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Why car companies can't win young adults

August 16, 2013: 8:49 AM ET

Sure, young adults are more cash-strapped than ever. But the bigger problem is that they just don't think driving is cool -- or even necessary -- anymore.

young-car-buyer-620xaFORTUNE – When Japanese carmaker Honda launched a boxy SUV called the Element in 2002, it hoped to draw outdoorsy twenty-something buyers. The vehicle sported a sunroof in the backseat -- room for your surfboard. The trunk was plenty spacious, big enough to haul your mountain bike.

However Honda (HMC) may have tried to hook in young drivers, the company learned it wasn't working; the Element quickly became a hit with baby boomers in their 40s, 50s, and 60s. This wasn't exactly bad news for Honda. A sale is a sale, after all, but the outcome highlights a bigger -- and growing -- dilemma for the broader U.S. auto industry: How to sell to millennials?

Like most consumer companies, automakers like to appeal to young people early on. It helps them build brand loyalty -- the idea that if your first car was, say, a Honda, so might your last. That job, however, is becoming increasingly difficult. It's not that young adults aren't buying cars -- studies suggest they could just be delaying the purchase. All this makes it hard not to wonder if all the attention automakers pay to millennials is even worth it.

It has been widely reported that the Great Recession has hobbled young people in debt and joblessness, making them less likely to buy some of the staples of adulthood, including cars. Last year, buyers 55 and older accounted for more than 40% of all new car sales, up from 33% in 2008, according to Edmunds.com, an online auto industry information provider. Older drivers have long dominated sales, but fewer young people are buying cars. Last year, 18- to 34-year-olds represented only 12% of new car purchases, down from 14% five years ago.

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Carmakers have responded in innovative ways. Dodge and Hyundai have launched crowdfunding programs geared to help buyers round up contributions from friends and family toward down payments. The effort might help generate some more sales, but studies suggest the challenges automakers face go well beyond the residual effects of the Great Recession.

It's not just that cars have become less affordable for cash-strapped young adults, it's also that, well, driving simply doesn't seem as cool as it once was.

More than a third of young adults who don't drive say they are too busy to get a driver's license, and more than a fifth don't plan to ever learn to drive, according to a new study released Wednesday by the University of Michigan.

In a survey of 618 adults under 40 years old who don't have a driver's license, the university's Transportation Research Institute reaffirmed a 2010 study and found that the allure of driving has continued to fade. Of those surveyed, 37% say they are too busy or do not have enough time to get a driver's license; 32% say that owning and maintaining a vehicle is too expensive and 31% are able to catch a ride with others.

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A few other factors explain the trend: There's the growth of bike share programs in some major cities; many young adults have ditched the suburbs for urban areas with public transportation, according to the survey.

What's perhaps most striking, however, is that the Internet may have also made driving more of a hassle than a convenience. Why drive to work when you can work remotely from home; why drive to shopping centers when you can order virtually anything online?

"There's been a cultural shift," says Brandon Schoettle, one of three authors of the University of Michigan study.

Over the years, automakers have generally responded in two ways: They've either designed compact vehicles that suggest a kind of hip and mobile lifestyle, or they've loaded these vehicles with the latest technologies. For instance, the Chevrolet Spark has integrated Apple's voice-activated Siri software into the car.

Such efforts are misdirected, says Adam Brasel, a marketing professor at Boston College. He goes back to the Honda Element. "It was originally designed for the young adventurer, and as it turned out, older people who went antiquing really liked it for the trunk space."

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And while loading cars up with the latest smartphone technologies could make driving safer, it's unlikely to draw young drivers, Brasel says. After all, the average life of a car is roughly 10 years, and such gadgets quickly become outdated.

However a car is designed, automakers will likely get a bigger response through creative marketing, Brasel says. Four years ago, Ford (F) became a marketing darling when it unveiled the Fiesta subcompact car with a social media campaign. The company lent 100 influential bloggers a Fiesta and had them drive it for a while, capturing their adventures doing everything from delivering Meals on Wheels to eloping for all on Twitter and YouTube to see. Sales took off.

Millennials may very well learn to like cars again if automakers come up with better ways to make driving look cool again.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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