Unfavourable demographic changes, including the retirement of the baby boom generation, will dampen vehicle demand over the coming decades, according to a report by Canada’s Scotiabank.

While generation Y will become increasingly more important for the auto industry, growth in the vehicle buying population is set to moderate to the slowest pace in more than 50 years, according to Scotiabank chief economist, Carlos Gomes
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Baby boomers, born between 1945 and 1963, have had an enormous impact on the auto market in North America for the past 50 years. Their buying habits, primarily, have increased the annual number of new light-vehicle purchases in Canada and the United States from an average 10.0 million units in the 1960s to a peak of 17.4 million during the past decade.

Surveys indicate that this generation still accounts for more than half of all new vehicle purchases and roughly 60 percent of all drivers, but its members are now beginning to retire. Indeed, the population of 65-70 year-olds in North America will increase by nearly five percent per annum over the next five years.

New drivers aren’t keeping up

In contrast, the number of young drivers – 16-to-29 year-olds – is increasing at the slowest pace since the mid-1990s. These developments are expected to reduce growth in the vehicle buying population to 0.6 percent per annum in Canada over the coming decade.

This represents a sharp slowdown from an average annual growth in the driving age population of 1.4 percent over the past 50 years.

The growth in the vehicle buying population has already been slowing since 2007, but the downturn will intensify, and remain in place through 2030, Gomes predicts.

In addition to demographic shifts, behavioural trends will also dramatically reduce North American driving needs.

Industry estimates suggest that work-related travel accounts for nearly 30 percent of overall driving. While some retirees may actually increase their driving in the initial years of retirement as they embark on driving vacations, historical data indicate that, on average, retirees drive nearly 40 percent less than the 55-to-64 year old age group.

The auto industry is relying on generation Y to partly offset the retirement of the baby boomers, but the sharp fall-off in driving by retirees will have an enormous negative impact on
new-vehicle demand.

This will become more evident by 2013, when the number of North Americans that are 60 years or older surpasses the potential young vehicle buying population of 16-to-29 years old.

By that time, a total of 69 million Canadians and Americans will be at least 60 years old, surpassing the 67 million potential young drivers under the age of 30.

Fewer young people drive

The average age of generation Y – born between 1978 and 1994 – is currently 21 years, and its youngest members have already reached driving age. However, in contrast to their parents and older siblings, many in the generation Y age group are postponing getting their driver’s licence.

In Ontario, which accounts for nearly 40 percent of the Canadian population, only 75 percent of the eligible driving age population between 16 and 29 years of age has a licence.

On the positive side, many baby boomers and their children are still driving older vehicles, and many of these models will have to be replaced over the next several years. Historically, on average, about seven percent of the vehicle fleet in Canada is replaced each year. The scrappage rate slumped to less than six percent across Canada in 2009, but is set to rise over the coming year, helping counter the negative emerging demographic trends.

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