Gen Y Says No to Cars and Auto Refinance Loans
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UPDATED: Sep 19, 2012
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The amount of America’s young people who purchase cars—and borrow auto loans or auto refinance loans—has dramatically decreased. People aged 18-34 purchased 30 percent fewer cars over the last five years, according to Edmunds.
Since young people were hardest hit by the recession, many experts blame this decrease on the economy. However, others feel the decrease may be a part of a larger demographic-related trend.
Car ownership may simply be less important for Millennials who are socially connected through online media.
While cars once allowed people to meet and interact with others, the internet now fulfils this need.
Combined with ever-increasing driving restrictions such as cell phone driving laws and texting laws, young internet-connected people may simply be better off without cars—at least as far as their social lives are concerned.
“When I got into a vehicle, it represented me going to meet my friends. For them, it cuts them off from their friends,” said Craig Giffi, an automotive practice leader at the consultancy Deloitte.
Generation Y, sometimes known as Millennials, echo Giffi’s statement. 46 percent of the digitally-connected 18-24-year-old demographic would opt for internet access over owning a car, according to Deloitte research.
Car manufacturers have taken notice as well.
“With this generation, what owning a car means is completely different from previous generations. It was a rite of passage. Now the rite of passage is a cell phone,” said Annalisa Bluhm, a spokeswoman for General Motors.
Then there’s simply the lack of interest.
Bluhm says 30 percent of Baby Boomers consider themselves “car enthusiasts,” but less than 15 percent of Millennials say the same. Instead, they’re flocking to practical vehicles and avoiding costly auto financing and auto refinance loans.
“They have a number of things that validate them. The car is not their first purchase,” said Bluhm.
Car manufacturers feel that it is only a matter of time before young people come to purchase a car.
“This is purely a matter of economics,” said Michelle Krebs, an analyst with Edmunds.com.
Krebs says that the drop in sales to young people is misleading since many of them are purchasing used rather than new cars or using a parents’ vehicle living at home. According to Krebs, once the economy improves they will return to dealerships in droves.
Ford Motor Company seems to agree with Krebs.
According to Erich Merkle, a U.S. sales analyst at Ford, people in their 20s will eventually get older and have to purchase vehicles once they move to the suburbs.
“They might be able to hold off for a period of time. But Ford takes the long-term view—they are going to be around for a long time and they are going to purchase many, many new cars,” said Merkle.
Unfortunately, many Millennials are missing a promising opportunity. Given that record numbers of them are living at home—saving on rent and groceries—purchasing a new or used vehicle may be wise when it is easier to afford a down payment and monthly bills. Even if they can’t score the best interest rates, Millennials could finance a car today with the knowledge that they could later get an auto refinance loan.
An auto refinance loan is a loan that adjusts the interest rate paid for a car by taking out a new loan with a new interest rate. In essence, an auto refinance loan pays off an old car loan with money that carries a lower interest rate. Obtaining an auto refinance loan would aid many Millennials with new or used vehicles once they face increased expenses after moving out.