It often feels like complaining about the cost of car ownership is just a part of life.
- Cox Automotive’s Car Buyer Journey Study surveyed 900 consumers about their feelings towards owning or leasing vehicles
- Forty-eight percent of respondents feel car ownership too expensive
- The average monthly car payment is now over $500 and often higher for millennials and Gen Z’ers
- Ride-Hailing, Ride-Sharing and car subscription services have become favorites of millenials
- There is no easy fix to the cost of car ownership, which means traditional models will continue to shrink
We roll our eyes when gas prices soar. We lament the hefty price of vehicle repairs (anyone who’s ever had to write a check to fix a transmission knows this pain all too well). Owning a car may offer plenty of fun and independence, but it certainly doesn’t come cheap.
That’s a fact that today’s car buyers are well-aware of; so much so, in fact, that almost half of today’s car buyers say that owning a car is too expensive.
Cox Automotive’s 2019 Car Buyer Journey Study explores the car-buying process from start to finish, identifying key trends in automotive shopping. This research revealed that consumers increasingly feel that the price of owning a vehicle is too high.
Just under 900 consumers were surveyed through 2018 and were asked to share their feelings about owning or leasing a vehicle. The results showed 48 percent of the respondents said that owning or leasing a vehicle is becoming too expensive. The number of respondents who expressed this sentiment has grown a significant three percent since the 2015 version of the Car Buyer Journey study.
This shift is actually driven by younger shoppers. The feeling that car ownership is too expensive grew the most among respondents in the Millennial and Gen Z demographics.
Jonathan Smoke, Chief Economist at Cox Automotive, shed some light on why younger generations feel the cost of car ownership more acutely.
“The combination of record high new vehicle prices and auto loan rates at eight-year highs has pushed average new vehicle payments above $500,” Smoke said. “Younger buyers typically have higher financing and insurance costs due to their age and limited credit history, which means their payments can be even higher.”
Millennials and Gen Z’ers financial sensitivity extends far beyond the world of automotive.
“Younger people are impacted by escalating housing costs more than older buyers, who mainly own homes purchased when prices were lower with mortgage rates at record lows,” Smoke said. “Throw student loans into the mix, and the new vehicle payment at more than 10 percent of median household income is beyond reach or even consideration by consumers in their 20s and early 30s.”
Millennials and Gen Z’ers are paying a higher cost per mile to own a vehicle (as opposed to Gen X’ers and Boomers), and it’s causing them to consider alternatives to having their own cars.
What might those alternative ownership options entail? Here are a few areas that young would-be car-shoppers are likely to continue exploring and innovating, based on insights from Cox Automotive’s 2019 Evolution of Mobility study:
- Ride-hailing. Ride-hailing services like Uber and Lyft have seen incredible growth over the past three years. They are now mainstream transportation options and popular alternatives to driving. The usage of Uber, Lyft, and other ride-hailing options has skyrocketed across generations; but, perhaps unsurprisingly, it has achieved the most growth from Millennials and Gen Z.
- Car-sharing. Zipcar and Turo are two well-known examples of car-sharing services, with traditional rental car companies like Enterprise and Hertz quickly gaining a presence as well. Unlike ride-hailing services, growth in the car-sharing space is pretty slow. Also unlike ride-hailing, the growth in car-sharing usage is limited to Millennials and Gen Z’ers, not spread across all ages.
- Subscription services. Car subscription services are a newer alternative to car ownership. Clutch and Flexdrive are leaders in this top of offering, with auto manufacturers like Audi, Porsche, Mercedes-Benz, and Ford recently entering the picture as well. Car subscriptions are most appealing to younger generations, with 10% of Millennials and Gen Z’ers saying that they will opt for a car subscription the next time they’re in-market, instead of owning or leasing a car.
Smoke said that even though consumer usage of alternative ownership options is expected to increase, this doesn’t spell out the death of car ownership. Rather, it is more likely that the used side of the automotive industry will blossom as the Millennial and Gen Z shoppers deviate toward cheaper car options.
“Ironically, their financial challenges are very hard to solve in the new car market with traditional financing,” Smoke said. “These two generations will dominate transportation services and vehicle purchases in the not-to-distant future.”
- “2019 Car Buyer Journey Study.” Cox Automotive. April 2019.
- “Evolution of Mobility: A Shift Towards Alternative Ownership.” Cox Automotive. January 2019.