Millennials may be unconventional in some respects when compared to previous generations, but contrary to what has become conventional wisdom of sorts, not every Gen Yer is content to take buses and trolleys or borrow someone else’s car to meet their transportation needs.
Generally ranging from those born in the early 1980s to the early 2000s, the worldwide millennial generation is surpassing the baby boomer population in numbers – and some 65 percent of them are indeed expressing interest in owning or leasing a vehicle, creating a vast international automotive sales and repair marketplace for decades to come. Out-of-production used cars are also seeing significant demand.
Millennials are particularly poised to become the primary target segment for SUVs and crossovers, especially smaller models, as these aspiring motorists approach their prime purchasing years.
A recent Frost & Sullivan study finds that between 2012 and 2014, the global market for subcompact SUVs and crossovers grew by more than 40 percent, driven mostly by millennials (along with older drivers seeking a second car.) Total sales in 2014 stood at 3.2 million units from 62 models, and this is likely to increase to 7.4 million units from 22 additional models by 2022, according to F&S consultant Sujeesh Kurup.
“Robust growth is expected from the Asia-Pacific market between 2015 and 2017,” he reports, “after which Europe will emerge as a stronger contributor.”
Millennials account for 24 percent of Europe’s adult population, and industry-wide European SUV sales are expected to increase from 20 percent of total passenger car sales in 2014 to 27 percent by 2020. By the end of the decade, Ford projects that SUVs will account for 29 percent of its global sales, spurred by the rising demand in Europe and China. The automaker’s SUV market share in Europe grew from 9 percent to 19 percent between 2008 and 2013; and from 7 percent to 17 percent in China during the same period.
A recent Ford survey further confirms that SUVs are highly desired by drivers in the 17-34 age range, and one in four European millennials who intend to purchase a vehicle within the next year say they are considering an SUV.
“The survey makes two important points – the SUV boom in Europe is not a passing fad and young people are not as ambivalent about car ownership as some suggest – especially when it comes to SUVs,” says Roelant de Waard, vice president of marketing, sales and service at Ford of Europe. “For both rational and emotional reasons, many younger buyers in Europe see SUVs as the perfect choice for them. More so than other age groups, millennials say SUVs make them feel powerful when they drive, are the kind of vehicle they want to be seen in and are more sporty and fun to drive than other vehicle types.”
The key to market success is to provide customers with a strategic balance between the manufacturer’s suggested retail price and the actual selling price along with “trendy design cues,” according to Kurup. Subcompact SUVs blend the features of subcompact cars, compact cars, mid-size cars and compact SUVs “to create a new segment of cars with fresh design language, small footprint, moderate miles per gallon and occasional off-roading capability. Automotive original equipment manufacturers that create a hybrid variant of subcompact SUVs will be trailblazers in this segment,” he says.
“Finding the optimal balance between platform consolidation, lightweighting and vehicle fuel may well prove critical to OEMs’ growth,” Kurup observes. “They need to focus on these areas not only to meet their business goals, but also to be able to offer customers a great value proposition.”
Starting early next year with the Edge large SUV, which debuts at the Frankfurt Motor Show in its European spec version, Ford plans to launch five all-new or redesigned vehicles that will compete in the SUV and crossover market in Europe over the next three years. Sales targets amount to 200,000 SUVs in Europe by 2016 – a 200 percent increase compared to 2013.
“Globally, Ford has been at the forefront of SUVs for decades, and is now delivering a European lineup that offers the stylish design, car-like dynamics and fuel efficiency that are key to why SUVs have become so popular in Europe,” says Jim Farley, Ford Europe’s chairman and CEO. The company also foresees SUV sales growth in Russia, highlighted by a selection that includes the Explorer, Kuga and EcoSport with more product introductions pending.
Citing data collected last year, “Millennials are an important group of buyers in the industry today,” says Chris Travell, vice president of strategic consulting for Maritz Research, “and not just in terms of sheer size. They are also helping to refine the vehicle shopping and ownership experience. These younger buyers are much more connected than previous car buyers,” he explains. “The manufacturer that develops a strategy that resonates with millennial buyers will increase the likelihood of consideration the next time that customer is in the market. In turn, this will increase the likelihood of selling a car to that customer. It appears Ford’s millennial strategy is working.”
“The trend of millennials starting families comes at the same time Ford is updating or replacing nearly its entire product lineup,” concurs Amy Marentic, Ford’s global car and crossover marketing manager.
In the U.S. millennials account for 26 percent of new-vehicle sales, and for the first time that puts them ahead of Gen Xers (those born from 1961 to 1979), notes Jacquelyn Kim, director of customer communications and promotions at Hyundai Motor America. “Loyalty means everything to this generation, as well as having the best experience possible with a brand.”
Leveraging an anticipated level of appeal for smaller pickups among Gen Y buyers, Hyundai rolled out an award-winning Santa Cruz concept crossover truck at January’s North American International Auto Show.
“The Santa Cruz crossover truck concept meets the unspoken needs of a growing millennial lifestyle we call ‘Urban Adventurers’,” says Mark Dipko, Hyundai’s director of corporate planning. “This new crossover allows them all the expandable utility they need throughout their active week, from work-life professionalism, to social interests, to a whole variety of outdoor pursuits, without the typical compromises they have come to expect from the industry’s current product offerings.”
Some of the past attempts by other OEMs to blend truck-bed flexibility with passenger-car attributes “were limited because they didn’t deliver the practical benefits the customer expected. Most tried to straddle the line by attracting traditional truck buyers with compromised products at a similar price point, failing to deliver any differentiating benefits. Santa Cruz, by design, isn’t an alternative to a truck, so towing, payload and ground clearance were not primary goals,” says Dipko. “Rather, Santa Cruz is intended to attract CUV, SUV and sedan buyers who are seeking greater utility, without the compromises that traditional trucks often require.”
Practical purchases
Certain segments of millennials are also pursuing larger or more luxurious vehicles via leasing arrangements. According to an Edmunds analysis of car registration data provided by Polk, leasing has accounted for 28.9 percent of all new-car purchases by millennials thus far in 2015. The percentage exceeds the industry-wide lease penetration rate of 26.7 percent, and reflects a 46 percent increase in leasing by Gen Yers over the last five years. By comparison, the share of leasing among all car shoppers rose 41.7 percent during that same period.
“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” says Jessica Caldwell, the company’s director of industry analysis. “But it doesn’t mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B. If they see a chance to get into a nicer car while staying within their budget, they're likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”
Leasing is especially popular among Midwestern millennials in particular locales. In the most dramatic example, Edmunds found that millennials in the Grand Rapids, Mich. market are 33 percent more likely to lease their new car purchase than the city’s general car shopping population. Other Top 50 markets where millennials are more likely to lease are Minneapolis-St. Paul (30.5 percent more likely) and Milwaukee (26.4 percent more likely).
As you might expect, millennials are also opting for affordability by exploring the used-car market, which in-turns brings good news for DIFM repairers and DIY parts providers.
Edmunds reports that the Dodge Magnum has a higher rate of millennial buyers than any other vehicle on the used-car market. The September analysis further found that there is an array of unlikely, out-of-production models – such as the Magnum, Chrysler Pacifica and Pontiac Aztek – that are finding new life on the pre-owned market with a younger crowd of buyers.
According to Edmunds’ findings, 27.6 percent of all used Magnums sold in the U.S. were bought by millennial shoppers during the first six months of 2015, outpacing any other vehicle on the used-car market, and far exceeding the overall used-car industry average of 16.8 percent. The vehicle’s pull with young buyers is not just isolated to this year: The Magnum is set to claim the top millennial share for the third year in a row. The Pacifica is next on the list with 27.3 percent of all used-car sales this year registered to the millennial generation.
Both the Magnum and the Pacifica have a distinct characteristic in common, aside from being larger crossover vehicles – they are no longer in production. In fact, Edmunds found that six of the 10 used models with the highest rates of millennial buyers are no longer produced by automakers. But while these vehicles no longer roll off assembly lines, Edmunds analysts say that they offer young used-car buyers almost unparalleled value.
“Millennials are more practical used-car shoppers than we might otherwise credit them,” says analyst Jeremy Acevedo. “They may not go into the shopping process targeting these lesser-known vehicles, but when they see how their price tags stack up against other, better-known vehicles, they suddenly become a lot more attractive. When it comes to used cars, value and utility appear to trump just about anything else for many millennial buyers.”
The research also finds that the largest penetration of Gen Y buyers can be found in the used passenger van segment, including minivans, where the demographic made up about 20 percent of all purchases this year. By comparison, millennials made up 17.3 percent of all used sedan purchases and 15.8 percent of all used coupe purchases. The used minivans with the largest shares of millennial buyers this year are the Volkswagen Routan, (24.6 percent), Nissan Quest (23.9 percent) and the Honda Odyssey (23.6 percent).
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