Motor finance for Millennials and Zoomers

The younger end of the motor finance market is online, environmentally conscious, and more used to subscribing than owning. How can the market adapt to meet their needs?

If there is a lesson to learn from the last two years of tumultuous events, it is that no part of the automotive sector is immune to change, be it from a pandemic, socioeconomic changes or environmental factors – and the traditional car ownership model is no exception. Recent events have accelerated changes, but they didn’t cause them in isolation. They are the product of an ongoing, seismic generational shift.

A prime example of that is the move to digital and online retail. The pandemic certainly encouraged, even forced a shift to digital in places, but it was a shift already well underway at the start of 2020.

“Our insight suggests this indicates the beginning of a clear generational gap in attitudes towards the digitalisation of not just the automotive industry, but of consumer behaviours generally,” says Dan James, Marketing Director at Volkswagen Financial Services UK. “With younger people more commonly consuming music, TV and even food at the click of a button, the millennial consumer is expecting to embrace the subscription model in many other areas of their lives.”

Millennials, and now Zoomers or “Generation Z” have taken up countless column inches, mostly of it poorly informed. The general image of the millennial as the socially conscious, terminally online youngster straight out of university has been circulating for nearly two decades, ignoring the fact that by now many of them have kids, greying hair, and jobs and financial obligations of their own.

“It’s important not to pigeonhole Millennials and Zoomers into one particular stereotype,” says Dan Temple, Head of Sales Development at ALPHERA Financial Services. “This is a wide-ranging age demographic and the needs and demands from a finance product will be very specific for each individual customer.”

But while these large and diverse demographics cannot be pinned down to an easy stereotype, they have grown up in a world very different from that of their parents, with needs and concerns the motor finance industry will need to address.

“Millennials and Gen-Zs have grown up with the internet at their fingertips which has had a major impact on their expectations around financing a vehicle in terms of speed of transaction, decision making and access to digital platforms,” Temple points out. “Millennial consumers expect to be able to research vehicle finance products online during their purchase process and then be able to manage their finance product in contactless ways. We’ve seen this with an increased usage in our ALPHERA MyFinance app which allows customers to manage their finance product themselves remotely.”

Is ownership on the way out?

Perhaps one of the most significant difference between these generations and those before, beyond simply being comfortable with more technology, is a very different attitude to the concept of ownership. These are generations more likely to have Netflix than DVDs, Spotify than a CD collection, and frankly, are more likely to rent than own their own house. That subscription model may also be visible in their attitude to transport.

Volkswagen Financial Services UK has done research which suggests that Millennials and Gen-Z drivers are keen to adopt a modern way of accessing cars that sees users subscribe to a vehicle rather than own one outright.

“In fact, our study indicates that as much as 61% of people aged 18 to 34 are interested in accessing a car via a subscription model,” James says.

Even where Millennials or Zoomers buy a car outright, their concerns and experience will be different to that of older generations.

“A car is likely to be the first major purchase that a Millennial or Gen-Z will have made, with average house prices rising and renting becoming the new normal for under 30s,” Temple explains. “As this is a significant purchase and major financial commitment, car retailers and motor finance providers need to ensure that the younger generation absolutely understand before they sign of the digital ‘dotted line’ their full range of options, the details and responsibilities contained in their finance agreement, as well as the repercussions of not adhering to their arrangement, whether that’s keeping up with repayments, sticking within mileage and term limits, servicing and MOT requirements or the condition of the vehicle when it is returned.”

Volkswagen Financial Services is responding to these trends with plans to develop and implement car subscription models that will expand their current product range.

“As a key player in the automotive industry, it is important that we listen to the needs, desires and considerations of our customers, to ensure we can provide choice when it comes to their mobility options,” James tells us.

While this trend might seem like the vision of digital evangelists, building on phenomenon like Netflix and Spotify to build a more digital, app-based future, the truth is this change has been a long time coming. People are increasingly moving away from ownership and towards monthly usage fees where all the elements needed to run a vehicle are typically included.

Volkswagen Financial Services has seen the appeal of these models correlate with customers’ age. That 61% interest in subscription models among 18- to 34-year-olds drops to 39% among 35- to 44-year-olds. Among people aged 45 to 54 this becomes 26%, then 18% among people aged 55 to 64 and finally only 11% among 65- to 74-year-olds.

A shift to greener vehicles

Different attitudes to subscription and ownership are not the only place where a generational gap is visible, however. Perhaps unsurprisingly, Millennials and Generation Z have been seen to be far more concerned with the long-term impact of their purchasing choices.

“Again, without wishing to stereotype a whole generation, we know that on the whole Millennials and Zoomers are more environmentally conscious than perhaps previous generations so there’s clearly an appetite for battery-electric and hybrid-electric, whether that’s for new or used vehicles,” Temple points out.

As the government’s 2030 date edges closer, younger customers will be looking for motor finance products that can help them transition to electric vehicles. Residual-value guarantee products like PCP or pure usage products like PCH are useful tools in supporting this shift.

Of course, having a vehicle at all is not a given.

“There are a number of factors at hand as to why traditional car ownership looks set to be turned on its head, especially with the likes of Gen-Z and Millennials in mind,” James says. “For example, further research from our data insights team highlighted that almost a third of all people surveyed said they were more likely to walk to work in the future, with a further 23% more likely to cycle to work.”

But as Temple rightly says, these generations are anything but uniform.

“Some younger car buyers who live in city centres or urban areas will have a different requirement for a car compared with someone from a more rural or suburban area with less accessibility to first-class public transport,” he tells us.

“We’re looking at a different world, one with trends that have been accelerated by a virus but were likely to have happened in the future anyway,” James says. “Our role as a car finance provider is to make that transition easier, simpler, more affordable and accessible for everyone.”