McKinsey Institute for Black Economic Mobility

Rules of the road: Equitably serving Black automotive consumers

Cars have long represented status, freedom of movement, and—at various times in the United States—an expression or assertion of full citizenship. For Black Americans, the symbolism is sharp: cars have historically functioned as a means of escape from severe segregation. For many Black Americans, cars are still a form of self-expression, especially when customization is part of the conversation.1 In the aftermath of the COVID-19 pandemic, our research shows that many Black Americans will spend more on private vehicles, with many looking to purchase electric cars. McKinsey analysis suggests that Black consumer spending on automotive products will reach $190 billion by 2030.2

Companies in the automotive industry have an opportunity to earn the attention and loyalty of Black consumers: McKinsey research conducted after the onset of the COVID-19 pandemic found that Black consumers are more likely than non-Black consumers to want to reduce their use of public transit and ride-hailing. This pattern makes car ownership especially important. Thirty-five percent of Black survey respondents said they are not loyal to a particular auto brand, and our analysis suggests that up to $14 billion (15 percent) of Black consumer spending in the sector will be up for grabs. The number could grow to $25 billion in 2030 (in nominal dollars). However, the relationship between Black consumers and the automotive industry can be fraught, especially when financing is involved.

The question is how companies in the automobile value chain—manufacturers, dealerships, and automotive aftermarket companies—can serve Black consumers better and more fairly. Our research suggests that equitable financing, omnichannel experiences supported by plentiful information, and investments in electric-vehicle (EV) charging networks (in light of surging demand for EVs3A turning point for US auto dealers: The unstoppable electric car,” McKinsey, September 23, 2021.) are the most important places to start. These actions not only are more equitable but also could increase the loyalty—and spending—of Black consumers.

Our research suggests that equitable financing, omnichannel experiences supported by plentiful information, and investments in electric-vehicle (EV) charging networks are the most important places to start.

Needs and preferences that drive spending on autos

Our research found that when Black consumers shop for vehicles, auto parts, and repair services, they place outsize emphasis on affordability and value for money, information and recommendations, and product reliability compared with their non-Black counterparts (Exhibit 1).

Black consumers prioritize three areas of consideration when shopping for vehicles and other automotive needs.

First, consider affordability and value for money. It is the most frequently cited reason among the 57 percent of Black consumers who prefer to buy used cars when shopping for an automobile. (For reference, 47 percent of non-Black consumers prefer a used car.) Ninety percent of Black respondents (compared with 78 percent of non-Black respondents) also listed “the best financing terms” as one of their top three considerations in choosing a new-car dealership. Affordability—particularly the search for the best deal—may also explain why more Black consumers than non-Black consumers (44 percent versus 33 percent) said they like to buy auto parts online. The same outsize preference for digital channels (compared to non-Black consumers) is observed with used cars.

The focus on affordability may be linked to the persistent racial wealth and income gap. In other words, the average Black consumer may simply have less to spend.4The economic impact of closing the racial wealth gap,” McKinsey, August 13, 2019. Experiences of disparate treatment in auto purchasing and financing may also be relevant; Black consumers are twice as likely as White buyers to be charged a dealer markup on their vehicle purchases and are less likely to get approved for car loans compared with White borrowers who have similar credit scores and incomes.5

Knowledge and savvy may offer some protection against inequitable treatment. Our research shows that Black consumers tend to value recommendations from friends when making decisions about car purchases or repairs more than their counterparts do, perhaps as a way to address the trust deficit. Black consumers also want more technical information, customer reviews, and insights from social media when they evaluate vehicle options. Even so, 86 percent of Black respondents said they wish they had more information about car features, and 41 percent want to be connected to recent purchasers (a figure higher than for non-Black respondents). Of course, the appetite for information may be linked to the fact that they are seven percentage points less likely than non-Black consumers to have a specific vehicle make in mind before they begin shopping. This desire for recommendations is even more pronounced with used-car purchases: Black respondents were 18 percentage points more likely than non-Black respondents to choose a used-car dealership because it had more knowledgeable sales associates. Black respondents are also 4 percentage points more likely to seek recommendations from their friends and family when deciding where to buy a used car.

When deciding on a specific vehicle, Black respondents put more stock in emotional factors—such as trust, the brand’s perceived reliability, and how proud they will be to own the brand—than non-Black respondents do. Our analysis shows that OEMs that meet or exceed these needs at scale have invested in understanding Black consumers and offering cost-effective and high-performing vehicles. Such brands have a history of specifically courting Black consumers with inclusive marketing and vehicles that lend themselves to customization.6 This emphasis on emotional factors is clear with used cars as well: Black respondents are more likely to feel affinity to a brand if they receive recognition from other drivers of the same brand of vehicle (48 percent of Black respondents compared to 36 percent of non-Black respondents).

When it comes to auto parts, we found that a minority of Black consumers prefer to buy parts to bring to mechanics for installation. However, Black consumers who do their own repairs are eight percentage points less likely than non-Black respondents to complete complex installations—such as replacing engines or transmission components.

Black consumers and the future of mobility

Most of our research focuses on traditional gas-powered vehicles with internal combustion engines (ICEs), which power most of the cars currently in use. Ninety-six percent of vehicle sales in the second quarter of 2021 were ICE vehicles.7A turning point,” September 23, 2021. The future will be different. By 2030, electric vehicles will most likely make up 53 percent of all new passenger car sales.8A turning point,” September 23, 2021. Black respondents are three times as likely as non-Black respondents to express an interest in trying out new, disruptive mobility trends such as EVs. About 40 percent of Black respondents expect to purchase an EV in the next ten years; lower cost to own and environmental friendliness were cited as key benefits of these cars (Exhibit 2). However, around half also said they would consider buying another ICE vehicle while the EV technology (in particular, driving range and battery life) and charging network develop. These reservations might explain why Black consumers have an outsize preference for test-driving electric vehicles before purchase (38 percent compared with 31 percent of non-Black respondents).

Black respondents consider environmental upside and lower cost of ownership as key benefits of owning electric vehicles.

Forty-three percent of Black respondents, a higher share compared with non-Black respondents, reported they would more seriously consider buying an EV if charging stations were as available as gas stations. Given this mindset, greater emphasis on public and private EV charging infrastructure will be required for Black consumers to adopt EVs at scale.

While private vehicles are—and will continue to be—the transit option that Black consumers most commonly use, our research shows that Black consumers are more likely to adopt newer options such as micromobility assets (for instance, e-scooters, e-bikes, and e-mopeds) and mini cars. Black respondents are four to 14 percentage points more likely to own a micromobility asset and six percentage points more likely to own a mini car. In the future, they are 30 percent more likely to increase their use of these technologies.

When it comes to developing technology, particularly autonomous vehicles, Black and non-Black survey respondents are similarly hesitant to switch to fully autonomous vehicles. However, Black consumers are more open than their counterparts to vehicles that incorporate autonomous-driving features such as blind-spot correction: 78 percent would switch to a different car manufacturer if it offered these features, compared with 69 percent of non-Black respondents.

Three actions to take to win over Black automotive consumers

Consumer-facing companies in the automotive value chain should take three actions to better serve Black consumers and win them over in the process: offer equitable financing to Black buyers, build targeted omnichannel experiences, and invest equitably in charging infrastructure for EVs to match Black consumers’ appetite for the technology.

Ensure equitable financing for new car purchases

Inequitable financing—a discriminatory practice—is most common in states with above-average levels of racial discrimination and low competition among lenders.9 In 2018 the US Congress reversed guidance that prohibited racial discrimination in the auto loan market.10 Now it’s up to OEMs and dealerships to eliminate inequities and build trust with Black consumers.

To develop fair lending practices, OEMs and dealerships should analyze lending data to help ensure that Black consumers are not charged unfair markups compared with White consumers. The analysis should lead to standard markup tiers based solely on a borrower’s finances or the elimination of these markups all together. In addition, auto lenders should assess their underwriting processes and algorithms to ensure that factors are not disproportionately affecting Black borrowers. To provide more equitable credit scores, these lenders should consider incorporating the innovative methods that are increasingly being adopted by fintechs—for example, cash flow modeling, which uses day-to-day banking transactions to paint a more complete picture of a person’s financial habits.

OEMs, dealers, and lenders should also provide consumers with resources to help them evaluate, negotiate, and shop for pricing and loan terms. This service not only would be helpful for Black consumers but also could boost the profile of entities with the most consumer-friendly offerings.

Of course, without coordination, some of these approaches may create conflicting incentives within the automotive value chain.11 OEMs can take the lead by announcing guidelines for how dealers should price new vehicles—for example, two automakers recently discouraged independent dealers from selling vehicles above the manufacturer’s suggested retail price.

OEMs and dealerships could also consider alternatives to car loans and leases. Car subscriptions, for example, provide flexibility and keep drivers from the financial and administrative obligations of ownership such as insurance and maintenance.12 Although subscriptions may not represent cost savings, their standard fee structures are one way to sidestep the bias that often emerges in vehicle pricing and financing.

Omnichannel experiences—supported by plentiful and useful content—can meet the preference of Black consumers for technical information, person-to-person recommendations, and social media research.

Develop and adapt omnichannel experiences for new and used cars

Omnichannel experiences—supported by plentiful and useful content—can meet the preference of Black consumers for technical information, person-to-person recommendations, and social media research.

OEMs and dealers should focus on digital marketing channels that provide sufficient information. Specifically, channels should offer the right balance between personal insights and technical information to give Black consumers peace of mind about the factors they care about, including gas mileage, driving experience, and personalized financing options. For example, OEMs could develop referral-based promotions for current drivers to recommend vehicles to their friends or integrate customer testimonials on digital and physical channels. Some companies—mostly EV OEMs and dealers—already offer a seamless experience. Consumers can research, customize, and pay for their vehicles online before scheduling a pickup date.

For auto parts and repair companies, our survey shows that Black consumers are more likely than non-Black consumers (44 percent versus 33 percent) to want to purchase parts online, but they may not want to do the repairs themselves. An auto repair chain could use this insight to streamline the process from shopping for parts to completing a repair across channels. For instance, a solution could help consumers order a part, have it delivered to a specific shop, and make an appointment for the installation. Consumers who enjoy performing repairs could be served with branded digital resources on do-it-yourself (DIY) installations on mobile apps, as well as with innovative store formats with staff and shelf space dedicated to DIYers. For example, one company developed a DIY app that allows customers to browse parts and products, explore a library of repair guides and videos, and track their vehicle repair history. Another company introduced a new store format tailored to DIY customers, including a selection of DIY parts and free curbside services.

Make equitable investments in charging infrastructure in Black communities

The availability of charging stations is the most cited factor when Black consumers are asked about their decision-making criteria for EV purchases. The current state suggests that Black and Hispanic neighborhoods may be on track to become charging deserts if major decision makers in the automotive value chain do not proactively ensure equity in the development of charging infrastructure. In cities that currently have public charging stations, for instance, many are in majority-White areas.13

OEMs should take the lead, especially in light of the Bipartisan Infrastructure Law’s commitment of $7.5 billion to accelerate EV adoption and build charging infrastructure,14 which offers an opportunity to collaborate with the private sector and across the value chain to develop charging networks that offer inclusive coverage.

The automotive industry will continue to be important to Black consumers. Investments in serving Black consumers equitably—including with charging infrastructure in Black communities—should be top of mind for decision makers. Their relationships with Black consumers depend on it.

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