Cracking the Code on Generation Z

With the rapid aging of society in developed regions such as North America, East Asia (China, Korea and Japan), and the European Union, automobile manufactures increasingly find themselves having to target younger consumers, who in reality are continuously losing interest in purchasing and owning a vehicle. Generation Z, which is classified as the next generation of buyers aged 18 years or younger, is comprised of an immense number of buyers (with future purchasing power of an estimated $44 billion dollars in the United States), who have even higher expectations than today’s Millennials. In the United States alone, approximately 80 million individuals, roughly 25% of the population belong to this demographic segment. Thus, it is vital for everyone involved in the automotive industry to understand their demands, needs and expectations.

How valuable are automobiles to Generation Z?

In order to understand their thought process, it is important to understand that this generation is the most ethnically diverse and technology-oriented in history, and the first generation to truly grow up alongside constant smartphone interaction and connectivity. They have been surrounded by various options of transportation, such as the growing car-sharing segment as well as ride-sharing services such as Uber or Lyft. With such variety of options available, 41% of Generation Z consumers agree that owning an automobile is not a necessity (Kelley Blue Book, 2016). In fact, when asked if they would rather give up their automobile or their smartphone for one year, 67% of teenagers chose their smart device over their personal vehicle (Kelley Blue Book, 2016). If that is not enough, the young consumers have grown up in times of hardship, living through the financial crisis of 2008, increasing student debt and job competitiveness, which has prompted them to become immense savers and approach purchases conservatively. Due to their frugal spending nature, Generation Z cares even less about the style or brand of the vehicle compared to the Millennials, with 49% taking style into account during their sales journey, and a mere 23% considering the brand, compared to the 57% and 34% of Millennials, respectively (Kelley Blue Book, 2016). Despite this overall negative view of owning an automobile as an asset, the vast majority of this segment, 92%, still intend to own a vehicle at some point in their lives.

Cost-effective, environmentally-friendly, and safe urban vehicles

Now that we have an overview of the general trends and behaviors of the upcoming generation, automobile manufacturers and dealerships have the opportunity to captivate the attention of these consumers. First and foremost, automobile producers and retailers need to place heavy emphasis on features that the younger generation are seeking. Generation Z continues to migrate towards the larger metropolises, continuing the urbanization trend but they demand cost-effective and environmentally friendly cars within these urban conditions. When it comes to purchase decision factors, the newest generation prioritizes price, gas mileage, exterior style and then safety. This bodes well for electric vehicle manufacturers, as Generation Z has matured in times where climate change and vehicle CO2 emissions have been a vital topic. The major concern for automotive OEMs will be reducing the cost of electric vehicles to more affordable levels in order to entice Generation Z’s frugality. Additionally, safety has become the 4th most important variable, compared to previous generations in which safety held the 8th rank when determining vehicle purchase criteria, according to Table 1.


Table 1: Purchase Decision Factors across All Generations (J.D. Power, 2016)

Are autonomous vehicles to be trusted?

This weight placed on safety also prompts automobile companies to continue development of autonomous vehicles in order to prepare for the future demand of Generation Z and the following generations. In a world full of instant information and news, many teenagers are well aware of the dangers of distracted driving, whether that be texting or drunk driving. This has led to 56% of current teenagers to suggest that they would feel just as or more comfortable in a fully self-driving vehicle compared to one driven by a person. Additionally, 61% believe that the roads will be safer in general if all vehicles were autonomous or at the very least, fully connected (Cox Automotive, 2016). Now this is not to say that Generation Z is fully on board with the concept of autonomous vehicles. Despite having a generally positive attitude regarding the vehicles, the youngsters also bear a mistrust of the technology involved, possibly from aging alongside the constant tracking of information by websites, companies and even government agencies. Therefore, their expectations when purchasing a vehicle involve first purchasing one with basic autonomous features such as self-parking before moving towards fully autonomous or connected vehicles.
  

More traditional than expected

Finally, when it comes to the overall dealership shopping experience, many will assume that due to the trend towards online shopping, Generation Z no longer values face-to-face interaction with a salesperson. However, this assumption is nothing more than a myth, as Generation Z actually values talking with someone in person more than any other generation. Interestingly enough, due to the constant connectivity, this demographic actively seeks personal interaction to get a better perception and feel of the product instead of internet or text-based reviews. Not only are they more traditional in their approach towards salespeople, they also take a more traditional approach in the way they seek information regarding vehicles. While 75% of Generation Z uses the Internet for information, this percentage is the lowest amongst all generations, and is in fact tied for last with Baby Boomers. Instead, the youngest generation focuses on family and friends; this information source is used by 70% of individuals, leading all generations (Cox Automotive, 2016). Of course, much of this information is provided by friends or family through social media (which is expected to continuously impact the automotive industry), but it is a sure sign that Generation Z and possibly future generations will continue to value traditional communication sources equally as the Internet.
 
  

Generation Z - A force to be reckoned with

There is still a lot to learn regarding the upcoming generations and much can change in the next five to ten years to alter current trends. However, automotive OEMs as well as dealerships can use the current trends such as a push towards affordable, environment-friendly and safer vehicles to entice younger consumers. In the future, the use of electric vehicles as well as autonomous vehicles will likely be a key selling factor, but the most important message is that Generation Z still wants a mixture of online and in-person experience before making a purchase decision. If dealerships and manufacturers can adjust to these requirements, they will not only capture Generation Z’s attention, but also be prepared for future generations that follow.


About the author:

Dennis Melzer | Business Consultant | Dennis.Melzer@incadea.com


As a Business Consultant, Dennis focuses on supporting our clients all over the world in international projects in regards to making their business processes more efficient. While analyzing the processes and workflows within different OEMs, Dennis helps them to choose the best solution and proposes the possible improvements within the DMS used. One of the main interests that Dennis has is to analyze the newest automotive business trends and ensure that all the companies and customers are up to date on the ongoing changes in the automotive market.