In a tale of diverging trends among new-car buyers, Jim Horner, a retired technical writer from West Bloomfield, recently bought an Audi A4 from the same dealer and the same salesperson who had sold him four previous Audis. And he paid cash each time.
“We had an 8-year-old car and we were admiring the new ones at the auto show. My wife said, ‘If you’re going to get a new car, you might as well get a nice one because it might be your last,’ ” Horner says.
At the polar opposite end of the market is Lara Dent, a 25-year-old Michigan State University graduate who is content driving her 2005 Saturn Ion to and from her job at Oakland University in Rochester Hills. She has no plans to replace it any time soon.
“I don’t feel the need to get a new car; it isn’t a very wise investment,” Dent says. “You can get a used car that’s in fairly good shape for significantly less.” She says once her basic living expenses are paid, any extra money goes to savings and paying off student loans. “There are more important things to put your money into than a car,” she says.
Horner and Dent represent a phenomenon that is shifting the landscape of U.S. auto sales, and possibly the way automakers and dealers market their products, according to new data compiled by Foresight Research, a marketing and research firm in Rochester. After interviewing 7,500 to 8,000 new-car buyers across the country, Foresight found car buyers under age 35 fell to 16 percent of the total market in 2012, down from 25 percent in 2009. During the same time period, buyers 55 and older made up 47 percent of the market, compared to 33 percent in 2009.
“What’s going on here? To be frank, we’re not sure,” admits Foresight CEO Steve Bruyn. “There are two possibilities. One is short-term: There’s been a crummy economy the last few years, and the people who were hurt the most by higher levels of unemployment and job loss were young people. They were also the group that had the most difficulty getting financed. If it’s a short-term issue, that’ll turn around.
“The other theory is that this situation is here to stay,” Bruyn continues. “It’s all about the baby boomers moving into their early 60s. The effects of this are long-term because they will probably live another 20 to 30 years, and people buy cars well into their 70s. The over-55-year-olds have the dollars, they have life expectancy, and they are moving to different segments because style, technology, and creature features have migrated into smaller cars. If this group continues to be 47 percent of the market, there will be profound changes in the way cars and trucks will be marketed.”
Foresight Research also discovered the Internet has lost some of its leverage as a shopping tool for older buyers. Thirty-two percent of baby boomers ranked the Internet as an influential communication channel in 2012, down from 36 percent in 2009. Meanwhile, the power of brochures — the embodiment of low-tech marketing — ticked up slightly, to 30 percent from 29 percent during the same period.
“Young adults aged 18 to 34 accounted for nearly 30 percent less of new cars bought in 2011 than in 2007, according to new-car registration data,” says Lacey Plache, chief economist at Edmunds.com, an online resource for the automotive industry. “With higher unemployment, lower income, and less education than previous generations at this age, it hardly comes as a surprise that these younger adults have failed to buy new cars at the same rate as their predecessors.”
Plache says new-car sales to millenials (typically, those born between 1980 and the early 2000s) slumped as that group put off establishing households. After a run of several years that saw 500,000 new households formed each month, 2012 spiked at 1.4 million new households per month — only to see the rate retreat back to 500,000 per month during the first six months of 2013.
Experian, the credit reporting firm, says new-car buying abilities by millenials were further hurt by their low credit scores. By carrying an average debt of $23,332, and with high incidences of late payments, millenials averaged a low credit score of 628. Baby boomers, on the other hand, maintain a higher-than-average credit score of 700.
Other indicators show that car-buying isn’t the only thing young people are delaying. A 2013 study by the AAA Foundation for Traffic Safety says only 44 percent of respondents had received a driver’s license within one year of the minimum licensing age in their state, and only 54 percent said they obtained a license before turning 18.
In Michigan, approximately 460,000 people 19 or younger received a driver’s license in 2009. For 2013, the number of younger buyers was expected to be flat.
“The millennials just wanted to stay alive through the Great Recession, and they perhaps saw what it did to their parents,” says Mike Bernacchi, a professor of marketing at the University of Detroit Mercy. “It left such an impact that there are many folks, especially millenials, who would argue that we’re still in a recession. It made a dent in their psyche and their purchasing habits.”
Baby boomers, however, are spenders obsessed with image; they want to be young forever, Bernacchi says. “They decided very early on that they could buy their way into success. The millennials say, ‘I’ll wait for tomorrow’; boomers say, ‘There is no tomorrow, so we’re going to spend, spend, spend, and live life to the fullest.’ ”
While the Internet has gained in popularity among retailers and consumers, it’s not a panacea.
“Every manufacturer is catering to an older buyer today than in 2007, with the exception of Buick, which has lowered the average age of its buyers from 62 to 59,” says Tom Libby, a blogger with IHS Automotive in Southfield. “Buick has brought in more young buyers by dramatically altering its product portfolio, adding the Regal, and placing much greater emphasis on the Enclave (average age: 56 for both), while discontinuing the Lucerne (average age: 70).”
Across the country, dealers are reporting similar trends. Rob Audette, general manager and partner at Bill Bryan Auto Group, knows all about selling to older customers. His Chrysler-Dodge-Jeep, Subaru, and Kia dealerships in central Florida are just miles from The Villages. With a population of more than 50,000, The Villages is one of the country’s largest retirement communities. “About 80 percent of my customers come out of The Villages,” he says.
Although Audette’s customers are older, he believes the same general market conditions exist nationwide. “The people who have been established in the last 30 years and are making an income come in here and write checks. Most of the young people who work in my store cannot buy a new car. My top technicians, who are making good money, can, but the people who work the phones making 2,500 bucks a month, it’s a little difficult. Even with good credit and great interest rates, you’re still looking at a $400-$500 payment. It just doesn’t work.”
Audette spends $90,000 per month advertising on radio and TV, through direct mail, and on the Internet, but he says the most effective way to get and keep customers is to treat them right. “I spend a lot of money marketing to The Villages; I treat them like gold, I work hard for their future business. It’s not like it used to be, where you sell a car and you don’t care if they come back. I’m working for your second, third, or fourth car. If you’re not doing that in today’s business, you’re going to get killed.”
Derek Criscuolo, general sales manager at Spartan Toyota-Scion in Lansing, is satisfied with the business that the over-55 segment brings to the showroom. Other than offering specials like discount oil changes, he has not changed the way he sells to that group. “The older population is what has made us successful over the years,” he says, “but marketing to them hasn’t been a large focus because, historically, they are a more loyal buyer — sticking with us for service and buying one, two, three cars from us.”
Criscuolo says the boomer market comprises 55 percent to 60 percent of his sales, but that’s down in the last five years because Toyota has put more marketing emphasis on younger buyers. He says the average age of a Toyota buyer has fallen to 54 from 59. The typical Scion TC buyer, Criscuolo says, is 27 years old.
Dealers who offer vehicles from the Big Three appear to reap the most benefits from older buyers. “Our dealership has been around for 55 years and a lot of our clients have been with us from the very beginning,” says Russ Shelton, owner of Shelton Buick-GMC in Rochester Hills. “My guess is they couldn’t wait any longer, because the average age of vehicles on the road today is over 11 years.”
One of Shelton’s most effective sales tools is direct marketing, or what he calls “mining” for customers. “We go to our own large customer base (and reach out) to those who are six months or a year out in their lease. That’s worked very well with the older clientele. We have people who weren’t even thinking about buying a new vehicle and, the next thing you know, they’re in the showroom trying to see what they can do.”
To reach customers and attract new buyers, Carl Galeana says he spends $100,000 annually on newspaper and magazine advertising. “We certainly are seeing more of the 55-plus buyers. They seem to have more cash and the ability to get financing,” says Galeana, president of Galeana Van Dyke Dodge in Warren and Fiat of Lakeside in Macomb. “To reach these prospects, I still use traditional marketing.
“Younger buyers out there are definitely aware; they know what’s going on, they know their product before they walk in the door,” Galeana adds. “It’s important to engage them on a personal basis. These people really socialize a lot. Whether they have a great experience or a bad experience, they’re going to tell a lot of people about it. They’ll be on Facebook; they’re going to be everywhere.”
Although Foresight Research’s findings are backed up by anecdotes and other data, there are always exceptions to the rule. “I’m surprised at those numbers (of older customers) because, over the past 24 to 36 months, we’ve seen an influx of younger buyers — folks in their early 30s who are just starting families,” says Paul Zimmermann, general sales manager at Matick Chevrolet in Redford Township. “Thirty-five percent of our new-car business is under age 35, and that number is growing. We’ve nearly doubled our volume in the past three years, and I would attribute those increases to that younger demographic.”
The perception that older car-shoppers are uncomfortable with technology and smart phones can also be disputed. “Eighty percent of my older customers are going on my (website),” says Audette, of the Bill Bryan Auto Group. “My mother-in-law is 80 years old and she’s on her iPad every day. My brother is 65 and he’s all over Facebook. If you’re not up on social media, you’re missing the boat. We have 65-year-old customers who go online while they’re sitting at the table working the deal.”
Dealers and auto manufacturers encounter countless customer traits and marketing recommendations each year, but dealers seem to recognize that no matter who comes in to look at one of their cars or trucks, the old high-pressure sales model that stigmatized them in the past doesn’t work.
If a customer isn’t engaged soon after walking into a dealer showroom, the prospect of a sale diminishes as more time passes. And if a dealer talks down to customers, especially female buyers who are now more educated about new cars than ever, a final transaction becomes all the harder to close.
“You have to be polite, you have to go above and beyond, to earn their business,” Audette says of the buyer experience. “I will never let a customer knowingly say that we didn’t do our jobs. I will go out of my way and spend whatever it costs to fix a problem.” db