Digital transformation along with the shared economy has disrupted the automotive and car rental industry in a big way. The disruption is getting worse as Gen Z joins the Millennial generation who isn’t as interested in driving their own cars.
As new mobility services pop up it’s becoming increasingly clear that the automotive industry has never been about driving, it’s been about freedom and location independence. Getting your drivers’ license used to mean freedom from your parents. Now you no longer need to get a license to have this freedom. Pair this with insurance rates that penalize you for your age and inexperience with the high cost of owning a car it’s no wonder driver’s license rates are down.
The Wall Street Journal took a look at how automakers in the US are dealing with this trend and the cliff notes version is: Gen Z might not be able to buy cars now, but later when they’re financially stable and having children they’ll pick up an SUV.
Detroit is making a bet on large cars but the Japanese makers are keeping their low price sedans as a way to attract young people to their brands. They’re playing the long game in a segment that is meant to offer slightly higher margins.
This play could be short-sighted increasing student loan prices and rising costs of cars means there is less disposable income for a product that is getting more expensive. We love the technology that’s being packed into cars but it’s making them more expensive to buy and to repair.
This is why we’re seeing the automotive industry diversify into ride sharing but to fund the move towards autonomous drive they need to keep selling cars. Ride sharing is a new business model that will pay off in the future, it’s an investment that needs to be funded by today’s product lines.
If we look at what global brands are doing to appeal to younger consumers you’ll notice a bunch of sporty cross overs priced under $25,000.
The Hyundai Kona is a small utility vehicle that has a 7inch touch screen packed with connectivity focused technology. There is also the Sonata which was just launched at the New York Auto Show which is a little smaller and more urban.
Two years ago Volvo launched a subscription service for those who don’t want to be bothered with owning a car outright. It’s $700 a month and to add a new driver it’s significantly less than if they sought out a stand-alone insurance policy. Unlike a traditional leasing contract, there are no financing charges and insurance is included.
Volvo is leading the way with cars running the model were already on the road last year. In fact, the waiting list is still being filled.
What is most clear about this trend is that it’s not only effectuating the younger generations. It’s anyone who does want to add the cost of a second car to their budget when one car and mobility services are more than enough. It’s also targeting anyone who is urban center or urban center adjacent (fyi suburbs as a term isn’t cool anymore).
The four main factors we’re seeing effect car sales:
1. Ride Sharing & last mile services (scooters, ebikes, etc.)
2. Digital services that allow virtual hangouts can decrease travel. Mobility is also changing the way we work. Many people are able to work from home a few days a week to decrease weekly commute times. This type of flexible work week is popular to attract young talent.
3. The rising price of new cars.
4. Urban centers are creating transportation systems for everyone, not just poor people, which appeals to a larger demographic than previous years.
The premium car segment is banking on a fundamental love of driving as their core value to sell cars. This race to the top to maintain a luxury and premium experience isn’t something that the masses can afford. So it may be short-sighted to rely on a premium driving experience when freedom as the motivation behind the activity is so much more important.