The Impact of Generational Shifts on Product Strategy

The Impact of Generational Shifts on Product Strategy John Wolkonowicz Market Analyst Detroit, 6 October 2005 EVOLVING CONSUMER PREFERENCES Challenging Opportunities

Introduction The objective of this presentation is to demonstrate the impact that generational shifts in the marketplace have had on product segmentation. Since the generational mix of consumers is constantly changing, product strategies must be continually adjusted to meet the demands of the changing consumer mix. Put another way, yesterday s successful product may become tomorrow s failure. This is NOT a static business! Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 2

Evolution of Consumers From 1985 2015, seven generations of American consumers are present in the marketplace: Flapper Generation born 1900 1914 age 91+ 40M Depression Generation born 1915 1934 age 71 90 55M Quiet Generation born 1935 1945 age 60 70 30M Baby Boom Generation born 1946 1964 age 41 59 76M Generation X born 1965 1977 age 28 40 44M Generation Y born 1978 1994 age 11 27 75M Generation Z born 1995?...age 10 Because each generation brings a different value set to the marketplace, they each have different wants and needs regarding vehicles. Consequently, each generation makes DIFFERENT vehicle choices as they move through the various lifestages. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 3

FLAPPER GENERATION Born 1900 1914 The sophisticated flappers and sheiks of the Roaring Twenties. First truly modern generation; viewed themselves as Bohemians. Viewed parents as hopelessly old fashioned. Never knew life without cars, aircraft, telephones, electricity. Entered in 1916. All in by 1930. Began leaving in 1980. All out by 1994. Valued sophistication, style, modernity. Chevrolet and Cadillac. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 4

DEPRESSION GENERATION Born 1915 1934 Defined by the Great Depression and WWII. Pragmatic survivors who can weather any storm. Entered in 1931. All in by 1950. Began leaving in 1995. All out by 2014. Value comfort, size, flamboyant design, and the annual model change. Prefer American cars. View light trucks as commercial vehicles. Mercury and Buick. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 5

QUIET GENERATION Born 1935 1945 Enjoyed the idyllic teen experience in the 1950s. Altruistic dreamers who value perfection. Married young and divorced early. Entered in 1951. All in by 1961. Will begin leaving in 2015. All out by 2025. Value excellence, integrity, quality. VW, Mercedes-Benz, Lexus. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 6

BABY BOOMERS Born 1946 1964 Indulged as children. Pushed to win by depression era parents. Selfish, self righteous, and competitive. Married and had kids later than other generations. Entered in 1962. All in by 1980. Will begin leaving in 2026. All out by 2044. Value status, safety, hassle-free. Make little distinction between cars and trucks. Toyota, Volvo, BMW. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 7

GENERATION X Born 1965 1977 Latch-key kids of the Quiet Generation. Often shuttled between divorced parents. Grew up in the turmoil of the 1970s. Entered in 1981. All in by 1993. Won t begin leaving until 2045. All out by 2057. Value security, excellence, integrity. VW, Honda, Acura. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 8

GENERATION Y Born 1978 1994 Pampered and protected kids of the Baby Boomers. Self-esteem favored over learning in schools. Highly computer literate, self-absorbed, arrogant. Entered in 1994. All in by 2010. Won t begin leaving until 2058. Value status, in-your-face design. BMW, Cadillac, Hummer. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 9

1985 SUMMARY MARKET Baby Boomers and Depression Generation dominate. Generation X enters. CARS Car penetration begins to slide as alternatives debut. Second round of vehicle downsizing begins. Luxury car sales explode as Depression Gen enters retirement. Mid-specialty and sporty coupes driven by single Boomers. LIGHT TRUCKS Chrysler minivans score with family forming Boomers. Compact sport utility another car alternative for Boomers. Personal use trucks outsell commercial trucks. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 11

1990 SUMMARY MARKET Flappers nearly all out. Baby Boomers and depression gen still dominate. Generation X nearly all in. CARS Mid-specialty coupes disappears, as Baby Boomers marry. Luxury sales continue strong driven by Depression Gen. Generation X shows preference for small sedans over coupes. LIGHT TRUCKS Compact vans and compact utilities explode as Baby Boomers move into family lifestage. Compact pickups decline for the same reason. Rush is on to copy successful Ford Explorer. Competitors still unable to match Chrysler minivans. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 13

1995 SUMMARY MARKET Family lifestage Baby Boomers dominate. Flappers all out. Generation Y just beginning to enter. CARS Car sales decline as light truck sales take off. Generation X females show preference for compact sedans. Boomers drive sales of near luxury and luxury sport sedans. LIGHT TRUCKS Boomers and Generation X drive sales of personal use trucks. Family lifestage Boomers drive sales of compact SUVs and vans. Compact pickups decline as fullsize pickups soar. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 15

2000 SUMMARY MARKET Depression Generation start to leave the market. Generation Y entering and making its presence felt. Family lifestage Baby Boomers still dominant. CARS Boomers and Gen X continue to substitute light trucks for cars. Gen Y females show largest preference for cars since Depression Gen. Toyota Echo fails as first car for Generation Y. Boomers drive increase in entry luxury penetration. LIGHT TRUCKS The light truck market begins to nicheify. Boomers drive increase in full size and luxury utility sales. Entry utilities begin to displace cars with Generation Y. The CUV is introduced and begins to gain market share. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 17

2005 SUMMARY MARKET Departure of Depression Gen slams some domestic brands. Generation Y beginning to make its presence felt. Baby Boomers enter their peak earning years. CARS Boomers drive explosion in premium cars. But luxury sedan sales hit by departure of Depression Gen. Toyota makes a second try at Generation Y with Scion. LIGHT TRUCKS Light truck penetration passes 50%. Boomers and Gen X drive full size and luxury utility sales. Generation Y causes a boom in entry utility penetration. SUV sales drop as CUVs are introduced in many styles and sizes. Crew cab full size pickup sales explode. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 19

2010 SUMMARY MARKET Depression Gen is nearly out of the market. Gen Y all in and starting to challenge Boomers for market supremacy. CARS Car penetration down to 43%. Near luxury segment grows as Gens X and Y won t wait for luxury. Sports car penetration grows as Boomers reward themselves. OEMs debut more RWD cars in an attempt to bring excitement back. LIGHT TRUCKS Entry utility continues to grow driven by Generation Y. CUVs likely to outsell SUVs in most utility segments. Compact van sales fall as Gen Y chooses other family vehicles. Niche-ification in the light trucks will drive down profits for Big 3. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 21

2015 CONSUMER PROFILE 2015 GENERATION Z, 11.6% QUIETS, 12.4% GENERATION Y, 26.9% BABY BOOMERS, 31.4% GENERATION X, 18.2% Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 22

2015 SUMMARY MARKET Depression Generation gone. Boomer retirement beginning. Generation Y moving into family lifestage. Generation Z entering the market. CARS Car penetration down to 42%. Premium segments grow to 20% as retiring Baby Boomers drive the top end and Gens X and Y drive the bottom. Lower middle cars gain at the expense of upper middle. LIGHT TRUCKS Family lifestage Gen Y drives strong CUV and STW sales. CUV sales (27%) pass SUV sales (23%). Retiring Boomers spur growth in premium trucks. Generation Y males keep fullsize pickups strong. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 23

Summary Each generation has different values. Values and lifestage determine wants and needs. The mix of generations and lifestages is constantly changing. Generational mix is an essential ingredient of a successful long range product strategy. Copyright 2005 Global Insight, Inc. 2005 GLOBAL AUTOMOTIVE CONFERENCE DETROIT 24

John Wolkonowicz Market Analyst E-mail: john.wolkonowicz@globalinsight.com Tel: +1 781 301 9098