State of Auto: Cars Now Signify Utility More Than Status

This post is part of a series in which LinkedIn Influencers analyze the state and future of their industry. Read all the posts here.

The auto industry is confronting numerous challenges ranging from globalization, more stringent regulation, and rapid development of technology that is making cars safer, connected, reliable and, of course, more expensive. But in the mature markets of Western Europe and the United States, automakers are slowly recognizing a steady and subtle change in buyers’ attitudes toward cars and car ownership.

Baby boomers were the last generation for whom the make and model that was parked in the driveway was directly linked to the family’s financial and social status.

Alfred Sloan — the man who transformed General Motors into the greatest corporation of his era — understood that the company’s financial success depended, in large part, on satisfying the aspirational needs of its customers. He positioned Chevrolet as a “starter brand” that told your neighbors you could afford a new car; Pontiac and Oldsmobile were aimed at the growing numbers of middle managers; Buick was seen as conservative “near luxury”; Cadillac was the ultimate symbol of luxury. Sloan also recognized the importance of styling and the annual model change to encourage owners to want the newest design and features.

But that emotional attachment of the vehicle looks to be decoupling in mature markets. (But in China, India, and in other developing countries, first-time buyers flood showrooms with the baby boomer-like enthusiasm for personal mobility that also identifies the owner as a member of the privileged class.) In Europe and the United States, automakers have fretted for years about the rising average age of their customers. Deliberate attempts to appeal to younger buyers with novel marketing (e.g., concert promotions), lower price points, and “cool” features (like factory-installed Rockford-Fosgate sound systems) have not succeeded as hoped in generating brand or model enthusiasm.

Younger people, whether 20 or 35, are likely to have grown up in a household where there were multiple cars in the garage. They got their licenses at 16 and were rewarded with occasional use of the oldest vehicle in the family fleet, if not even provided with their own vehicle. For this generation of younger adults, cars represent utility more than they do status — and everyone knows you pay less for utility than you do for status.

There are definitely aspects of the decoupling that reflect the fact that it seems everyone in the U.S. has a car so there is no longer exclusivity associated with ownership. But there is also an economic reality that is likely limiting ownership of cars for younger people. In the late 1990s, I recall Bob Rewey, then the EVP of Sales and Marketing at Ford, worrying about the impact on car sales of a shift of discretionary spending away from cars in favor of the emerging electronic marketplace that offered more entertainment options.

His profound observations were made long before the development of the smartphone, broadband in nearly every home, and multi-billion dollar market caps for online gaming stocks. So there is a likely correlation between spending priorities for young people and what they are willing to sacrifice in favor of car ownership (that also comes with financing payments, insurance, fuel, and maintenance.)

Economic issues also reflect the fact the college graduates today exit school with a diploma and a mountain of debt, something their parents and grandparents did not have. So their ability to afford a car while paying down that debt and employed in a job that is less secure and barely covers the bills is adversely impacting car demand in this age segment. Throughout Europe and the United States, unemployment and underemployment for college graduates remains a major problem that is restricting spending on big-ticket items (and delaying marriages).

Young adults today have at least two options other than buying a new car. The first would be to purchase a cheaper used car but that of course brings with the costs of ownership. Modern cars, when maintained, can easily travel more than 200,000 miles. So with less status associated with a car for these young adults, there is little stigma sitting behind the wheel of a 10-year-old model and in some circles it might be viewed very favorably.

The second option is car sharing. Car sharing has become a viable alternative for those living in larger and even medium size cities in both Europe and the U.S. The Internet has enabled car-sharing among private owners who earn a fee by renting their car for an hour or day to people who connected with them online. Big companies like Avis, Hertz and Enterprise have gotten into the car-sharing business because the model has proven to work college towns and large cities. Car-sharing allows people to have the convenience of a car when they need it without incurring the costs of ownership. As in any rental experience, the make and model are less important than the utility of the car represents.

The net result of these societal shifts will be slower trend growth in the new car sales, continued aging of cars on the road, and even more attention by global automakers on emerging markets where growth rates are higher because car ownership still represents an aspirational dream for an emerging middle class.

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