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Young Adults Not Buying Cars: Hipsters or Just Broke?

31 July 2012 in Trading Ideas

However investors may view the viability of a turnaround in the auto sector, a longer-term trend is suggesting a dearth of future customers.

America’s famed love affair with the car has, according to a recent piece in Crain’s Chicago Business, hit a cooling off period, particularly with 16-to-34-year olds, a key car-buying demographic.

According to the federal government’s National Household Travel Survey, the average annual number of vehicle-miles traveled in the US by those aged 16 to 34 dropped 23% between 2001 and 2009.

In addition, Crain’s  reported that a 2011 study by the University of Michigan showed that only 22% of drivers are twenty-somethings or teenagers – that’s down from one-third in 1983. Back then, more than half of all drivers were under 40; now, that number is below 40%, declining faster than that age-group’s share of the population.

What happened?

Understandably, the economy seems to be no small part. Less driving suggests less car buying, and as Crain’s reported, for many of “millennials” the fiscal reality can mean the choice between housing goals – saving money for a down payment on a new house – or buying a car .

Of course, many young adults would be happy to be that well off. A growing portion of them are saddled with huge student loan debts and still looking for that first career job. Unemployment rates for adults aged 18 to 29 have recently been about 4 percentage points higher than the average for all ages.

That can often mean waiting it out by moving back in with Mom and Dad – and waiting to take on a car loan.

But Crain’s suggested that other young adults are making a philosophical break with car-based living, eschewing what was once the freedom that appealed to every 16-year-old with a new license.

“If you bike, you establish a sense of connection between the locales of your daily life that isn’t possible via other modes of transport,” said one former New York City bike messenger. “It’s you, 180 degrees of peripheral vision and the streetscape—and it fundamentally changes your relationship with the city.”

It’s hard to knock that sentiment, but it’s not exactly a favorable trend for carmakers.