Waiting for the Echo Boomers
Automakers hope a demographic bulge can restore slumping sales.
|General Motors Corp. is no longer the clear leader in global auto sales. It now officially shares the title with Toyota Motor Corp.|
NEW YORK (Fortune) -- With auto sales headed for their lowest level in a decade this year, automakers are relying on a comfortable old friend to lift them out of the doldrums: the demographic cycle.
Specifically, they are waiting for a new generation of buyers - known as Gen Y or the Echo Boomers - to boost sales, as their parents, the Baby Boomers, age out of their peak car-buying years. But getting from here to there won't be easy.
Why this renewed interest in demographics? It is not as if the auto industry hasn't targeted age-based differences before. One of its timeless axioms is that you can sell an old man a young man's car but you can't sell a young man an old man's car. Ford Mustangs appeal to all age groups; Mercury Grand Marquis's only a few.
What's changed is that automakers have despaired of creating any more giant hits like the Accord or Camry that sell 400,000 units annually, and are increasingly slicing the market more thinly. That means designing cars for individual demographic groups rather than entire populations of car buyers.
Echo Boomers are generally described are those born between 1980 and 1994. There are a lot of them. More than four million children were born in 1989 - the largest number of births since 1964 - and even more in 1990.
Now aged 14 to 28, Echo Boomers are mostly motoring in used cars but soon will be in the market for new ones. Their arrival is driving a lot of planning in the auto industry -- and a fair amount of consternation as well.
For one thing, Echo Boomers are very different from their parents. Research compiled by Toyota (TM) says Baby Boomers were marked by the Summer of Love, Woodstock and Earth Day. Their kids grew up amidst the Oklahoma City bombing, the Columbine school massacre and 9/11. If their parents want something, Echo Boomers want something else.
In addition to their psychographics, the two groups differ in what they drive.
According to Erich Merkle, an analyst for Michigan-based IRN, Echo Boomers want affordable vehicles that are small and fuel efficient, and packed with electronics that can be linked with iPods and laptops.
Their parents, by comparison, helped boost the popularity of minivans in the 1980s and 1990s when they were raising children. Today, they lean toward crossovers, luxury SUVs and large cars that are heavy on seating comfort. When it comes to electronics, their interest is not entertainment but accident and collision avoidance technology.
Demographics is also driving Toyota's renewed interest in small cars, Merkle says. The launch of the subcompact Yaris, as well as an entire brand - Scion - are both aimed at capturing younger buyers and attempting to keep them loyal as they get older. Since they could be buying 15 to 20 more new cars over their lifetimes, they represent a lot of potential business.
Lately, economic woes have been keeping younger buyers out of the showroom. According to Oregon-based CNW Marketing Research, "home equity contraction, personal debt issues and concern about the overall economy impact younger consumers more than older ones." As a result, the average age of new vehicle buyers increased to nearly 48 years in 2007.
Younger buyers can't stay away forever, though. Ford (F, Fortune 500) is counting on them to boost sales of its new small car - code named Verve - when it reaches North America in 2010. By then, it figures, they will represent 28% of all licensed drivers. "They will be the defining group of customers in the future," says Jim Farley, Ford's marketing boss, "driving all types of consumer trends."
Meanwhile, Toyota is looking even further down the road, anticipating the arrival in the market of Generation Z buyers, the oldest of whom turns 13 this year. Toyota executive vice president Jim Lentz, noted in an interview that 2011 will mark a landmark of sorts: the first time five generations of car buyers will be active at the same time: Traditionalists, Baby Boomers, Gen X, Echo Boomers, and Gen Z.