Millennials Rejecting Status Quo Consumerism In Favor Of Freedom and Mobility_Featured_, Conscious Business Monday, September 3rd, 2012
The Cheapest Generation
Why Millennials aren’t buying cars or houses, and what that means for the economy
By Derek Thomspon and Jordan Weissmann
(The Atlantic) In 2009, Ford brought its new supermini, the Fiesta, over from Europe in a brave attempt to attract the attention of young Americans. It passed out 100 of the cars to influential bloggers for a free six-month test-drive, with just one condition: document your experience online, whether you love the Fiesta or hate it.
Young bloggers loved the car. Young drivers? Not so much. After a brief burst of excitement, in which Ford sold more than 90,000 units over 18 months, Fiesta sales plummeted. As of April 2012, they were down 30 percent from 2011.
Don’t blame Ford. The company is trying to solve a puzzle that’s bewildering every automaker in America: How do you sell cars to Millennials (a k a Generation Y)? The fact is, today’s young people simply don’t drive like their predecessors did. In 2010, adults between the ages of 21 and 34 bought just 27 percent of all new vehicles sold in America, down from the peak of 38 percent in 1985. Miles driven are down, too. Even the proportion of teenagers with a license fell, by 28 percent, between 1998 and 2008.
In a bid to reverse these trends, General Motors has enlisted the youth-brand consultants at MTV Scratch—a corporate cousin of the TV network responsible for Jersey Shore—to give its vehicles some 20-something edge. “I don’t believe that young buyers don’t care about owning a car,” says John McFarland, GM’s 31-year-old manager of global strategic marketing. “We just think nobody truly understands them yet.” Subaru, meanwhile, is betting that it can appeal to the quirky eco-conscious individualism that supposedly characterizes this generation. “We’re trying to get the emotional connection correct,” says Doug O’Reilly, a publicist for Subaru. Ford, for its part, continues to push heavily into social media, hoping to more closely match its marketing efforts to the channels that Millennials use and trust the most.
All of these strategies share a few key assumptions: that demand for cars within the Millennial generation is just waiting to be unlocked; that as the economy slowly recovers, today’s young people will eventually want to buy cars as much as their parents and grandparents did; that a finer-tuned appeal to Millennial values can coax them into dealerships.
Perhaps. But what if these assumptions are simply wrong? What if Millennials’ aversion to car-buying isn’t a temporary side effect of the recession, but part of a permanent generational shift in tastes and spending habits? It’s a question that applies not only to cars, but to several other traditional categories of big spending—most notably, housing. And its answer has large implications for the future shape of the economy—and for the speed of recovery.
Half of a typical family’s spending today goes to transportation and housing, according to the latest Consumer Expenditure Survey, released by the Bureau of Labor Statistics. At the height of the housing bubble, residential construction and related activities accounted for more than a quarter of the economy in metro areas like Las Vegas and Orlando. Nationwide, new-car and new-truck purchases hovered near historic highs. But Millennials have turned against both cars and houses in dramatic and historic fashion. Just as car sales have plummeted among their age cohort, the share of young people getting their first mortgage between 2009 and 2011 is half what it was just 10 years ago, according to a Federal Reserve study.
Needless to say, the Great Recession is responsible for some of the decline. But it’s highly possible that a perfect storm of economic and demographic factors—from high gas prices, to re-urbanization, to stagnating wages, to new technologies enabling a different kind of consumption—has fundamentally changed the game for Millennials. The largest generation in American history might never spend as lavishly as its parents did—nor on the same things. Since the end of World War II, new cars and suburban houses have powered the world’s largest economy and propelled our most impressive recoveries. Millennials may have lost interest in both.
When Zipcar was founded, in 2000, the average price for a gallon of gasoline was $1.50, and iPhones didn’t exist. Since then, it has become the world’s largest car-sharing company, with some 700,000 members. Zipcar owes much of its success to two facts. First, gas prices more than doubled, which made car-sharing alluring. Second, smartphones became ubiquitous, which made car-sharing easier.
The emergence of the “sharing economy”—services that use the Web to let companies and families share otherwise idle goods—is headlined by Zipcar, but it also involves companies such as Airbnb, a shared marketplace for bedrooms and other accommodations for travelers; and thredUP, a site where parents can buy and sell kids’ used clothing.
From a distance, the sharing of cars, rooms, and clothes may seem a curiosity, more hippie than revolutionary. But technology is allowing these practices to go mainstream, and that represents a big new step for consumers. For decades, inventory management was largely the province of companies, not individuals, and continual efforts to reduce inventory—the stock of things just sitting around—helped companies improve their bottom line. But today, peer-to-peer software and mobile technology allow us all to have access, just when we need it, to the things we used to have to buy and hold. And the most powerful application is for cars.
The typical new car costs $30,000 and sits in a garage or parking spot for 23 hours a day. Zipcar gives drivers access to cars they don’t have to own. Car ownership, meanwhile, has slipped down the hierarchy of status goods for many young adults. “Zipcar conducted a survey of Millennials,” Mark Norman, the company’s president and chief operating officer, told us. “And this generation said, ‘We don’t care about owning a car.’ Cars used to be what people aspired to own. Now it’s the smartphone.”
Some automakers are slowly coming around to that view. Last year, Ford agreed to become Zipcar’s largest supplier on more than 250 college campuses. Young people prize “access over ownership,” said Sheryl Connelly, head of global consumer trends at Ford. “I don’t think car-buying for Millennials will ever be what it was for Boomers. But we know if they have the opportunity to drive Ford, they’re more likely to choose Ford if they buy a car.”
Subaru’s publicist Doug O’Reilly told us, “The Millennial wants to tell people not just ‘I’ve made it,’ but also ‘I’m a tech person.’ ” Smartphones compete against cars for young people’s big-ticket dollars, since the cost of a good phone and data plan can exceed $1,000 a year. But they also provide some of the same psychic benefits—opening new vistas and carrying us far from the physical space in which we reside. “You no longer need to feel connected to your friends with a car when you have this technology that’s so ubiquitous, it transcends time and space,” Connelly said.
In other words, mobile technology has empowered more than just car-sharing. It has empowered friendships that can be maintained from a distance. The upshot could be a continuing shift from automobiles to mobile technology, and a big reduction in spending.
Commentary by Eric Garland
Counterpoint: Gen Y does not have different values – they’re broke
I have been going back over a piece in The Atlantic by Derek Thompson and Jordan Weissman entitled “The Cheapest Generation.” The article posits that Generation Y has different consumer values because they are “less interested” in buying homes and automobiles than prior generations.
As it so happened, I put up the first comment which earned over 1000 “likes”:
You mean the generation that paid three times as much for college to enter a job market with triple the unemployment isn’t interested in purchasing the assets of the generation who just blew an enormous housing bubble and kept it from popping through quantitative easing and out-and-out federal support? Curious.
Quite surprising to me, people in their twenties have been writing me personally to thank me for this sentence. Well…OK guys, you’re welcome! But maybe there’s a reason behind the enthusiasm for this comment – the fundamental thesis of the authors is wrong.
Let me expand – older people are falling all over themselves to explain the “unusual” behavior of these mysterious younger people who “don’t share the values of other generations” on cars, careers, babies and more. The value explanation is cargo cult science. Americans in their 20s don’t necessarily have different consumer values – they’re broke. They have been systematically impoverished, and then we pretend that they don’t want cars for some personal reason. America has a completely dysfunctional public transport system in the majority of its cities – you absolutely cannot live without a car. The reason young people aren’t buying cars is that 1) cars are expensive 2) they don’t have money.
Let’s have a look at some charts. First, youth unemployment:
It’s the worst job market for young people in thirty years – and this chart doesn’t detail the rise of McJobs with low wages and little stability that have replaced the light manufacturing jobs we shipped overseas.
Now let’s look at the student loan data, the money these kids had to borrow to deal with the rise in tuition that just happens to have tracked upward with the federal guidelines to allow people to take more money in loans.
Wow, you mean that the people taking out a combined trillion dollars in student loans don’t have the same consumer behavior as the generation that started with nearly no college loans? You don’t say.
I believe that there is an unconscious, concerted effort to create alternative explanations that keep us from having to arrive at an uncomfortable conclusion – these young people are being actively screwed out of their future, leveraged to the hilt, fully expected to start their own lives under this yoke while paying for every entitlement their parents voted for themselves. And who wants to think that way? It would mean some uncomfortable tension in the workplace and around the Thanksgiving table, n’est-ce pas? Perhaps it’s easier to think of it as different values. Because imagine a generation that becomes aware that the institutions of society exist to enrich everybody but them.
AWK-WARD, as the kids say.
Synthesizing the Millennial Consumption Theses
As a millennial, I have some insight into this subject.
My view is that the reality lies in a synthesis of the two perspectives presented by The Atlantic and Eric Garland, and both raise some valuable points. Yes, millennials are broke, face a terrible economy, crippling student loan debt, and the general fall-out of the bad economics of their parents’ generation. But I also believe that there is a major shift underway in attitudes of millennial consumers. They have learned from the previous generations’ mistakes and have more flexible alternatives at their disposal as a result of technological innovation.
The result is a generation that favors freedom and mobility over ownership and conditioned zombie consumerism, and we believe this would still be largely the case even in a robust economy.