Fewer Young Drivers Could Weaken Auto Finance Market
It is a common marketing strategy that whenever a company or an industry needs to find new customers, it tends to look at youths and younger generations. But for auto lenders, looking to younger potential car-buyers may actually be a terrible idea, according to a new report released this week.
The report, called “A New Direction: Our Changing Relationship with Driving and the Implications for America’s Future,” released by U.S. Pirg, a Boston-based consumer advocacy group, outlines how people are driving less miles and relying on other modes of transportation, such as bicycles and public transit, than ever before. This could be bad news for auto lenders, especially if the trend is to continue as the report suggests.
The average amount driven by Americans has declined for eight straight years and may remain lower than pre-2004 levels (when the amount driven reached its peak) for nearly three more decades. Among millennials, those who were born in the late 1970s and 1980s, the number of miles driven dropped 23% between 2001 and 2009.
While the report draws a number of conclusions, including the reduced financial viability of toll roads and less traffic congestion, it fails to realize the impact that driving less miles could have on the auto finance market.
A New York Times article highlighted the study, but also made sure to mention that the report has not been universally accepted. Millennials are starting families and tend to move into more suburban neighborhoods to settle down; neighborhoods which will require vehicles to get around, said one critic.
Another researcher found fault with the report’s findings, saying that more younger people have not been buying cars because unemployment and underemployment among that generation is higher because of the economic recession.
Regardless of whether the long-term impact is going to be as severe as the report suggests, it is clear that fewer younger people are driving these days, and that is something that all lenders need to consider.
