Last week, we wrote about the disruptions caused by the millenials’ changing attitude towards real estate ownership – you can read that here. This piece talks about how it is no longer a done thing for kids in America to get a driving license, what that is doing to automobile sales and how the auto makers are reacting to this.“J.D. Power estimates that Gen Zers will purchase about 120,000 fewer new vehicles this year compared with millennials in 2004, when they were the new generation of drivers—or 488,198 vehicles versus 607,329 then…. In 1983, the first year Mr. Sivak began analyzing the ages of drivers based on licensing data, the percentage of 16-year-olds with driver’s licenses was 46%. By 2008, it had fallen to less than a third and in 2014, it hit a low point of 24.5%….Even among those in their early 20s, fewer are getting their licenses. About 80% of 20- to 24-year-olds were licensed drivers in 2017, compared with 92% in 1983….” These are fairly steep drops which don’t augur well for the auto industry from a long-term perspective. What’s driving this change?
“…teenagers are reaching their driving age at a time when most have access to ride-hailing services such as Uber and Lyft to shuttle them around town. At the same time, social media and video chat let them hang out with friends without actually leaving the house.
When they reach their 20s, more are moving to big cities with mass transit, where owning a car is neither necessary nor practical…
…Generation Zers grew up during the financial crisis and tend to be more budget-conscious, according to researchers who study generational trends. In addition, many face substantial student-loan payments, making them more cautious about big-ticket purchases. Total student-loan debt has soared to $1.5 trillion, surpassing Americans’ credit-card and car-loan bills.
The process for teenagers is also getting more expensive. State budget cuts have meant that many public schools no longer offer free driver’s training and a private course can cost upward of a thousand dollars, say driver’s-ed professionals”
So how are the auto makers reacting. Seems like Detroit has indeed in someways contributed to delaying car ownership by raising new vehicle prices.
“Cost is increasingly a challenge. The average price paid for a new vehicle was $32,544 in 2018, up from $25,490 a decade ago, according to J.D. Power. The average monthly payment on a new-car loan reached $535 a month last year, or more than 10% of the median household income, a level most Americans can’t afford, said Cox Automotive.
….On top of the shortage of small cars, auto makers are also packing more technology into vehicles, contributing to rising prices. The new extras also make cars more expensive to repair, helping to drive up car-insurance costs, another deterrent for many teens and 20-somethings”
Detroit seems to be betting contrary to the Japanese and Koreans.
“…Detroit has jettisoned many of their lower-priced compact and subcompact cars like the Ford Fiesta and Chevy Cruze that have traditionally been starter cars for young buyers. For the auto makers, the strategy makes sense: Sport-utility vehicles or trucks have steadily become more popular over the past decade, and also have much better profit margins.
….Detroit is betting that even if young people wait longer to buy a car, they eventually will when finances improve and they start families. And then, they’ll buy an SUV or truck…
…Japanese auto makers are keeping their lower-priced sedans as a way to attract young people to their brands…To appeal to younger consumers, several auto makers. have recently debuted small, sporty crossovers priced under $25,000.
Hyundai Motor Co. , for example, rolled out a new Kona small utility last year that comes packed with technology—including a seven-inch touch screen—for a starting price of $19,000. The Korean auto maker revealed an even smaller crossover, called the Venue, at the New York Auto Show this month”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.