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No, Car Ownership Won't Become Obsolete

March 28, 2019
Car ownership isn’t really receding into the past, and the available evidence that today’s young people aren’t interested in owning cars has more to do with bygone economic troubles than with changing preferences.

It’s quite likely that carmakers and officials who regulate them are laboring under an important misconception. Car ownership isn’t really receding into the past, and the available evidence that today’s young people aren’t interested in owning cars has more to do with bygone economic troubles than with changing preferences.

The evidence began emerging a few years ago; in 2013, the New York Times trumpeted “The End of Car Culture” based on downward trends in car ownership rates and miles driven in the U.S. The number of young drivers appeared to be sliding, and this was blamed, in one news story after another, on millennials’ supposed preference for renting and sharing over owning.

Big castles in the air were built on this, whole worlds of shared transportation in which car manufacturers don’t sell their products anymore except to operators of huge fleets of autonomous vehicles. In 2016, John Zimmer, a Lyft co-founder, predicted that car ownership would all but die out in major U.S. cities by 2025. In its 2018 survey of car industry executives, KPMG wrote of a fundamental change in the car retail landscape driven by demand for “more intelligent mobility solutions instead of owning a private car.”

But since at least 2015, academics have been warning that the data on millennials and cars have been contaminated by an important economic factor: the global financial crisis, which slowed down many young people’s slog toward financial independence. In a paper written that year and published in 2017,  Nicholas Klein from Columbia University and Michael Smart from Rutgers wrote that only millennials in dire financial straits owned fewer cars than members of previous generations; those who achieved financial independence owned more cars than expected based on their incomes and wealth. “We caution planners to temper their enthusiasm about ‘peak car,’ as this may largely be a manifestation of economic factors that could reverse in coming years,”  Klein and Smart wrote.

Some more recent work appears to bear out this prediction. And a new working paper from Christopher Knittel from the Massachusetts Institute of Technology and Elizabeth Murphy from the power generation company Genser Energy provides convincing proof that not only are millennials as inclined to own cars as previous generations were, but also they drive their cars more than baby boomers did at the same stage of life. 

Knittel and Murphy found, using U.S. government data, that millennials own 0.4% fewer vehicles per household than baby boomers did. But controlling for socio-demographic variables including income and the family life cycle explains away this entire difference. Doing the same for vehicle miles travel data reveals that millennials are more active travelers than older Americans. 

Millennials, Knittel and Murphy wrote, “operate under many of the same constraints as prior generations, and they still have strong preferences for personal vehicles.” Most of the U.S. isn’t really built for any transportation solution other than private cars. In Europe, where public transportation and car-sharing networks are better developed, various studies show that millennials are less likely to own cars than previous generations, but robust studies such as Knittel and Murphy’s are lacking, so it’s unclear whether, as in the U.S., most of the difference is explained by socioeconomic factors rather than preferences.

I’ve heard many young people say they choose not to own cars because of environmental awareness or the convenience of sharing options. But do they actually mean what they say — or is it simply that they can’t afford to buy a car and would rather frame that reality as a choice? In one recent survey in the U.K., more than half of young car owners reported buying the vehicle for prestige. (This is a recipe for excessive borrowing, to allow young people to drive a car they can’t really afford.) 

Prestige, of course, is also a factor feeding the rising car ownership in countries such as India and China. Between 2005 and 2015, ownership has increased by an average of 13.2% a year in emerging Asia, according to the Organization for Economic Cooperation and Development. 

There’s nothing wrong with carmakers’ exploration of new transportation modes such as ride-hailing and car sharing, and working toward self-driving vehicles more likely to be owned by taxi operators than households means staying on top of cutting-edge technology. It’s likely that the younger generations’ growing environmental concerns will eventually drive regulation changes that will force a shift toward electric vehicles. 

It would, however, be a mistake to reconsider business plans as if consumer preferences were undergoing a radical change. Having a car of one’s own provides, and will continue to provide, a degree of freedom that cannot be matched by any other transportation offering. Data do not bear out the expectation that people will give up that freedom for any reason except being unable to afford it.

By Leonid Bershidsky 

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