Houston, We Have a Generation Gap

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Houston, We Have a Generation Gap

By Brian L. Milne, Schneider Electric - 08/10/2015

Knowing your customers’ needs and preferences and providing that service or product will increase your profitability. But for fuel resellers, understanding millennials — aged 15 to 32 and the largest generation in the United States — has proven a difficult task.

When it comes to millennials, defined as the generation born between 1983 and 2000, the picture developing from growing data analysis is worrying for fuel marketers. Simply put by travel behavior analyst Nancy McGuckin, this generation that is projected to outnumber baby boomers by 22 million in 2030 is significantly less impassioned with the automobile than previous generations.

DECLINE IN VEHICLE MILES TRAVELED

Statistics show a 23-percent decline in annual vehicle miles traveled (VMT) by the 16- to 34-year-old group from 2001 to 2009, dropping from 10,300 miles to 7,900 miles each year per capita, according to the latest National Household Travel Survey.

As Federal Highway Administration data shows, U.S. VMT hit a crescendo at more than three trillion in 2007, with per-capita VMT reaching an all-time high in 2004. This would prove to be the end of America’s 60-year driving boom.

The Great Recession from December 2007 to June 2009 was a clear factor in the sharp drop in U.S. VMT. A time when:

  • Unemployment surged;
  • Discretionary spending cratered; and
  • Consumer confidence reeled.

As we look back at this period, millennials were affected more broadly than was widely understood at the time and in ways that now appear may be long-lived. This joined several trends pressuring driving demand already underway.

THE WEALTH EFFECT

Growing household income was a principal feature in greater demand for driving and gasoline from the 1950s through the early 1990s, before the relationship began to diminish. As incomes increased, more individuals acquired vehicles and the number of multiple vehicle households grew dramatically. Families moved to the suburbs, increasing commuting distances, and the number of discretionary driving trips expanded.

Called the “Wealth Effect,” the country reached a saturation point demonstrated when growing incomes failed to continue to generate rapidly higher VMT. During 1990-1997, real personal income growth averaged 3.2 percent annually and VMT 3 percent, which slipped to 2 percent year-over-year growth in VMT from 1997 to 2005 despite similar real personal income growth.

Gasoline demand was further pressured as vehicle fuel efficiency improved under Corporate Average Fuel Economy (CAFE) standards, while retail prices above $3 a gallon prompted conservation by many drivers, including purchasing a more mileage-efficient vehicle.

Increased costs for vehicles, fuel, insurance and maintenance hit millennials harder than other generations.

“Millennials reaching driving age today have no living memory of consistently cheap gasoline,” said the U.S. PIRG Education Fund, which conducted an analysis of the decline in driving in 2012 and updated the findings in late 2014.

DECLINE IN LICENSED DRIVERS

Additionally, more vigorous and protracted testing for driver licenses delayed or shut out some young adults from achieving the legal status of automobile driver. So did policies at many colleges that discouraged students on campus from driving.

PIRG offered data on driver’s licenses held by high-school seniors, which dropped from 85 percent in 1996 to 73 percent in 2010. In 1983, 87 percent of 19-year-olds held a driver’s license compared to 70 percent in 2010, and 68 percent in 2012.

From 2006 to 2013, those aged between 16 and 24 traveling to work by an automobile declined 1.5 percent, while commuting by public transportation, bike and foot increased.

PIRG cited a 2013 survey from the Urban Land Institute that found 77 percent of millennials use a car to commute to work or school compared to 92 percent of generation Xers (born between the early 1960s and early 1980s) and 90 percent of baby boomers (born between 1946 and 1964). The survey also found 20 percent of millennials use public transit at least once a week compared with 7 percent of generation Xers and 10 percent of baby boomers.

The Great Recession and sluggish economic recovery since also had an outsized effect on job growth for millennials whether seeking to enter the workforce directly after high school or following graduation from college, with many finding fewer opportunities then previous generations. Many graduates also have struggled under college debt, with responses to these issues resulting in delays in marriage, procreation and buying a first home.

PIRG said, “[Coming] of age in this time period could affect their long-term transportation and housing decisions.”

CITY LIVING VS. RURAL LIVING

Eric Jaffee noted a widening shift in millennials living in cities as opposed to rural areas in his November 2014 article, “The 10 Biggest Factors Changing Millennial Driving Habits” from The Atlantic CITLAB, with 14 percent of millennials living in towns and rural areas compared to 26 percent for baby boomers.

“Given how much more driving occurs in non-metro areas, the shift into metros alone likely explains much of the overall decline,” wrote Jaffee.

Other attributes that might have some effect on gasoline demand among millennials driving less is concern for the environment, or connecting with each other through social media. This socially concerned generation also has been early adopters of bike sharing and ride services like Uber and Lyft.

WILL THIS CONTINUE AS MILLENNIALS AGE?

Peak driving occurs between the ages of 35 and 55. As millennials reach this period and start more families, will they buy houses in the suburbs like the recent generations before them? Will currently low gasoline prices and higher incomes change attitudes about driving and modify the current trend?

These are questions data on housing and employment should help answer over the next few years.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.