Young Car Buyers Challenge Detroit

GM, Chrysler, and Ford must convince Gen Y consumers that their quality has risen and their new models deserve consideration

By David Kiley

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As Chrysler emerges from Chapter 11 bankruptcy, and as General Motors (GM) in all likelihood heads into the same process, the toughest and most important obstacle facing those companies will be young consumers like Joseph Molinari.

Molinari, a 24-year-old recent graduate of the University of Michigan's Graduate School of Social Work, is in the heart of the so-called Generation Y, consumers between the ages of 22 and 32, whose parents are baby boomers. Armed with his degree and in a new job in Pinetop, Ariz., Molinari is driving a nine-year-old Honda Accord that he got while in college, purchased with help from his parents off a used-car lot. The car has a glitchy transmission, and the prospect of snowy mountain driving in months ahead has Molinari thinking about new wheels. But so far he is not very intrigued by the amazing deals to be had on Fords, Chevrolets, and Dodges. The car he is most interested in checking out is a Subaru Outback, because of its high marks for reliability and a tough all-wheel-drive system.

"I go with what the research tells me, and then I look at price," says Molinari.

Settling for a Low Price

There's the rub for GM and Chrysler, and to a lesser extent Ford. At least two generations of Americans have grown up thinking that U.S. brands are not the preferred option for passenger cars. In any one category for the past decade or so, the best-selling cars in America have been of Japanese origin—Toyota Camry, Honda Accord, and Nissan Altima. Ford's F Series pickup has been the best-selling vehicle overall, but truck buying is very different from car buying. Chevy has actually been the leading brand among Gen Y, according to researcher AutoPacific, but there's even bad news in that: Sales have been driven overwhelmingly by the brand's lower pricing and cheaper subcompact and compact offerings, not by preference. "They settle for Chevy, but aspire to imports mostly when they get a bit of money," says AutoPacific's Deborah Grieb.

It's well established that Detroit automakers lost ground in the 1970s and '80s with baby boomers. Rebellious and independent when they were buying their first cars, boomers did not want "their father's Oldsmobile." They flocked to Asian makes like Toyota (TM) and Honda (HMC) just as those companies began setting the industry pace for quality and reliability, which Detroit has been chasing ever since.

The bad news for Detroit is that so far, at least, children of the boomers aren't showing a similar streak of auto-brand independence. Fifty-one percent of Gen Y say they are considering Toyotas, according to AutoPacific, while Chevy scores with only 34%, Ford (F) 32%, and Chrysler 10%. It's a trend that GM, Chrysler, and Ford need to reverse if they're going to regain traction in the U.S. market.

"Gen Y is much more apt to be aligned with their parents' brand choices than those boomer parents were with theirs," says John Wolkonowicz, director of special projects at IHS Global Insight's automotive practice. American carmakers "simply must do much better with Gen Y than they did with their parents, or the comeback we keep hearing about may not happen."

Rejection by Gen Y

Reliability and reputation matter a great deal to consumers, but especially those in Gen Y. In J.D. Power & Associates' "Avoider" research, which surveys car buyers on why they avoided certain brands, around 30% of boomers, Gen Xers (those aged 33-45), and Gen Yers said they were "concerned about reliability."

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