After decades of happily selling to baby boomer and Generation X customers, automotive dealers and OEMs are having to engage a new, younger group of car buyers: millennials.
The growth of urban lifestyles, car-sharing services, and financial challenges has led to doubts about the millennials—or Generation Y, considered to be born between the early 1980s and early 2000s—desire ever to own a vehicle: new or used. But the ‘on the street’ facts say otherwise.
Millennials buy cars—used cars
No one would argue that after the economic downturn of 2008, millennials have struggled financially. Increasing student debt and lower job opportunities made purchasing big-ticket items like cars a challenge.
While they may not have the buying power of the older boomer and Generation X consumers, younger buyers still desire to own the same luxury cars, crossovers, SUVs and light trucks that are dominating the new vehicle sales charts. And this desire has driven millennials to the often more affordable used car market.
According to the Cox Automotive Canada Dealertrack brand’s online credit application network, millennials made up over 33% of the Funded Used Vehicle buyers in 2016, second in size only to Generation X buyers which made up over 40% (boomers only made up over 13% of the buyers.)
Millennials buy cars differently than boomers
As much as millennials are interested in purchasing their vehicles, they are going about it in a different way than previous generations.
As the first so-called “digital native” generation, these younger buyers take advantage of their superior tech skills to research before buying. The 2017 Cox Automotive Car Buyer Journey found 64% of millennials do their research online, spending more than 17 hours shopping for cars online before visiting a dealership, while a 2016 study by Cox Automotive’s AutoTrader in the U.S. reported only 12% ever go to a lot.
We also found that compared to previous generations, millennials’ credit approval rates on used vehicles in 2016 were lower: 77% versus 80% for Generation X and 84% for boomers. But when approved, only 61% millennials took the funding request (compared to over 68% for Generation X and over 76% for boomers), suggesting this group was also more likely to walk away from financing their vehicle. In fact, millennials average interest rate when funded was roughly the same as the previous generation, despite having riskier credit profiles and lower approval rates.
Recognising how this group shop differently than boomer and Generation X buyers, the way automotive dealers and OEMs sell to millennials must also change.
TV is becoming quickly irrelevant to this generation, replaced by social media and apps. Dealers must make sure their ads and websites are mobile-friendly, adopt “pull” marketing that invites buyers to engage with their product, and maintain an online reputation to avoid poor dealership experience reviews on third-party sites.
This move to digital consumerism is the chief reason why Dealertrack Canada partnered with TRADER Corporation on the rollout of a new Digital Retailing Solution.
As Canadian dealer expectations rapidly move from treating digital retail as a niche experiment to a foundational part of their online process, the new Dealertrack Digital Retailing Solution shows a vision of how dealers can change their processes to take full advantage of this rapid shift in consumer behaviour.
Millennials like CPOs
To further take advantage of millennial buyers who cannot afford to buy new, dealers and OEMs can profit further by targeting nearly-new, certified pre-owned (CPO) vehicles towards this group.
The AutoTrader study also found 74% of millennials surveyed were willing to pay more for a CPO vehicle compared to a non-CPO used car, compared to just 62% of older drivers. These younger buyers will pay more for a CPO vehicle: US$3,800 versus US$2,700 for their parents and grandparents.
Keeping the millennial buyer coming back
Keeping millennials as clients is a major concern for dealerships as this demographic group has garnered a reputation as being less brand loyal than boomer buyers. In fact, a 2016 Market Research Study by Cox Automotive Canada’s Xtime brand found that 64% of dealerships said their primary concern overall is customer retention.
Increased focus on CPO inventory, providing the multiple financing options, and improving digital channel capability are some key opportunities to attract and keep these younger, fickle buyers purchasing, and coming back to a dealer’s lot again. As referenced in the AutoTrader study, 69% of CPO owners are “likely” to buy their next vehicle at the same dealership, compared with just 37% of those who buy a non-CPO used car or truck.
The good news is millennials are buying cars! However, entering the mindset of a millennial car buyer is the key to unlocking the sales opportunities this new generation of car buyer can offer. Figuring out this generation will be essential if dealers and OEMs want to stay in business in the future.
Maria Soklis is the President of Cox Automotive Canada, leading the development and execution of Cox Automotive’s Canadian business strategy and operations and has responsibility for the existing Manheim & Dealertrack businesses in Canada, provides a supporting role with NextGear Capital, and helps the introduction of other Cox Automotive businesses into the market.