In recent years, it has become widely accepted that millennials don’t like cars.
According to conventional wisdom, the generation born from about 1980 to 2004 prefers public transportation or Uber. They get jazzed about the latest iPhone, not the new Ford Focus. Cue dire predictions for the auto industry.
Turns out the doomsayers may be wrong. Millennials – also known as Generation Y – accounted for 27 percent of new car sales in the U.S. last year, up from 18 percent in 2010, according to J.D. Power & Associates. They’ve zoomed past Gen X to become the second-largest group of new car buyers after their boomer parents. Millennials are starting to find jobs and relocating to the suburbs and smaller cities, where public transport is spotty.
Hayley Born is typical. After studying medicine in New York, she’s moving to Cincinnati for her residency and bought a new Hyundai Elantra to get around. Born, 27, acknowledged she and her peers have been “delaying adulthood,” but are hitting “life milestones” that often necessitate buying a car. She could have bought used but practicality won out.
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“The convenience of having a five-year bumper-to-bumper warranty was not to be understated,” Born said.
Millennial car buyers are emerging at a pivotal moment for the industry. Boomers’ share of new auto purchases peaked in 2010 and will only go down from here, according to John Humphrey, senior vice president of automotive operations at J.D. Power.
Mark Reuss, who runs global product development at General Motors Co., never bought into the theory that Gen Yers disdain the automobile. “That’s insane,” he said earlier this month. The reason millennials haven’t been buying cars is that “they don’t have jobs. Our internal research says that they’ve only been able to afford used cars, if anything at all.”
Now that’s changing. The employment rate for 25- to 34- year-olds held at 76.8 percent in March from the month before, the highest level since November 2008, according to Labor Department data. After lackluster growth throughout most of the recovery, wages are also starting to pick up for millennials.
Even though cars are getting more expensive, long-term, low-interest loans are making them affordable. When Niladri Sinha decided to replace the used Toyota Prius he totaled last year, he weighed buying, leasing or signing up for a car-sharing service. Ultimately, the 25-year-old stage manager decided to purchase a Subaru Crosstrek because he figured buying new would save him money in the long run. With a seven-year loan, his monthly payment is $250.
“When I tend to come across a chunk of money from freelance work I try to put that towards the car, on top of the monthly payments,” said Sinha, who lives outside Boston.
In a happy coincidence, the industry is in the midst a technological revolution. The latest iteration of wired, smart cars plays well with a generation that grew up and live online. Newer cars are also more fuel-efficient and spew less pollution, a boon for environmentally conscious millennials.
“The idea of what kind of car people want is changing,” Born said. “It’s cool to have a Tesla, not cool to have an Escalade.”
Entry-level compacts stuffed with technology are selling particularly well to this cohort. For about $19,000, a recent college grad can buy a standard Honda Civic, featuring Bluetooth capability and the Eco Assist System, which teaches drivers how to squeeze more miles out of each gallon of gas.
Of course, many millennials still can’t afford to buy a new car. When Evan Hudson, 26, graduated from college in 2011, he took one look at the job landscape and headed back to school, saddling him with student loans he’s now paying off.
So for the time being, Hudson, a 3-D modeler at a New York startup, will probably buy a used vehicle. Still, he enjoys customizing and tinkering with cars and is particularly keen on a revamped Ford Focus expected to debut in the near future.
“There’s a bunch of cars coming out in the next two or three years that I really want,” Hudson said. “Then I can get it new.”