Demographic Changes to Impact Shops
Age, race, gender, socioeconomic status—all of those demographic factors can deeply affect your business, says Susanna Gotsch. And as demographics change, your mix of customers evolves, as well.
“As the U.S. population continues to age and become more diverse, these changes will ultimately impact these industries, as well,” Gotsch says.
As the lead industry analyst at CCC Information Services, Gotsch leads the development of CCC’s data, which often demonstrates the correlation between trends within customer data and the broader economy. Gotsch discusses recent demographic changes within the U.S. and what shop owners need to understand about them.
When it comes to overall population growth, what do you believe collision repairers should understand?
Basically, if you look at the last census, which was 2000 to 2010, it had one of the slowest rates of growth in overall U.S. population since the Great Depression period. Since that time, it’s picked back up again. Although that rate was a little below 10 percent between 2000 to 2010, if you extend it to 2013, the growth rate overall was about 12.2 percent. Currently, the U.S. population is about 318 million.
With population growth, the number of drivers in the U.S. is expected to grow, as well. Research from the Insurance Institute for Highway Safety projects over 10 percent growth in the U.S. driving age population between 2015 and 2030, with the greatest growth among the older age brackets.
While millennials have been perhaps the most talked-about generation in the last several years, they have gotten older. By 2050, the median age in the U.S. is expected to be 41 years, and by 2045, the number of Americans aged 65 and older will also grow 77 percent.
Historically, accident frequency declines as the age of the driver increases. Data from the National Safety Council shows that drivers ages 25 to 34 consistently account for the largest share annually. With more growth in the sheer number of older drivers, that could continue to reduce auto claim frequency further in the future.
Given that population growth, how has it impacted geographic demographics?
Where people are situated is an important consideration, particularly when we look at the differences between the urban and suburban. According to census data, most of the growth in the U.S. has occurred in the West and South area of the country. For folks looking to grow their business, understanding what type of population is growing and where it’s growing is certainly important to understand.
If you break down the census data by region, the Northeast saw relatively slow growth, only 4.4 percent. If you compare that to the South, that growth is about 17.9 percent. The West saw growth of about 17.2 percent. So, it goes from about 5 percent versus 17 to 18 percent for the other two regions. There’s a pretty big differential in terms of the growth rate.
More importantly, if you look at where people live, a lot of growth has occurred in some of the large metro areas. The biggest caveat is that those metro areas also include the suburbs. If you actually look at where people are living, about 50 percent of Americans still live in the suburbs. We came across an interesting study done by William Frey that looked at some of the largest metro areas with populations of 250,000 or more. What he found was that well over half of them experienced stronger growth in suburban growth than in primary city growth between 2013 and 2014.
The difference that shop owners need to understand between the suburban and the primary city is access to public transportation, the ability to walk or bike to work. For most people in the suburbs, a vehicle is involved in some shape or form in their commutes. As employment numbers increase and gas prices remain low, we saw miles driven accelerate substantially last year. If you’re living in areas where people rely on their cars, that’s going to drive up subsequent exposure on individual vehicles and we believe that’s what is driving up frequency right now.
Although the resurgence of new vehicle sales over the past year is well known, are there any demographic trends within those vehicle sales that repairers might not be aware of?
If you think about the marketplace right now, we came out of the recession in which new vehicle sales tanked and used vehicle sales also fell off. Coming out of the recession, people were more cautious in terms of the purchases they made relative to the vehicle and the cost. You saw used vehicle prices rise substantially because the overall number of vehicles coming into the marketplace dropped, rental vehicle fleets weren’t being swapped out and leases were much lower as a share of overall sales. You had less supply at a period of more demand, so used vehicle prices went up. Now we have started to see that people are feeling more comfortable economically and new vehicle sales have accelerated. The average vehicle is 11.5 years old, so people are frankly just having to replace those vehicles. Consequently, we start to see new vehicle sales also grow.
But when you compare the demographics of the buyer, the majority of new vehicle purchases today are still being made by people 55 years and older. Everyone wants a part of that magic millennial generation, but if you look at the actual registration data from Edmunds, it shows that registration overall is down 27 percent from where it was before the recession for millennials. A lot of that has to do with higher unemployment, higher college debt and people getting married later. For those individuals that are buying them, the majority are purchasing used vehicles.
The concern is that we have more of these people buying used vehicles and the majority of them carry financing because they can’t afford to purchase it outright. In fact, 55 percent of all used vehicle purchases are now financed. So the concern is that we have come out of the recession, new vehicles sales are back to record levels and we’re starting to see more leases, which leads to more returns. Eventually used vehicle prices will start to soften and what we don’t want to do is return to where we were 10 years ago when the floor fell out and people were stuck with vehicles that were worth a lot less than what they still owed. If the values fall, which they’re not likely to fall across the board quickly any time soon, the market trends point to softening. We’re seeing it in the newest model year vehicles because that’s where the supply has improved. It will trickle down and when that happens, the value goes down—especially on older year vehicles—and you reach that total loss threshold faster, which means more total losses.
So it’s this gap in communication or information that we need to help consumers with. Consumers don’t always understand that the cost differential to repair a car between the oldest and the newest is much smaller than the cost differential between the value of a newer and older vehicle. With more customers potentially coming into the market buying used vehicles that will likely depreciate quicker over time, that may lead to more customers with bad experiences. And most people don’t think they’ll be in an accident, so when they are, helping customers understand the economics of it will be that much more important, too.
When it comes to the customers themselves, what should a shop owner know about how their customer base could be changing?
You need to particularly think about what type of customer you have. Understanding the customer means understanding how they want to be communicated with, the customer expectations, how they find you, how they purchase your product. All of that can vary based on comfort levels with digital technology, whether it’s mobile apps, getting texts and the like. If you look at the younger generations, they’re becoming much more racially diverse faster than some of the older demographics. If you look at people ages 10 and younger, whites are going to become the minority in 2016. The population is becoming more diverse and we have already begun to see the growth opportunity within the changing demographics, specifically with Hispanic buyers. According to IHS Automotive’s Polk market data unit, total industry retail sales increased 5.9 percent in 2014, but retail sales to Hispanic consumers rose 15 percent.
If you look at how people access information, Pew Research data has shown that most of the access to the Internet and digital information occurs through mobile devices, and much more so for African- Americans and Latinos than whites.
I think the takeaways with this are having the ability to take advantage of knowing your customer base and adapting to the changes, and then understanding the challenges they may be facing financially if they have an older model year vehicle, they owe money on it and it’s a total loss. What does that ultimately mean for their overall satisfaction? Even if the shop doesn’t get the repair, their interaction could potentially be impacted if they’re not clearly helping the customer understand the economics and how the whole situation works.