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Younger market creates challenge for automakers

Even as new-car sales recover, automakers are grappling with a new and different market after the recession of the past few years.

It's a younger market, and it is challenged by a housing slump and nagging uncertainty over gas prices. So even though Americans will likely buy a million more cars in 2011 than the 11.6 million they bought in 2010, this recovery will be like no other.

First, drivers are getting a lot younger -- but they might not be so interested in buying a new car. It seems that cars just don't grab kids the way they used to, which is a problem since people younger than 38 are expected to account for a larger percentage of the driving public than baby boomers by 2015, according to IHS Automotive.

"Many young people care more about buying the latest smart phone than getting their driver's license," said Jim Lentz, president of Toyota Motor Sales. "That's a serious problem we need to address."

Meanwhile, RealtyTrac forecasts that lenders will repossess 1.2 million homes this year. People who are losing homes won't likely be shopping for a new car.

Gas prices, and their effect on buyers, will be the biggest wild card -- especially with automakers churning out a bevy of new small, efficient cars.

So far, $3.10 a gallon is not slowing a buyer migration back to light trucks -- a category that includes pickups, SUVs, crossovers and minivans. GM says gas prices could top $4 a gallon this year. But would that send drivers into the showrooms for new hybrids like the Ford Fusion or Honda Civic?

The future is brighter, but a robust auto sales recovery will depend on sustainable job creation, easier credit and a continued flow of attractive and affordable vehicles such as those unveiled at Detroit's auto show this month.

Right now, pent-up demand is driving much of the recovery. Tens of thousands of people have driven their old wheels about as far as they can go. The average vehicle on the road is more than 10 years old, according to consumer marketing researcher R.L. Polk.

The luxury market is getting a boost from the recent two-year extension of the Bush administration tax cuts, said Paul Taylor, economist for the National Automobile Dealers Association.

Leasing, which fell from about 27.5 percent of all new vehicle sales in late 2007 to 21 percent after the September 2008 financial meltdown, has bounced back to 28 percent, according to CNW Marketing, a research firm in Bandon, Ore.

In the great middle of the market, the dynamics have changed. Even as unemployment begins to fall, people still have less disposable income.

U.S. Labor Department data show that 36 percent of workers who lost one job between 2007 and 2009 and found another one are earning at least 20 percent less.

"The needs have changed. You need basic transportation and more economical vehicles as the price of gas goes up," said Don Esmond, senior vice president for Toyota Motor Sales.

Those who have taken pay cuts or experienced extended periods of unemployment may now be part of the used car market.

The other encouraging sign is that lenders are taking reasonable risks again. Auto loan approval rates for consumers with FICO scores between 620 and 749 have recovered to the 85 percent to 90 percent range from 75 percent in late 2009, according to CNW Marketing.

The surge of new models coming from nearly every new automaker should also bolster sales. Consumers are more willing to risk buying a new car if they are drawn to it emotionally, artistically or, in the case of hybrids or electric vehicles, by the desire to make a cultural statement.

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