What is the “New Normal?”

by Peter Sorgenfrei

A question we get frequently when discussing the future of the auto industry in the U.S. is: “Will this economic downturn have the same impact on the American psyche as the Great Depression?  Will the buying habits of the American automotive consumer fundamentally change?”  Our answer; yes and no.

First off, our current economic situation is nowhere near as severe as the massive market adjustment during the early part of last century.  While the double-digit unemployment rate, high rate of foreclosures and daily doom reports from the talking heads are not exactly great news, we are not experiencing sacrifice and shortages seen in the U.S. beginning with Black Tuesday in 1929.  While our relatives rationed gasoline and saved rubber bands our biggest shortage these days are a dearth of Eggos and canned pumpkin pie filling.  Hardly a comparison.

The American consumer, all things considered, is still consuming. He/she still eats out, still shops, still drives to work and takes the kids to soccer practice. The change that has happened in the last 18 months is how consumers talk about their financial lives. They worry more, they might cut back here and there, but net/net they are still consumers.

Car buying behavior has definitely changed – fewer new cars are sold today compared to last year and the types of vehicles purchased  is changing.  The volume story is one of consumers realizing that purchasing a new vehicle every three-five years isn’t a requirement so they are keeping their vehicles longer.  Most industry “experts” believe that the the sales volume will return, albeit to a “new normal” of 11 – 12 million vehicles per year.  The real question is what will the showroom floor look like?  Will the American consumer start buying only what they need rather than what they want?  Will the streets of NYC begin to mirror those of Paris? Probably not.

Our take is that yes, the garages of America will be populated with relatively smaller, more fuel efficient vehicles in the future but it isn’t because this economic hiccup fundamentally changed our values.  It is more a combination of less conspicuous consumption combined with manufacturers offering more efficient products mandated by law, not consumer desire.

Fundamentally, a 5-passenger hatchback cannot meet the needs of a family of 7.   There will still be a need for minivans, crossovers and yes, even SUVs that seat 7+ passengers.  The difference is they will be purchased by people who need them to schlepp the kids, carry the cargo or tow their boats.  The rest of us may downsize to more fuel-efficient Crossovers and sedans but the “new normal” will still feature the American consumer driving more car than they really need.

Filed under: Automotive, Market Research , Automotive, Cars, Consumers, Future, Lifestyle, Psychology

Echo Booming – New vs. Used

by Dan Sherman

It is no secret that Ford considers Echo Boomers an integral part of fueling its turnaround. In a recent presentation in New York, Chief Sales Analyst George Pipas revealed that Ford has shifted much of its product mix from trucks/vans/SUVs to cars/CUVs in the past five years. They expect Echo Boomers buying new cars (49% of whom go for small cars) will continue to propel demand for the premium small car segment.

Mr. Pipas, however, glances over the allure of the used car market. When I was in the market for a car about 6 months ago, I highly considered a new car—perhaps a VW GTI or Subaru WRX—but I ended up with a pre-loved 2006 Mazdaspeed6.

Will automakers be able to grow with a focus on Generation Y?  Can premium new small cars such as the Ford Fiesta draw Echo Boomers away from certified pre-owned cars Audi A4s and the like? My network of Gen Yers, of course, provided insight.

First and foremost is the question as to whether my peers prefer new or lightly used. I gave interviewees a hypothetical $22,000 and the choice between a lightly used, entry-luxury car (e.g. 2007 Audi A4) and a new small car (e.g. 2010 Ford Fiesta). About two-thirds would prefer to purchase the former—used.

Interestingly, their primary motivation is brand; in particular, the status and perceived quality of a “better” brand is available at the same price point as a new car from “lesser” brand. Said one Emory student, “If I have the choice between a Honda and a Benz that’s almost indistinguishable from a new one, why the hell would I get a Honda?!” These Echo Boomers expect more premium gadgets, features, comfort and sport in the used car, but none stand out in particular—it’s really all about brand. The one-third who prefer new cars indicated that they like the lower risk and the intangible “new car smell.”

Perhaps older Echo Boomers a few years out of college can actually afford this hypothetical $22,000 car. My college-aged peers cannot. Parents provide the bankroll, and they therefore hold sway in the decision-making process.

Among my interviewees, about three-quarters said their parents would prefer the lightly used car out of the same two options. These parents link “brand status” with “quality” much like Generation Y, and the used option forgoes the initial depreciation hit of a new car. The remaining quarter said their parents would prefer a new small premium car due to small car fuel economy, fresh warranties, and to actually avoid ostentation (particularly in current economic conditions). An Emory pre-med imitated his father: “Kids shouldn’t be driving around in godd*mn Lexuses!”

The $1,000,000 question for automakers: who’s buying? Are parents or kids making the decisions? How reliable is manufacturer data about Echo Boomers and their preferences? The Scion xB is explicitly targeted at Generation Y, but the average age of buyers is 46. Is this a marketing failure, or are the car simply in parents’ names? I polled 94 college-aged people, and the results are overwhelming:

75.5% of those surveyed have their parent’s name on the title. Automakers aiming product at Echo Boomers must keep in mind that their data is skewed!

The data does not fully explain who wears the pants in purchasing decision; unfortunately, the results more accurately reflect how parents make auto insurance decisions. However, in talking to my poll respondents, I found out a vital nugget of information. Echo Boomers and their parents almost always come to a compromise, each having more or less equal say in choosing which car to buy. If automakers want to steal sales away from lightly used cars, they ought to appeal to both Echo Boomers and their parents. To optimally target Gen Y, a brand should have the above-par image Echo Boomers crave, but also appeal to parents’ notions of responsible consumption. The optimal car will have a hip design and creature comforts typically reserved for luxury cars, but will retain the fuel economy of a small car.

George Pipas, I hope you’re listening. Ford needs to bolster its brand image in the eyes of Echo Boomers and parents alike. If so: Fiesta, meet Success. Success, meet Fiesta.

Filed under: Automotive, Echo Booming , audi, certified pre-owned, Echo Boomers, Fiesta, Ford fiesta, Gen Y, Millenials, used

Echo Booming – Rolling on Dubs (for now)

This edition of Echo Booming is in a different format. We here at Sorgenfrei posed a few questions about aftermarket customization to our resident Echo Boomer – Dan Sherman.

Heavily modified Toyota Supra

Q. A lot of research has been done into the fact that your generation wants to make everything unique, is there truth to this and how does apply to vehicles?

Dan: We were raised to think that “we’re each special”, but the running joke among Echo Boomers is that “we’re all special and unique, just like everybody else.” With the advent of the internet, blogosphere, and social networking, my generation is very intent on making the uniqueness of their opinions known. However, we also easily succumb to peer pressure and we rampantly plagiarize our supposedly unique opinions; the majority of our drive for uniqueness is not truly original. This carries into the automotive sphere–we want something different from the beige Camrys on the road everywhere, but not at the risk of being unrecognizable. For instance, Gen Y used to buy “spinners” when they were hip because spinners were new, attention-grabbing and different from most wheels. However, when spinners became less popular on the road my peers became less likely to purchase. We love to follow the peaks and troughs of trends (much like fashion), and we prefer to follow customization paths that others have already undertaken.

Q. How do Echo Boomers differ (if at all) from other generations when it comes to modifying their cars?

Dan: There’s an obvious difference in demand due to age. Aftermarket accessories are expensive and high-maintenance, and older folk generally have more imperative and responsible uses for their time and money (spouses, children, etc.). I would say that we are certainly less likely to work on our own cars. Other generations grew up with carbureators and easy-access American cars, but my generation loves to modify complicated Japanese cars with turbos and heavy electronics. All generations are dynamic, however–whereas a few years ago Gen Y was obsessed with the heavy performance modifications characteristic of import tuner culture, we now shy towards appearance items.

And as stated before, the computerization of our world means that peer pressure is the new buyer’s guide. What our peers think is “cool” and “unique” is what we prefer. Other generations are more immune to the thoughts of others.

Q. What are the primary influencers for the people that modify their rides (movies, TV, video games etc.)

All of the above. The super popular video game series Gran Turismo essentially jumpstarted the “JDM” trend, and made people much more aware of the myriad modification options available (you can modify cars in-game). Then came along The Fast & The Furious movie series, which made import tuner culture totally mainstream…this had a MAJOR impact on every Gen Yer thinking of customizing a car. It made import tuning not only cool but much more accessible, as if not restricted to a niche. And then came Pimp My Ride, which focused on the “bling-bling” factor (20 TVs in a car? Really?!). These three media are not merely influencers; they take 100% credit for shaping people’s preferences in, and penchant for, vehicle modifications. Then peer pressure takes over and determines when these trends rise and when they die.

Q. Are there sub groups within this segment? If so, who are they and how do they differ from each other?

Dan: Import tuners, driven by The Fast and the Furious, LOVE the aftermarket. Some modify for “show” and some for “go”. Those who have the means have shops install expensive performance items like turbos, ECU chips, etc. Others will pine for body kits, paint jobs and sweet sound systems. However, factory tuners (Subaru WRX STI, Mitsubishi Lancer Evolution, etc.) provide a lot of this from the factory. I’m sure they’ve eroded much the aftermarket Import Tuner market; many people get factory tuners and call it quits on customization.
Those who don’t have the cash but hope to emulate The Fast and the Furious are Wannabe Import Tuners. They go what they can get at Pep Boys, such as DIY bolt-on performance and unpainted wings/bodykits.
Bling Blingers, inspired by Pimp My Ride, love biiiig chrome rims, tinted windows, and excessively loud sound systems. They are all about image and wouldn’t dare look to the aftermarket for performance.

Q. What is the best way for a car company to appeal to these consumers? (ex: make cars that are easy to modify, TRD-like aftermarket that doesn’t void the warranty etc.)

Dan: There are a few feasible approaches, depending on the type of car:
1. The factory tuner method. My generation loves Evos because they’re different from Lancers and a lot of other cars on the road, but there are other Evos around–they fit Echo Boomers’ desire for “uniqueness” perfectly. There’s less hassle and less risk when everything is factory installed and factory insured.
2. The TRD method. We are scared to death of working on our cars and voiding warranties, especially because if we have the money to purchase a new car it’s likely coming from our parents. Getting aftermarket parts from a company that won’t void the warranty is VERY attractive approach.
3. The Scion method. It has the advantages of the TRD method, and then some. By tying in aftermarket parts with the new car purchase, it lessens our inhibitions. However, the timing issue is involved–we like to modify our cars later on when we get bored of stock condition.
4. Make cars easier to modify. Not likely from a performance standpoint, due to the packaging, power, and fuel economy restrictions placed upon manufacturers today. However, when combined with the TRD method, manufacturers would be smart to make their pre-approved (or self-manufactured) parts easier to install than other aftermarket parts.

Dan: Do you think this trend continue as Gen Y consumers get older?

A. For the most part, no. Our trends tend to die out fairly quickly, especially as we become more “mature.” We will associate car customization with immaturity and shy away from it. Part of the death of the trend will be strictly due to age; as we get older we will develop more important uses for our money and time. If we desire “uniqueness,” we will look to the automaker to provide it.

Joe LaMuraglia is a fan of

Echo Booming

Create your Fan Badge

Filed under: Automotive, Echo Booming , aftermarket accessories, Automotive, automotive enthusiasts, Echo Boomers, Gen Y

Costco Model for Auto Mags?

Much has been written about the death of print media and we’ve witnessed the passing of newspapers and magazines on a monthly basis. It is a “sign of the times” as they say and on some level, it is the economy’s way of weeding out the superfluous media outlets. As avid car enthusiasts, we worry about the future of our favorite sources of fantasy in print: the automotive magazine. So we sat down to brainstorm about ways that car rags could reinvent themselves.

The Advertising Model is Dead. Long Live Advertising

It is time to reinvent the car magazine and advertising isn’t the part of the solution – at least in the way advertising is executed today. As marketing dollars dry up and online properties promise the ability to track a users every move online, advertisers are moving away from glossy, 4-color advertising spreads in magazines to the “new” world of online display advertising. On some level you can’t blame them. When you have to fight for every penny in a budget, it is becoming more important to account for every cent. Print advertising, despite what publishers say, simply can’t be tracked in the same manner.

There is no doubt things in publishing are changing rapidly but instead of simply pointing out the obvious, we selfishly want to come up with a solution. After all, we want our auto magazines (A.K.A. “Car Porn”) for the airplane, the beach and yes, even the bathroom.

Benefits of Membership

Our proposal is that the magazines forgo print advertising altogether. The current business model in print publishing cannot compete with the sexy new media that is cheaper, more flexible and measurable. That doesn’t mean giving up on advertising altogether, rather, we suggest that they re-purpose the relationships between the publication, its subscribers and the advertisers.

Think Costco. People pay a yearly fee to get access to discounts and high quality goods purchased in bulk. For most, the savings realized more than pay for the membership cost. For others, the fee is the cost of entry to the occasional deal on electronics or party supplies. In either case, Costco has a steady income stream that they can utilize to perpetuate the machine. They pass on savings to their members but still make a profit on the items they sell. Why can’t magazines adopt a similar model?

Currently, magazines are in a race for circulation so they can charge for the eyeballs that they claim to get every month. Part of that race is to keep subscription rates ridiculously low to entice people to subscribe. This may have worked in the past but as ad rates fall it is clear that it isn’t sustainable. What about this: raise the subscription price considerably to cover more of the costs and give their subscribers access to “members only” benefits that are useful, tangible and shock(!), measurable.

The idea is simple; the advertisers are now called business partners. The publisher, much like Costco, works with the business partners to offer discounts to its “members”. With the yearly subscription, a reader gets discounts on related products that they use often – think fuel, repair, tires, insurance, after market parts etc. Access to the discounts can be via an online or mobile portal or even an affinity card – all of which is measurable. The business partners pay to be exclusive partners or pay the publisher for every transaction undertaken by the subscriber.

Circulation will certainly go down as subscription rates go up but without the dependence on traditional advertising, fewer magazines are required to meet profitability goals. Of course, people who buy off the rack may pay more as well but even now, they are paying premium to read content that is outnumbered by advertising and littered with those incredibly annoying subscription cards.

In order for this model to work, the content in print must be more in-depth, entertaining and different than what is available online. There also must be clear value to paying a premium for an advertising-free publication.

Consumer Reports is essentially implementing this model to a certain degree but they don’t cater to the true car enthusiast – who, for the record, is more influenced by the content than any print ad that is in current publications. Magazines like Automobile already provide a higher standard of journalism and photography. Why not increase the price of entry, implement ways to add value for the “members” and track the efficacy of those efforts at the same time? And just think, subscribers won’t have to deal with all those subscription cards falling into the toilet the next time they sit down read a review!

Filed under: Advertising, Automotive, Marketing , Advertising, Automotive, automotive enthusiasts, print publications

Echo Booming – Baby You Can Drive My Zipcar

by Dan Sherman

I have friends in Atlanta, New York City, Los Angeles, and even Durham, NC who are Zipcar members.  Despite having an eager 2006 Mazdaspeed6 hibernating in my driveway back home on Long Island, my parents insist that I instead use Zipcar at school.  Why is ZipCar so popular?  And is its strategy of infiltrating colleges around the country creating brand loyalists for life?  My network of 20-somethings provided insight.

My Emory friends are Zipcar members because Atlanta stinks.  Let me clarify—Atlanta stinks without a car.  Students who can afford a car and all the associated costs (driving/shipping it to Atlanta, insurance, gas, maintenance, and astronomical $654 on campus parking) do so in a heartbeat.  However, car sharing best serves the needs of the stereotypical car-less, cash-strapped college student who wonders, “How am I supposed to get food and alcohol?” With a $50/year charge for membership and around $10/hour car pricing, Zipcar has a low initial cost which entices students who drive sporadically or can’t afford having a car full-time.

So why doesn’t everyone have a Zipcar? For one, car sharing completely destroys the element of spontaneity associated with owning a vehicle.  Daily dialogues between my roommates and me go something like this: “Yo, I’m starving, let’s get some Chipotle for lunch. OH WAIT, the Zipcar’s booked until 8 o’clock.  Guess we’re not eating ‘til dinner!”

Zipcar advertises itself as “green” to no end.  I asked a cadre of Gen Yers whether the environmental aspect makes them more positively inclined toward car sharing.  Their response was that the only “green” factor that moved them had dead Presidents on it.

The appeal of Zipcar will most likely continue after my peers graduate and move to cities like New York City, Chicago and Boston.  Even those that anticipate being able to afford a car of their own will likely stick with Zipcar to reduce the expense and hassle of owning a car in the city.  As an added bonus for those from outside the country, a US state license is not required for Zipcar membership.

So it is cool, convenient, and inexpensive but how will they grow?  Will the Echo Boomers continue to use Zipcar even after they leave the cities and move into suburbia?  Probably not, but as long as it continues to communicate a hip image in college towns and large cities, it should maintain its position as the leader in automotive timeshare.

Filed under: Automotive, Echo Booming, Market Research , Automotive, Car Sharing, Cars, Echo Boomers, Gen Y, ZipCar

LGBT Ford Owners in the U.S.

In March of 2009, we conducted the first comprehensive study of the LGBT Automotive owner in the U.S. We received a total of 4,920 responses to the survey and the database compiled from the responses includes information on social media usage, media consumption and psychographics in addition to vehicle ownership and basic demographics.

Our initial report focused on LGBT new car buyers in the U.S. and gave a broad overview of that sub-segment of the market. This is the second of three Brand Snapshots that focuses on all LGBT vehicle owners in the U.S. (n=3,402)

To view and download the .pdf of the Ford Brand Snapshot, click HERE (a new window will open).

To view and download the .pdf of the Toyota Brand Snapshot, click HERE (a new window will open).

To learn more about the study or inquire about upcoming brand snapshots, email us at info@sorgenfreillc.com

Filed under: Automotive, Market Research