DEMOGRAPHICS
Shifting Sands: Demographics and Its Impact on Automobile Market Segmentation
Shifts in the automotive landscape have come quickly and often. The two big drivers of the speed and rapidity of these shifts are born out of ever-increasing competition and the massive baby boom population (almost 80 million strong). The boomer, along with intensifying competition, has created an environment that rewards companies which are forward looking, quick to change, and innovative. It punishes those who are not, which typifies many of the American automakers and their suppliers over the years. Successful suppliers in today’s environment are expert strategists; they understand automobile market segmentation and the marketplace better than their customers, and spot changes in the market, leveraging these opportunities to fill the unmet needs of the consumer with new and innovative products.
Automobile Sales Statistics in the 70’s
The perceptual map of automobile sales statistics illustrates these historical and what we believe will be future shifts in product type and consumer demand.
The 1970’s era was marked by high inflation, an oil embargo, and new government emission regulations. What few people fail to understand, was that it was also dominated by a massive number of young people, born from the baby boom which began in 1946. In the 70’s boomers were not overly productive and many were still in need of education, looking for their place in the labor markets and society. Their transportation needs were simple: small, fuel efficient, and low priced vehicles. New competitors from overseas were there to fulfill this need. They had produced smaller, more fuel efficient vehicles for years in their home markets, as their respective economies were not as robust as the post war U.S. economy. They found a sweet spot in the U.S. market with the young and growing baby boomer with vehicles like the VW Beetle, Honda Civic, Datsun B210, and Toyota Corolla. The U.S. automakers tried to follow, with the Chevrolet Chevette and Ford Pinto, but they were not at all prepared for this shift and the rise of the baby boom.
Car Trends in the 80's
In the early 1980’s the new CEO of Chrysler, Lee Iacocca, brought his idea for a minivan to the company. It was really this one single product that saved Chrysler. The baby boomer was aging and beginning to develop families of their own, little “echo boomers”. This again represented a massive shift in car trends, with the boomer now looking for value pricing and maximum utility. No other product could perform this function better than Chrysler’s minivan. Others later followed, but the products were ill conceived and late. Remember the Chevrolet Lumina APV, affectionately or unaffectionately referred to as the “Dust Buster” (a small handheld vacuum of the time). Let me ask how many suppliers wouldn’t have wanted to be working on and later supplying the Chrysler minivan at its inception? How many dealers enjoyed the benefits of selling such a vehicle?
More Change in the 90's
Change was not finished! As baby boomers aged they got their groove on, educationally and in the labor markets. They were making more money, upgrading their homes and yes… their vehicles. In the 90’s they were still looking for utility, but they also wanted to keep up appearances. The SUV was the next evolution of the vehicle to meet the baby boomer needs of utility and now opulence. Ford had the Bronco and later the Explorer. SUV’s grew with their suburban neighborhoods. Boomers wanted 4000 square foot homes and 5000 lb. SUV's. GM had the Tahoe/Suburban and Ford had its Expedition/Excursion. Not enough opulence?… try a Cadillac Escalade or a Lincoln Navigator. An added benefit to 4,000 square-foot-home neighborhoods was sales of pickup trucks to build them with. Chevrolet Silverados, Ford F-150’s, and Dodge Rams filled this void.
Luxury Market Reaches the End
Through much of this decade luxury has had the hot hand, growing at a compounded annual growth rate in the low double digits--much faster than the macro market. During this recession, the luxury segment is down, consistent with the overall market, and won’t likely return to its former glory years. Why? The boomers continue to age and move past their peak income and spending years into a life of retirement and fixed incomes. Some think that baby boomers can’t retire, given their setbacks in home values and the stock market. Neither event supports the continued growth of luxury vehicles.
Automotive and The Economy Merge
Many suppliers, automakers and dealers rode the pickup and SUV boom thinking that the market for these products would never recede. However, pickups were in trouble beginning in the fourth quarter of 2005. At the time, housing was booming and quickly catching the eye of the Federal Reserve. The concern at the time was that inflationary pressures would inevitably result from an overheated housing market. As a result, Alan Greenspan began using monetary policy to target and slow home construction. The casualty, beyond new home construction, was the pickup. As new home construction and the jobs associated with it dried up, pickup truck demand and production fell.
Automobile Market Segmentation in the Next Decade
The fastest growing segment of our population in next decade will be the 60 to 70 year-old demographic. Their needs will be much different than those at 50 or 40 years of age. They will be empty nesters (hopefully!) and will feel the effects of age. In the next decade, automobile market segmentation will be marked by vehicles that provide a blend of utility, comfort and efficiency at a good value. It is my belief that the baby boomer will want utility and comfort, but not at any cost, as has been the case historically. They will want fuel efficiency, but not at the sacrifice of comfort. The strength will rest in vehicles that provide that intersection of comfort, utility, and efficiency. Not all automakers, suppliers, and dealer networks are properly positioned for this change. Strategy and future investments must be made based on future forecasts, not where the market has been or is currently. Due to competitive complexities many automakers have cars and/or crossovers, but few will have the right combination of attributes and product momentum targeted appropriately at this segment to take advantage of these demographic shifts. Suppliers and automakers that survive and thrive will need to have a firm understanding of these shifts and the ways in which they translate back to their business to operations, finance, research and development, and sales and marketing.
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