Millennials are buying more cars
COVID inspired changes to the market that sent younger buyers to showrooms
This year has been one of unintended consequences, no matter where you look. Kids were suddenly doing their learning online, many of us began working from home, and thousands had to impromptu figure out how to interior-design the backdrop behind their computer monitor, as every virtual meeting became a peek into someone’s personal world.
The car industry has seen some huge changes, as well. With the initial lockdowns, sales didn’t just spiral, they crashed. Dealers raced to adopt new protocols and adapt to new methods of regaining those sales, all while industry-watchers predicted that in spite of the acute pain of this past spring, sales would rebound — and they are.
But an interesting thing happened on the way to our living in this drastically changed world: many of those temporary measures we adopted are resulting in permanent changes.
A new study released by Deloitte Canada’s Consumer Industry Center shows Millennials in Ontario, those born between 1981 and 1996, have not only become a reenergized buying sector, but they’re also changing how we all buy cars. For years, the average age of car buyers has been rising. Younger generations have increasingly opted for transit, embraced ride-share technology, and more generally eschewed the notion many of their parents held, that car ownership was a case of when, not if.
The COVID-19 era has
changed all that. Now 31 per cent of Ontario’s Millennials report making a decision to enter the car market sooner than they anticipated, with “over half of Millennials expressing interest in acquiring a vehicle as a way to socialize responsibly while abiding by increased social distancing measures.”
They’re not just buying more cars, they’re buying different cars, and they’re buying them differently. In the early goings of lockdowns, OMVIC, Ontario’s vehicle sales regulator, relaxed rules surrounding how and where car contracts had to be signed, for instance. Digitalizing more and more of the buying process fits with how Millennials are used to conducting most parts of their lives; sellers would no doubt have bridged this divide at some point, but this is another area that was catalyzed by world events. While 78 per cent of buyers still expect to be in the showroom for some part of the transaction, 22 per cent report preferring a totally online experience.
It’s the permanence of these changes that we’ve all been trying to register. Initially, lockdowns and job restructuring was measured in weeks or months. We now know we’ll be into next year with adjusting scenarios.
The increased reach for personal vehicles is welcome news for those who sell cars, though an interesting side note reveals the layers of this equation: people who didn’t plan on buying a car are increasingly doing so, and they’re doing it sooner than anticipated, but they’re also (43 per cent) reporting they’ll be driving fewer kilometres — a reflection, likely, of some of those who permanently embrace the active transportation modes (walking and cycling) as well as more working from home. Dealers will have to factor service margins into that declining mileage at the same time they’re toting up the new sales numbers.
That earlier-than-anticipated entry into the carbuying market is reflected in a pronounced (48 per cent) number of Ontarians seeking out cars that cost less than they originally budgeted for. The used market will remain strong as manufacturers continue to produce highermargin SUVS and trucks and let the used market serve as a proxy for entry-level buyers.
After years of leap-frogging from one new car to the next every few years, will more frugal buyers tip the industry in a different direction?
The used car market is healthy, and for several years now there have often been only slight differences in the monthly cost between new and used, especially if the new one allows you to access better interest rates. Too many people buy a car a month at a time.
According to Ryan Robinson, research leader for the global automotive sector at Deloitte, it also poses a conundrum for dealers. How many resources get poured into chasing a demographic that might be fleeting? Wooing service customers by picking up cars and delivering them back is a high-end brand service that has filtered down into some lower ranks, but it’s a costly one for dealers to provide. It’s also difficult to cut a service your customers have become used to. Younger buyers may demand higher digitization of the process to match how they’re used to buying most things, but ultimately, they, too, want the showroom experience.
Manufacturers may look for ways to incentivize these first-time buyers to their stores, but Robinson points out possible trouble on the horizon.
“Dealers are seeing a bounce in demand from these younger buyers, but it won’t be long term. Income supports put in place by the government will end,” he says. “Whereas a year ago, the push was for better mass transit, COVID worries are pushing those consumers into cars. We still need that transit. There is a car imbalance — congestion — in our urban cores.”
When the cost of ownership becomes more apparent — maintenance, parking, insurance — Robinson cautions this bounce in sales to the younger cohort will flatten. At the same time, traditional buyers have been saving money on commuting and traveling, creating a pent-up demand for those land yachts manufacturers love to sell you.
Millennials may be entering the car market because COVID-19 flipped the game board, but where will they be a year from now? Ontario dealers would really love to know.