Articles

Why Young People Are Not Buying Cars

February 22, 2018 / Guest Author

The much-talked about “millennials” are a large group - 37% of Canada’s population[1] - and are growing into their primary earning years. Unlike the common perception of struggling financially, they tend to be some of the most influential consumers (estimated $172 billion in spending power[2]) and are willing to pay more for higher-quality goods. This, combined with being the most educated[3], culturally diverse[4], socially conscious, and digitally savvy generation yet[5], paints a picture of a group that isn’t easily defined by milestone purchases.

Millennials – really, all young consumers these days, regardless of their generation – display consumption habits that buck the trends of previous generations – they put a special value on innovative, practical, morally-driven choices. Their values, along with their engagement with technology, has disrupted almost every sector of industry – especially those that continue to assume millennials will shop the same way their parents did.

The auto industry is seeing this first hand.

The Rise of “Sharing Economy”

Younger generations are heavily participating in the sharing economy, which designs and supports businesses that favor accessibility over ownership. The growth of this economy has been significant in the auto industry – ridesharing and transportation network services like Zipcar, Uber and Lyft are household names.

The rise of the sharing economy has radically changed how younger generations approach purchasing, insuring, and financing a car. Buying a car is not seen as a marker of freedom or a rite of passage like it once was.[6] Rather, today’s twentysomethings see cars in a more purely practical light: as depreciating assets with large initial price tags and costly continuous maintenance. Without the sentimentality about car ownership, all that remains is the convenience, and for many young adults, ridesharing provides that – without the up-front costs.

Buying Preferences

Younger drivers’ top priorities are cars that are well-designed, environmentally friendly, affordable, good on mileage, and loaded with digital connectivity. Notable differences from their parents’ checklists is that they are far less likely to be swayed by horsepower, torque, flashiness, or size – cars are tools, not toys or fashion.

Young drivers, raised in the age of the internet, go online to compare pricing, contrast models, ask friends, find used listings, and, most importantly, read reviews. When it’s time to buy, they walk into dealerships armed with information and a fully-formed idea of what car will get them the best value for their budget.

A large percentage of the younger generations want to live in bustling city centres[7], meaning pubic transport is a competing transport option. Moreover, it meets many of their needs: it’s affordable, environmentally responsible, beats traffic, and doesn’t require parking. As the most urban-centric generation yet,[8] it’s understandable that 30% of millennials do not intend to purchase a car in the near future[9]. However, for those commuting to school or work outside of the city, cars are still the most convenient option – provided they get good reviews for fuel efficiency, emissions, and digital connectivity.

The Socially Responsible Generation

Want to engage with companies that demonstrate social responsibility[10]. Being environmentally conscious and living green are closely considered when choosing which car, if any, to buy. A car is environmentally expensive – owning a whole one is ethically difficult, especially with rideshare apps effectively offering an affordable, responsible alternative. Besides, millennials take health and wellness more seriously than any other generation[11]: they are not afraid to walk, bike, or bus[12] to get around. With climate change and the environment weighing on their minds, and many greener options available, cars using less emissions (smaller, hybrid and electric models in particular) are in the greatest demand.  

Future Technology

Given their passion for the environment and technology, many young drivers are paying close attention to the imminent arrival of self-driving cars. The first few iterations of driverless cars are likely to be expensive, but millennials and the next generation are likely to be early adopters and investors. The sense that a car is an extension of the driver simply isn’t as strong in the younger generations – a car that does the driving, so you can read, nap, or do anything besides drive, may be a very appealing idea to them.

What Does This Mean For Insurers?

These new trends in buying habits will become the new standard in a decade or two. Car ownership is likely to decrease – rather than owning a car that sits idle most hours of the day, many more people will use Uber and the like to make use of fewer cars. When driverless cars finally arrive, car ownership may rise, but the nature of vehicle insurance will likely change and hard-to-predict if algorithms are doing the driving.

The first thing insurers should do is be aware of these changes. After that, there are a few options. Just because young people are less likely to own cars doesn’t mean they don’t need insurance. After all, young people are still using cars – even if Zipcar or Uber is their primary means of transportation, they’re still on the road, and exposed to the same risks as traditional drivers.

Devising insurance products that take the changing nature of car ownership and ridership into account should be on every insurer’s to-do list. Buying a car was once a guaranteed milestone that required a person to go to a broker and get insurance – as was buying a home. Now that they are increasingly uncommon, brokers may need to learn to reach out to young people, to convince them of the need for and wisdom of insurance, and to offer insurance products designed specifically to meet their new, changing needs.