’s probably three outfits, water bottles and workout equipment in there right now.”

Thomas admits to needing a car more than wanting one, and she might not have gotten a new car without a low loan rate through the USAA, which services loans to members of the military and their families.

“Used cars cost so much money I thought it was stupid to buy one when I didn’t know what the previous owner did to the car,” Thomas said.

It’s a pricey time to buy any car, new or used.

Used car prices also hit a high in 2015, averaging $18,800 according to Edmunds.com, in step with the booming leased car market. The supply of off-lease cars, or those cars one to three years old returning to the used car market at the end of their lease, has begun to grow, nudging prices down.

Some millennials would much rather buy used and avoid the dealership altogether, which is another disruptive change facing the industry.

“The whole process of buying a car and having a dealership talk to you and try to sell you on everything makes me not want to be involved with any of it,” said Alyce Hayes, 30, of Bradley, Ill. “If I could guarantee a price and just be able to go in and check the vehicle out, I’d be good.”

Hayes, lead vocalist of the metal band Unlawful and an administrative assistant by day, is in the market with her boyfriend to ditch their 1992 Mazda Protege and 1997 Jeep Wrangler for basic driving needs, such as “socializing without feeling like a mooch, leaving the cornfields for some city excitement, and safely making it to the band’s gigs.”

What millennials want out of their cars is a lot like what boomers want, with seamless technology, advanced safety technology and a preference for crossovers.

“There’s a lot of diversity in both of these groups, even more so in millennials,” Krebs said. “Even the studies that say, ‘This is how they think’, I say, wait a minute, I remember the exact same thing being said about baby boomers.”

Millennials, like most people, want to be able to bring what’s in their phone into their car without hassle, says Krebs, citing AutoTrader’s annual tech study.

More automakers are following Chevy’s lead by offering Apple CarPlay and AndroidAuto, which replicates the smartphone’s screen on the touch screen’s interface, so owners don’t need to relearn a new system to make phone calls or enter navigation.

“We do a lot of work on what to bring to market based on the price of admission of stuff you have to have,” Brown of Chevrolet said. “Not technology for technology’s sake. It has to be purposeful.”

Carmakers continue to figure out how to package all the new technology millennials expect at a price they can afford.

“The dashboard is really confusing,” Thomas says of her new Renegade. “I’m tech savvy, but it’s almost more distracting than just playing music from my phone.”

— Chicago Tribune