Are mainstream automakers losing touch?
Automakers would like nothing better than a return to ‘normal' auto sale's levels, or around 17 million units sold per year, but are such sales good for America? Are they sustainable heading into the future, a future ever more controlled by Generation Y?
Today, pickup truck sales – and US automaker profits – are back, but this isn't really the future is it?
Today, Gen Y'ers aren't in a rush to get a drivers licenses or a car, and when they do buy, they have very different expectations.
“Many analysts credit Ford with doing the best job so far. The company recently released a new version of the Fiesta that has plenty to appeal to Generation Y: A sticker price starting at $13,320, combined gas mileage of around 33 miles per gallon and, perhaps most important, up-to-date technology for things like voice-activated music search and audible text messages,” reports a recent MSNBC article.
Still, its F150 pickup trucks, not the Fiesta, driving Ford profits.
Nevertheless, unlike past generations, this new generation of consumers is much more concerned with properly maintaining their social network rather than the image their car portrays. More important, they are not willing to invest as much in their cars as past generations – the image value of a car is losing value, rapidly. For Gen Y'ers, image value is attained through social networks, not autos. Besides, the need for new cell phones and high end data plans are cutting into car budgets.
For now, however, automakers can try to appeal to baby boomers, and the huge profits they provide, one last time – this is the audience baby boomer auto executives and corporate boards understand. Yet, another big gas spike could easily squash such sales, cut capacity suddenly, and push automakers back into the red.
The Gen Y generation seems to understand this, and that's a good thing.
Besides, car ownership in America is dysfunctional. Too many buy far more than they can afford. In my hometown of LA, for instance, we'd rather spend a mortgage payment on a cool looking car and insurance than own a home – I guess that's why the government isn't afraid to end the mortgage interest deduction. Home ownership is so passe. It doesn't lead to rapid enough consumerism.
But even in car crazy LA, ever more Metro routes are reducing the need for a car and the subways are filling up with Gen Y'ers enjoying their social networks rather than stressing out in traffic. We still have a long way to go, but change is happening.
Next week, the LA Auto Show will feature more hybrid and electric cars than ever – the cheapest being twice as expensive as what Gen Y'ers care to spend. Ironically, I'd bet that emerging markets – the future engine of the world's auto industry – will more resemble Gen Y'ers rather than baby boomers. Unfortunately, automakers seem bent on squeezing every last nickel out of baby boomers as they can for as long as they can. Even most hybrids and EVs are being built for this generation, not Gen Y'ers.
But this is not the future of the US auto industry, or the world's auto industry, I'd bet. And the longer US automakers wait to address this inevitable reality, it won't just be social security that retires with baby boomers, but an ever bigger chunk of the US auto industry as well, at least in terms of US manufacturing. But, since that has nothing to do with either next quarter's financial statement or baby boomer retirement plans, I guess this will be just another mess Gen Y'ers will have to clean up.