2014
07/02

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Automobile Credit

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Joseph M. Giglio and Charles Chieppo: Millennials less car crazy than parents

BOSTON

The facts of General Motors’ recent troubles are well known: a storm of lawsuits and investigations resulting from mechanical failures that are linked to 13 driver deaths and over 13 million car and truck recalls worldwide so far this year. Now the big question is whether these setbacks will be fatal for the iconic American automaker.

One major factor GM must come to grips with is how the millennial generation is changing the American automobile market. These are the people born between 1983 and 2000, a great number of whom bear enormous student loan debt. In the aggregate, that debt is higher than either national credit card or automobile credit debt.

Perhaps that’s one reason millennials simply aren’t car as crazy as their predecessors were. The “sharing economy,” sustainability and an emphasis on public transportation, biking and walking, coupled with a keen interest in global climate change and fighting the obesity epidemic are some of the reasons why. This, in Trollope’s phrase, is “the way we live now.”

There is no agreed-upon definition, but “sustainable” first came to be used in the political arena to denote cities in which human needs are met without harm to the natural environment or sacrificing future generations’ ability to meet their own needs. It is doing a land office business with this crowd.

More than half the world’s population now lives in cities. By 2050 the number of people living in cities will have nearly doubled, from 3.6 billion in 2011 to more than 6 billion. It is estimated that up to 65 percent of global gross domestic product will be concentrated in the world’s 600 largest cities.

In the United States, the federal government has delineated 388 metropolitan statistical areas. The top 100 sit on 12 percent of the land mass, but are home to two-thirds of the population and generate some three-quarters of America’s GDP. According to the Federal Highway Administration, 67 percent of the 1.9 trillion vehicle miles traveled each year occur within urban areas. Urban centers are plainly the engines of the American economy.

Fortunately, technology is fundamentally changing the way people use transportation and improving metropolitan mobility. Advances are making it easier for people to navigate public bus and rail transportation, and personal ride-booking and car-sharing services are available in nearly every major American city. Smartphone applications, for example, let customers arrange transportation quickly, often eliminating the need for costly car ownership. One of the results of this is less driving.

With urbanization on the rise in America, failure to adapt to the new urban reality could be disastrous for firms facing unprecedented demographic, economic, social and environmental changes. The challenge for GM and other automakers is to find a way to adapt to the millennial lifestyle, but the nature of that lifestyle makes the task of predicting future demand for cars far more complicated.

For over four decades, adaptability has not exactly been GM’s strong suit. Indeed, the firm is facing the fallout from many years of questionable strategies. If future success means developing smaller, cheaper and more fuel-efficient vehicles, GM may have to wave goodbye to its current models and quickly evolve to satisfy changing consumer preferences that are illustrated by a new generation’s relationship to the automobile.

If lack of adaptability continues to be a weakness, GM is destined to go the way of the dial-up Internet connection.

 

Joseph M. Giglio is a professor of strategic management at Northeastern University’s College of Business Administration and Charles Chieppo is the principal of Chieppo Strategies.

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