What’s Killing the Car Business?

[Fasttoys]

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T’S A VEXING QUESTION, a riddle seemingly without a clear answer. The world’s car manufacturers are as perplexed as everyone else about the real cause for the decline in the car’s position as one of the most important, most desirable human artifacts.

Much has been written about the advent of autonomous vehicles, robo-taxis gliding silently through the cluttered mazes of today’s large cities. Yet autonomous vehicles are, in my opinion, a result, as opposed to a cause. So-called subscription services, where a monthly payment gives the customer access to a number of vehicles in that brand’s portfolio, are also cropping up as a creative solution to bring in customers. And then we have car sharing, provided by companies such as Maven. And, of course, the quasi-taxi service provided by Uber and Lyft.

All of these newfound ways of putting “butts in seats,” to use automotive-sales vernacular, have one major troubling thing in common: They downplay, or sidestep, vehicle ownership. Therein lies the real problem. When large segments of the population view the car not as a desirable object to own and covet, but merely as a convenient way to travel to a given destination, it means the love affair—torrid, passionate, and long-lasting though it was—is beginning to flame out.

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WE DIDN’T ACTUALLY PLAN TO DESTROY THE
JOY OF OWNERSHIP.

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The industry itself is at least partly to blame. We didn’t actually plan to destroy the joy of ownership, but often out of sheer necessity, we did things that hastened it. When vehicles became expensive, we discovered ever-longer financing periods—now 80 months and higher—to get monthly payments to an affordable level. Arguably, it does the job, but the buyer, in many cases, never actually owns the vehicle and usually trades it before having any real equity.

And then there’s leasing, the great social leveler, wherein a buyer essentially pays to cover depreciation of the vehicle for 24 or 36 months, plus a profit for the leasing company. Again, the customer has use, but never ownership. Leasing also leads to “price inversion,” where a German sedan has a lower lease rate than a Ford pickup, and anyone able to afford a $400 monthly lease payment can drive a luxury car. The cachet, the pride, and the privilege of ownership is gone.

And then, on top of all this, we have what I would term “cancerous proliferation,” or more densely filled product portfolios, where every major brand, foreign and domestic, has an entry in every real or imagined market niche. Individually, producers see themselves as simply responding to competitive pressure, and that’s good. But collectively, it results in an intensifying torrent of new nameplates, designations, body styles, and power sources. It is a rush of information average consumers can no longer digest; they tune out. ***-for-tat product planning leads to cross-brand sameness, lack of standout appeal, and inevitably, loss of the urge to own.

The immortal David E. Davis Jr. once said, “The problem with General Motors is that nowhere in the United States is there a 14-year-old boy with tears in his eyes saying, ‘Please, Dad, buy a Lumina.’ ” That boy is now gone; gone for all brands. He just wants the latest smartphone. And an Uber. A

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Bob Lutz has been The Man at several car companies. Ask him about cars, the auto industry, or life in general.

[John]

That was an interesting article Fasttoys, though some articles are showing a different take on this.

Millenials are buying cars after all.

• Longer loan terms and online buying options contribute to the trend.
• Millennials also are taking out mortgages at a slower rate.

Sarah O'Brien | @sarahtgobrien
Published 9:42 AM ET Wed, 30 Aug 2017CNBC.com

It seems millennials like cars just as much as their older brethren.

Despite being pegged as the generation that shuns owning a car, millennials appear to like buying autos more than their Generation X counterparts did when they were younger.

Consumers, ages 21 through 34, are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were that age, according to a study released Wednesday by TransUnion.

"Unless you live in a place where public transportation is effective and convenient, you still need a car," said Ezra Becker, senior vice president of global research and consulting for Chicago-based TransUnion
TransUnion compared millennials' auto loan originations in 2015 to those made by Gen Xers in 2001. The report defines Gen X as people born 1965 through 1979; millennials, 1980 through 1994.

Becker said auto-loan terms are much longer than they once were. When Gen Xers were in their 20s and early 30s, the longest term available generally was five years.

"Now, you can get a seven-year loan, which lets a lot of consumers manage their cash flows better," Becker said.

For example, a $25,000 loan on a new car with a 4.5 percent interest rate would be about $466 a month over five years (60 months), excluding and taxes and fees. A seven-year loan (84 months) with the same interest rate would cost $347.

The amount of interest shelled out on the longer loan, however, also is higher. On the five-year loan, total interest would be $2,965. Over seven years, interest would total $4,190. Higher interest rates, of course, incur even higher amounts paid over the life of the loan.

Technology has also fueled millennials' car-purchasing habits. Online shopping tools aimed at car shoppers has expanded the traditionally local marketplace, and millennials have embraced it, Becker said.

"Now you can find cars available not just in your neighborhood but across the country, so you have a better ability to find what you want at the price point you want," Becker said. "That kind of online shopping is very comfortable for millennials." Comparing Generations

Auto loans/leases	12.09%	14.58%	21%
Bank-issued credit cards	25.07%	19.50%	-22%
Private-label credit cards	17.05%	15.28%	-10%
Personal loans	2.18%	4.33%	98%
Mortgages	9.72%	5.16%	-47%

Source: Transunion 2017 millennial study

It's worth noting, too, that interest rates on auto loans were generally higher when Gen Xers were at a comparable age. The current average rate on a five-year loan for a new car is 4.21 percent, according to ValuePenguin. In 2001, the average rate ranged from about 6 percent to close to 10 percent, depending on the source of the loan.

The study also confirms what other research shows: Millennials are not buying houses at the same rate as previous generations. Compared with Gen Xers at their age, they are obtaining mortgages at a 47 percent lower rate.[/Quote]
https://www.cnbc.com/2017/08/30/mill...after-all.html

[John]

CARS ARE IMPORTANT TO MILLENNIALS

Today, Millennials are mostly purchasing a car out of need, rather than want, and they are more likely to do so than older generations because of a lifestyle change such as getting married, having children, buying a home, graduating college or getting a job. Indeed, there’s a perception that cars aren’t important to Millennials, but that’s not the case. They simply aren’t buying cars right now because of their current economic situation and not for lack of interest. In fact,

84% of Older Millennials own a car; and while half of Younger Millennials don’t currently own a car, 73% say they intend to purchase a car within a year or more.

And just like previous generations at this same age, cars play a key role in supporting Millennials’ need to stay connected, with 72% of Younger Millennials indicating that a car is important to their social life.

https://b2b.autotrader.com/oem/wp-co...-Car-Buyer.pdf

[[email protected]]

Based on what I have been hearing at SEMA, AutoMobility, and CES, I think automotive OEMs are feeling a lot of pressure to offer the subscription service option (as mentioned by Fasttoys) as the wave of the near future. Inclusive short leases that include insurance and maintenance, along with the opportunity to swap out to a different model or type vehicle arranged quickly with minimal paperwork (akin to ordering on Amazon). This orientation also foretells the significant change to dealerships as we currently know them. They would become more of delivery/service center with most sales done on-line.

[meyerweb]

I don't think the article in the second post really contradicts that first. Yes, millennials are buying cars, but that's not the same thing as "joy of ownership." They're buying transportation, not excitement. And with 6 and 7 year loans, they're not going to be buying new cars every few years like people did in the 50s and 60s. In the long run, that holds down sales.

As far as "***-for-tat product planning leads to cross-brand sameness, lack of standout appeal," I couldn't agree more. I recently picked up a used SUV, so I have something other than the 'vette to drive when the weather's really crummy, and to haul stuff. The first time I drove it to a local shopping center, I walked into the parking lot and realized there were a dozen or more silver SUVs that all looked pretty much the same. I was parked next to an SUV the other day, and thought it was the Lexus version of my Toyota. Turned out to be an Acura, but the lines are almost the same.

Not like the heyday of the auto industry, when no one would mistake a Cadillac for a Lincoln, or an Impala for a Galaxy or a Fury.

[Boomer]

I'm sure no matter how the car business changes, there will always be plenty of folks with a "love affair—torrid, passionate, and long-lasting" with their cars.

I see the thousands of hot rods that show up here in OC, MD twice a year for cruisin weekends. One just earlier this month was followed by Corvette weekend the very next weekend when thousands of Corvette enthusiasts came to town.

I don't think that kinda passion is ever going to end.

[John]

https://www.carscoops.com/2018/10/mo...ons-modifying/

[Boomer]

Another big car event here is made up by these "16 to 24 year olds". They show up here by the thousands every year under the name of H2O international.

[Fasttoys]

I agree I don’t see a big difference in the articles, One is about Younger buyers and the other is about the industry and the changing industry.

I would like to add some additional points. I am not talking about Hot rods, sports cars these will always have enough people following them as their numbers are low compared to the majority of cars/suvs on the road today.

When it comes to the majority of vehicles they are becoming an appliance similar to many things we purchase today. They look at them like their IPhone and change it out every 36 months. Cars are getting ridiculously expensive and most people only care about their monthly payments and not that it’s an 84 month loan to get them in at that price. Then they take that depreciating asset and roll it into another car loan. Spoke to a finance director at Audi last week & he said the average car payment at his dealership is 725 at 72 months. He said so many roll their negative equity into the new loan, with the majority of buyers being upside down. Back in the old days if you wanted cool tech on your car you had to buy the higher end model, today you can get it in the entry level by clicking on the premium package and paying 25 extra a month.

My daily drivers i could care less as long as its confortable to drive. My sports cars I want something special that makes me want to come home early on a nice sunny day so I can take a drive.

[John]

No argument with your essential thesis Fasttoys, as I know someone in her early/mid 30’s; she told me her drea mcar is one she can get into, punch in a destination, and it would get here there without any further input by her, and using her exactly words, “freeing me up to text, email, and be on the phone the entire trip.”

And yet just like you Fasttoys and probably everyone else on this forum, getting into and driving special car is a special treat.

[JB]

We are still at 17 million saar for 2018....thats a long time at such high levels.

a downturn is to be expected..

still with the economy booming...everybody is buying...or should I say leasing...the saar is still strong..

eventually a downturn has to come...but the industry cant complain...this has been a good long positive run...

[Shadow]

Both of our daughters love to drive, very capable with a stick shift. We must have done something right.

[meyerweb]

There's a reason all the major auto manufacturers are looking into short term rental businesses. They see a future where far fewer people will actually own multiple cars. In suburbia, you pretty much need to own a car to survive, but between telecommuting, delivery services, and other changes we may get to the point where the typical family owns only one car, and rents others by the hour when needed.

[JB]

Ride sharing sounds logical but americans just like to hop in their cars and go. I dont buy into this new story.

in cities where parking is ridiculously expensive cars dont make financial sense.

where there is reasonable parking a,ericans will own cars.

[Fireeagle]

5 cars in my household with 2 of them being Corvettes. Never leased a day in my life. Also not a Millennial but my 2 daughters that are have my own not rent philosophy and we all use ride sharing apps when convenient. Manufacturing efficiency bringing down pricing could go a long way to increasing demand.