Detroit's Challenge: Convincing Gen Y To Buy American

After the Near Death Experience, Detroit may be figuring it out. Generations of arrogance and ignorance have been swept away by the tidal wave of dysfunctional management, declining market share and disappearing jobs. They get small, they get gas mileage, they get design. The question is how to convince a generation raised on the supremacy of Japanese and Korean autos that they are now competitive.

Reputation takes years to build and a moment to destroy. Detroit had many such moments. Now the US manufacturers are making the long slog back. They have learned that the intangibles of quality and design, cross-referenced with price are driving sales. They are also learning that in a brutal economy with little money to spare, small and cheap matters. So that means it takes small and cheap and high quality to win. This was never Detroit's game; the car guys loved their big road hogs and that is where they put their effort. But that was then. If you are fighting to survive and small is what sells, then small IS beautiful. America loves underdogs and it loves comebacks. Maybe Detroit's time has come again. JL

Matthew DeBord reports in BNet:

Detroit is riding far higher than it has since the onset of the financial crisis, but it still has a lot of work ahead of it. In one area, its challenges are particular tough: convincing younger consumers that its cars are as good as the foreign competition. This seems daunting when you study the data. But there’s progress to report.

Are they not buying American? Or simply buying cheap?
TrueCar.com, a company that provides information and analysis to consumers, recently released a study of what so-called Generation Y car shoppers are buying. Overwhelmingly, the 18-27 demographics prefers cars from Japan and South Korea, with a few German models thrown in. There’s nary an ounce of Detroit iron in the top 10, save a lone Ford (F) Focus model.

That might sound bad, but you also have to consider pricing. Most vehicles in the top ten come in under $20,000 — demonstrating two things:

1.Young people go for cheap in a big way
2.Detroit still doesn’t do cheap all that well

Changing attitudes in Motown

In the good old days, before the Detroit Meltdown, the Big Three could argue that these small fish weren’t worth trying to catch. Toyota (TM), Honda, Nissan, Hyundai, Mazda, Mitsubishi, Suzuki — they all did a better job of building cheap, small cars that could turn a profit.

Detroit’s bet was that sustaining this market would be a drag on the up-sell opportunities that come later, when a generation outgrows small and cheap and starts thinking about big and (more) expensive (and, for carmakers, more profitable). So that’s where it focused. The apex of this was of course the 1990s-2000s SUV era, typified by such pricy gaz-guzzling leviathans of luxe as the Lincoln Navigator and the Cadillac Escalade.

The TrueCar study covered 2009-2010. Sales figures for 2011 are beginning to tell a different Detroit story — one in which smaller, cheaper cars are being taken more seriously. For example, the Chevy Cruze, a compact sedan, was the third-best-selling vehicle in the U.S. in June, right behind the perennial top two, the Ford F-150 and the Chevy Silverado, a pair of full-size pickups.

Cheap is cheap is cheap

Increasingly, consumers aren’t making buying decisions based on brand loyalty — they’re choosing based on product quality. So you can somewhat throw out the old idea that establishing brand loyalty early is critical to later success.

Take a Honda buyer who wants to move upscale. He may have loved his Civics when he was young and somewhat broke, but Acura models may not have the luxury characteristics he’s chasing. He may go for a BMW instead.

For Detroit, the struggle will be to woo younger buyers away from the brands they adore now by making their more “grown up” products compelling. In the car business, it’s called “conquesting” when you induce, say, a Mercedes owners to go for a Lexus.

When in comes to GenY, the conquesting will have to happen at two levels: When they get old enough to afford better; and as they’re first entering the market. If a Chevy Cruze is considered more luxurious and has better features than a Honda Civic, there’s a decent chance a GenY buyer will pick the Chevy.

Not that this will happen overnight. But Detroit has at least made a start.

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