The rate of change in the auto industry is accelerating. And it’s not powered by just one factor; it’s a complex mix of industry and societal factors that are sending the auto industry into a tailspin as it navigates this road of change. Tyson Jominy, vice president of data and analytics at JD Power, discussed the state of the auto industry on our Data Dialogues podcast, Auto Industry Navigates Historic Change. Jominy explained four factors that are upending the industry right now.
1. Microchips in Short Supply
Today’s automobiles rely on hundreds of microchips for everything from their powertrain operation to the touchscreen on their entertainment system to safety features like airbags. During the COVID-19 pandemic, auto factories briefly shut down production and cancelled orders of microchips. At the same time, demand surged for microchips as consumers increased their spend on home electronics like computers and gaming consoles. When things opened up again, there weren’t enough microchips to go around.
“Once the industry didn't have enough of those microchips to meet demand, supply dwindled and transaction prices just started to climb to the point that here in September, we were actually seeing new vehicle prices that were up nearly a quarter from year over year standpoint,” said Jominy.
Listen to the full interview now.
2. Consumer Preferences Shift
The pandemic has prompted shifts in the way consumers use vehicles. First, many people who live in big cities with robust public transportation like New York and San Francisco didn't feel comfortable riding in confined spaces with others. So many of them purchased vehicles -- and some for the first time. Secondly, the pandemic drove so many people to work from home.
As a result, people began to re-evaluate their vehicle needs in terms of what they bought and how they bought it. “We're seeing fewer leases. Leasing continues to decline every month,” Jominy said. “And not only that, the kind of leases that people are getting are much shorter. So, the 12,000 mile annual allotment lease that has been a gold standard for decades has given way now to the 10,000-mile-a-year lease.
“Consumers believe that this is permanent and they are changing the kind of vehicles that they're getting. And the way that they're buying them is getting to be a much shorter ownership period as well” Jominy added.
3. Millennials Take the Lead
[video mp4="https://assets.equifax.com/insights-blog/images/2021/11/VideoCaptions.mp4"][/video] During the pandemic, Millennials became the top demographic buying automobiles. Experts thought it was just a trend that would taper off once baby boomers got more comfortable with being in public. But it didn’t work out that way.
“Right now Millennials are 36% of the buyers in the industry. And baby boomers are 28%. It has just widened. And this is the first generational shift that the auto industry has seen, let's be honest, since the ‘64 Mustang launched. When baby boomers were all turning 18 and wanted that Mustang, and it went all the way until last year,” Jominy explained.
4. Electric Vehicles are Having a Moment
Electric vehicles are in demand. While people are working remotely from home, they are driving less and giving EVs a chance. This surge is sudden and Jominy calls it exciting, if not a little scary. “The electric vehicle market really began ten years ago when Nissan launched the Leaf. And it took us a full decade to go from 0% share for EV’s to 2%. Well in one year now, it's gone from 2% to 3%. So it's basically speeding up pretty quickly,” Jominy said.
More Forces at Work
There are even more factors influencing the market, including data that automobiles are collecting about their drivers. Listen to the full interview for details. Or listen to our other episodes about how business leaders are using data to make better business decisions.