Where and when does the value in purchasing a used car present itself? Whether or not we realize it, this is a common question among any new car buyer. In most cases it isn’t consciously asked or explored, but exists in natural contrast to the impulse of exploring new cars before we research used cars for sale. After all, we find ourselves most familiar with the marketing of the newest models, researching trim packages and upgrades from the previous model year – or excitedly reading up on what’s to come in the next model year.
Now, I may be dating myself, but I can clearly recall stepping into the market for my first vehicle purchase (way back) in the late 90s. With the realistic budget of a car buyer barely exiting his teens, I’m not sure why I spent so much time fixating on the buzz around Dodge’s plans to reintroduce the Charger. Hindsight being 20/20, it would be another 7 years before it moved from concept vehicle to release. However, had there been no wait, the $22K base price might have proved discouraging for an impulsive 19-year old student. This is probably why I settled for a four-year old pre-owned Dodge Stratus with manual windows and a cassette deck, but I digress…
The bottom-line is that today’s used car experience is nothing like yesterday’s. In fact, the evolution continues to mirror the expectations of its evolving consumer base.
The used car market exists primarily for car buyers who are either budget-driven, or frugal. A secondary qualifier would be buyers with fewer needs and/or demands in terms of features. Both sets of attributes are most readily present in the first-time car buyer, a group led by millennials and redefined by the realities of their existence. Seeing as this generation makes up a third of the U.S. population, their collective mindset and buying trends shine a fascinating light on the marketplace.
The struggles of the millennial are notoriously well-lamented, and also well-publicized. With a recession-inspired unemployment trend that ranks highest among U.S. adults, and lower starting salaries for those who are able to find entry-level employment, millennials have proven less likely to have funds allocated to car buying. Factor in the ever-growing burden of student loan debts, the end-result is a segment of our population whose historic ability to save money is practically non-existent.
Any member of this group fortunate enough to live in uber-centralized Metropolitan areas, such as New York or Chicago benefits greatly from public transit options. In fact, anywhere from 50-75% of households in those areas (along with Baltimore, Boston, Philadelphia, San Francisco and Washington D.C.) do not own a vehicle. However, if accessibility of public transit is a convenience, it is not one available to the bulk of American households.
But with the first wave of millennials moving into their 30s, the statistics shift. Professional advancement allows for salary growth, salary growth establishes fiscal independence, and independence prompts relocation.
Identified in recent years by J.D. Power and Associates as a generation on the cusp of car buying, over 35% of millennials entered 2015 with the intention of buying a car within the next year. Equivalent to well-over 35 million potential car buyers, this segment is poised to overtake the marketplace. How well the marketplace is positioned to respond to that surge is another conversation, entirely.
USED CAR TRENDS
According to Edmunds, used car sales in the first quarter of 2017 have all-but stalled, reflecting a 1.3% decrease from the previous year. As this would appear to contradict certain expectations, its important to examine the rationale behind the statistic.
To-date, just over half of used car sales in 2017 are credited to vehicles that are 3-years old, or less. Attributed partially to recent popularity of leasing options, the insurgence of newer model vehicles comes hand-in-hand with the burden of (originally) higher MSRPs and the expectation of quicker devaluation. The effect of MSRP growth and decreasing value on multiple vehicle categories has increased exponentially within the past decade, and is forecast to continue for (at least) another 3 years.
If the projected increase of first-time car buyers is correct, how that wave will equate to vehicle trends will prove to be an interesting case-study.
While a recently-licensed teen driver in Cincinnati may have saved enough to buy a 15-year-old pre-owned Saturn for under $5K, it is only a piece of the puzzle. The other end of the price spectrum for the used car market is encompassed primarily by the $20K+ SUV and truck classes.
Nestled neatly between $10-20K are a variety of options, for both the discerning millennial and the simply frugal buyer. With recent trade-in trends, a majority of model offerings will fall comfortably within 3-8 years of age and will span a wide range of classes. Based on that time-frame, it is increasingly more likely that used car offerings will carry environmentally-conscious features that are considered as important by the modern consumer.
However, it is becoming clearer that this generation of drivers has a different set of priorities, born of the commonality of modern transportation. While more than 90% of drivers over 65 would prioritize safety features among their top considerations, that preference drops to approximately 33% for drivers aged 18-24 years. Why? Perhaps the age of valuing vehicles with superior engineering and elaborate features as the hallmark of status are slowly moving behind us. Understanding that this mindset differs (from that of its predecessors) in viewing driving and car ownership as a utilitarian goal rather than an aspirational one, finding the “right fit” may be based more on practicality than anything else.
WHERE THE WEB MEETS THE ROAD
Is it any surprise that connectivity rates high among millennials and their immediate successors? Probably not. A Cox Automotive report states that among 18 to 24-year olds, 64% would expect their vehicle’s technology to mirror the capabilities of their smart phone.
With the expectation that the used car market will continue to be populated with newer models, it’s not unlikely that this type of technology will become more accessible to the first-time car buyer without the need to buy the newest model being advertised.
After all, the new car of today is the used car of tomorrow.