| Abstract: |
FEDS Notes Print{{p}}June 24, 2016{{p}}The Young and the Carless? The
Demographics of New Vehicle Purchases{{p}}Christopher Kurz, Geng Li, and
Daniel Vine{{p}}U.S. sales of new light vehicles have rebounded strongly since
the end of the 2007-09 recession and are considered one of the
bright{{p}}spots of the recovery. Indeed, sales totaled 17.4 million units in
2015, about the same rate as the all-time record set in 2000 (thin
black{{p}}line in figure 1). Personal vehicle sales, which exclude sales to
businesses and governments, have also rebounded strongly since the end{{p}}of
the recession (thick blue line in figure
1).{{p}}As{{p}}sales{{p}}have{{p}}rebounded, some analysts have noticed a
shift in the age composition of new light vehicle buyers. Indeed, a number of
recent studies and{{p}}press articles have documented a dramatic decline in
young adults' willingness to own vehicles, particularly in the years since the
2007-09{{p}}recession. For example, Fortune recently cited the decline in the
fraction of new vehicles purchased by young adults--defined as 18 to
34{{p}}year olds--as evidence that financial constraints for that age group
had increased and their interest in driving had decreased.1 As quoted{{p}}in
the article, young adults "just don't think driving is cool--or even
necessary--anymore." Similar stories abound and often attribute
these{{p}}changes to the rising popularity of social media, which reduces the
need to travel, and alternative means of transportation, such as
ride-sharing,{{p}}public transportation, and biking, which reduce the need of
owning a vehicle.2{{p}}Much of this analysis was published shortly after the
2008 financial crisis and the 2007-09 recession, when many of the
so-called{{p}}millennial generation were entering adulthood. Because the
financial crisis had severe and lingering effects on many household
decisions,{{p}}distinguishing its effects on vehicle purchases from the
effects of cultural and technological changes can be quite difficult. For
example,{{p}}The Atlantic notes that while today's younger buyers do have some
unique characteristics, they have begun looking increasingly like
their{{p}}older cohorts as their employment and income prospects have
improved.3{{p}}In this note, we use data on new vehicle purchases from the
Consumer Expenditure Survey (CE) and J.D. Power & Associates to{{p}}examine
the changes in new vehicle-buying demographics over time. We show that the
average age of new vehicle buyers has risen{{p}}since 2000 and that these
increases were biggest during the 2007-09 recession. Although young buyers
have been purchasing new{{p}}vehicles at lower rates in recent years, the two
most important factors that contributed to the rise in the average age of new
vehicle buyers{{p}}seem to be (1) the aging of the Baby Boomers--a large group
that continued to purchase new vehicles at a solid rate during and after
the{{p}}2007-09 recession; and (2) the decline in the new vehicle purchase
rate for 35 to 50 year olds over the past 10 years.4 Moreover, we{{p}}show
with a probability model that vehicle purchase rates declined for all age
groups after 2007, but these declines are roughly the same{{p}}among the age
groups once economic factors such as employment and income are taken into
account.{{p}}Changes in the Age Distribution of New Vehicle Sales{{p}}The
average age of new vehicle buyers has increased notably over the past 15
years, as shown by the two solid lines in figure 2.{{p}}According to J.D.
Power and Associates, the average age of new vehicle buyers rose from 43-1/2
years in 2000 to more than 49 years in{{p}}Note. Personal sales exclude sales
to businesses and governments. Data are seasonally adjusted. Shaded area
indicates NBER recession.{{p}}Source. Light vehicle sales from Ward's
Automotive Group, Ward's Communications. Ward's AutoInfoBank.
http://wardsauto.com/miscellaneous/wards-autoinfobank.{{p}}Personal sales from
IHS Automotive, driven by Polk.{{p}}Accessible version{{p}}Figure 1. Sales of
New Light Vehicles, 1999:Q1 to 2015:Q4{{p}} FRB: FEDS Notes: The Young and the
Carless? The Demographics of New Vehicle Purc... Page 1 of 6{{p}}
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6/24/2016{{p}}2009 (thick blue line). Average age stepped up most sharply in
2009, the first year after the financial crisis, and it has moved
sideways{{p}}since the end of the 2007-09 recession.5 Similarly, the average
age of the heads of households that reported buying a new vehicle in
the{{p}}CE survey rose more than 5 years between 2000 to 2014 (thin black
line), also with a more notable increase during the 2008 to 2009{{p}}period
than at other times.6{{p}}Some--but not all--of the increases in the average
age of new vehicle buyers reflects the aging of the overall U.S. population.
According to{{p}}the U.S. Census Bureau, the median age of U.S. residents
increased 2 years between 2000 and 2015 (red dashed line in figure
2).{{p}}Similarly, the average age of heads of households in the CE survey
increased about 3 years (not shown). The rise in the average age of{{p}}new
vehicle buyers during this period was roughly twice as large as the increase
in the age of the overall population.{{p}}Looking at the age composition of
new vehicle buyers in more detail, table 1 shows the share of new vehicles
purchased by people in four{{p}}age groups in the years 2000, 2005, 2010, and
2015. The share of new vehicles bought by 16 to 34 year olds declined by about
6{{p}}percentage points between 2000 and 2015, consistent with the anecdotes
of younger buyers' declining interest in buying vehicles.{{p}}However, the
share of new vehicles bought by 35 to 49 year olds fell by an even-larger 9
percentage points. And the share of new{{p}}vehicles purchased by people 55
years and older--the only age group to register a real increase--rose by a
dramatic 15 percentage points.{{p}}Interestingly, the most pronounced changes
between 2000 and 2015 in the age distribution of new vehicle buyers are the
decline in the{{p}}share of new vehicles bought by the 35 to 49 age group and
the rise in the share bought by the 55 and over age group.{{p}}Changes
in{{p}}the age profile{{p}}of the overall{{p}}U.S.{{p}}population{{p}}likely
explain{{p}}some of the{{p}}changes{{p}}shown in{{p}}table 1, but{{p}}the
rates at{{p}}which people{{p}}in each age{{p}}group purchase new vehicles have
also shifted over time. We explore this idea further by decomposing the rate
of car purchases for each{{p}}age group in table 2, which shows the number of
new vehicles purchased per 100 people in each age group in each year. The age
groups{{p}}that purchase new vehicles at the highest rates--on average almost
7 out of 100 people per year--are the 35 to 49 and the 50 to 54 year{{p}}olds.
The average buying rate of these groups fell about 40 percent between 2005 and
2010, a period that included the 2007-09{{p}}recession, and then recouped
about 90 percent of that decline between 2010 and 2015.{{p}}The age{{p}}group
that{{p}}buys new{{p}}vehicles at{{p}}the lowest{{p}}rate--on{{p}}Note. Shaded
area indicates NBER recession.{{p}}Source. Consumer Expenditure Survey, Bureau
of Labor Statistics; Power Information Network – PIN, a business division of
J.D. Power and Associates; and{{p}}United States Census Bureau.{{p}}Accessible
version{{p}}Figure 2. Average Age of New Vehicle Buyers and Median Age of the
U.S. Population, 1996 to 2015{{p}}Source. Power Information Network – PIN, a
business division of J.D. Power and Associates.{{p}}Table 1. Share of New
Light Vehicles Purchased by Age Group{{p}}(Percent){{p}}Year Age group: 16 -
34 years Age group: 35 - 49 years Age group: 50 - 54 years Age group: 55+
years{{p}}2000 28.6 39.2 11.1 21.2{{p}}2005 24.3 36.6 11.5 27.4{{p}}2010 19.8
31.4 12.2 36.5{{p}}2015 22.6 29.9 11.2 36.4{{p}}Table 2. New Vehicles
Purchased per 100 People per Year by Age Group{{p}}Year Age group: 16 - 34
years Age group: 35 - 49 years Age group: 50 - 54 years Age group: 55+
years{{p}}2000 5 8.3 8.7 4.9{{p}} FRB: FEDS Notes: The Young and the Carless?
The Demographics of New Vehicle Purc... Page 2 of 6{{p}}
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6/24/2016{{p}}average about 3-1/2 out of 100 people per year--is the 16 to 34
year olds. The new vehicle buying rate for this young group fell roughly
50{{p}}percent from 2005 to 2010--a bigger decline than was observed for the
35 to 54 year olds--but it also recovered after 2010 and returned to{{p}}about
90 percent of its pre-recession level by 2015.{{p}}The pattern in new vehicle
buying for the 55 years and over age group is somewhat different than for the
others. The buying rate for this{{p}}group, which averages 5 out of 100 people
per year, fell only 20 percent from 2005 to 2010, and a robust recovery after
2010 pushed it up{{p}}to 5.7 in 2015, well above its pre-recession
level.{{p}}In summary, the average age of new vehicle buyers increased by
almost 7 years between 2000 and 2015. Some of that increase reflected{{p}}the
aging of the overall population, but some of it reflected changes in buying
patterns among people of different age groups. The most{{p}}relevant changes
in new vehicle-buying demographics over this period were a decline in the
per-capita rate of new vehicle purchases for{{p}}35 to 54 year olds and an
increase in the per-capita purchase rate for people over 55. The per-capita
purchase rate among younger{{p}}buyers also declined over this period, but the
contribution of this decline to the rise in the average age of new vehicle
buyers was not{{p}}disproportionately large.{{p}}In the next section, we
estimate a model of new vehicle purchases that includes economic and
demographic factors, and we test more{{p}}formally whether age-specific new
vehicle buying patterns changed after 2007.{{p}}Model of Household New Vehicle
Purchase Likelihood{{p}}Consider the probability model of whether household
buys a new vehicle shown in the equation below:{{p}}where{{p}}g = 1 if age is
less than 35{{p}}g = 2 if age is between 35 & 49{{p}}g = 3 if age is between
50 & 54{{p}}g = 4 if age is greater than 54{{p}}POST = 1 if year >
2007.{{p}}The indicator variable new equals 1 if the household purchased a new
vehicle during their survey year and 0 otherwise, and bing indicates{{p}}that
the head of household is in one of four age group bins. The indicator POST
equals 1 if the household was interviewed after 2007 and{{p}}0 otherwise. The
vector X includes household demographics (race, education, having children,
and marriage status) and economic{{p}}variables (employment status, school
enrollment, and combined household income).7{{p}}We estimate this standard
probability (probit) model on roughly 80,000 household responses to the CE
survey collected between 1996{{p}}and 2014, which included about 6,300 new
vehicle purchases. Table 3 presents the estimates from the model of the
average marginal{{p}}effect of each variable listed in the table on the
probability that a household purchased a new vehicle in the past year. The
column labeled{{p}}"Baseline Model" presents estimates from a baseline
specification, which tests for differences among the age groups in the
average{{p}}propensity to purchase new vehicles and whether those propensities
changed after 2007. The column labeled "Model with Controls"{{p}}presents
estimates from the full model, which also includes demographic and economic
variables. The marginal probabilities estimated on{{p}}the demographic and
economic variables seem sensible and suggest that households are more likely
to buy a new vehicle if they are{{p}}white, married, have more education,8 and
have a higher income.{{p}}Note. Average purchase rate is calculated over the
four years listed in the table.{{p}}Source. Authors' calculations based on
data from the Power Information Network – PIN, a business division of J.D.
Power and Associates; Ward's Automotive{{p}}Group, Ward’s Communications
(Ward's AutoInfoBank. http://wardsauto.com/miscellaneous/wards-autoinfobank);
and United States Census Bureau.{{p}}2005 3.8 7.1 7.3 5.2{{p}}2010 2 4.3 4.8
4.1{{p}}2015 3.5 6.6 6.7 5.7{{p}} Memo: Average 3.6 6.6 6.9 5{{p}}Table 3.
Marginal Effects from Probit Regression: Propensity to Purchase a New
Vehicle{{p}}(Significance Indicators: *** is p 55) is{{p}}equal to the
coefficients for both the youngest (age |