The average age of cars on American roads has hit an all-time high of 12.5 years, according to data by S&P Global Mobility. Additionally, sedans on average have an age of 13.6 years, reflecting the trend of Americans holding onto their cars for longer than ever before. The pandemic has been attributed to this trend as it resulted in a global shortage of automotive computer chips, reducing the supply of new vehicles. Since the pandemic, new vehicles prices have soared by 24%, with the current average cost being close to $48,000. Tight loan rates on new car purchases, at an expected 7%, and a median household’s income, create a high car payment that many cannot afford. Consequently, many owners prioritize repair over replacement, repair costs being cheaper than purchasing a new car.
These trends are not only impacting the consumers of the automotive industry but the industry players as well. Lynn Franco, Senior Director of Economic Indicators at the Conference Board said, “Consumers are feeling a lot of angst over the cost of cars. Not just the rising prices but also the fact that people are keeping their cars longer and longer. It does not bode well for automakers nor auto dealers”. Campau, an associate director in S&P Global Mobility, states that older cars are now becoming available for the third or fourth-owner than in the past, indicating a shifting market pattern.
The trend of hanging on to old cars has helped the independent vehicle service industry grow, which expectedly will receive a positive trend on repair opportunities from an increasing volume of over six years of cars. This trend of postponing new car purchases is driving the popularity of new ride-share programs as well. A Morgan Stanley report states that ride-share platforms, including taxis and ride-hailing services, will likely increase prevalence among older drivers, who are more likely to postpone purchasing a new car. Uber, a major ride-share service provider, indicated this trend by reporting a net income of $1.14 billion in the second quarter. The report attributed this income boost to the pandemic’s progress, which forced people to delay or avoid buying and riding in new vehicles.
However, as the report suggests, this trend is likely to receive a reality check due to the expected rise in new-vehicle sales surpassing 14.5 million units in 2023. The National Automobile Dealers Association also predicts new-vehicle sales will reach 15.7 million in 2022, further indicating a shift in the current market trend.
Despite industries’ concerns, Americans appear content to hold onto their old vehicles for the time being. The result is a surge in the independent vehicle service industry and a drop in new car dealership sales. The choice between repairing or buying a new car has become more challenging than ever in the past few years. Until new-vehicle prices surge, this trend appears to continue, individual models in demand will come at a premium, making a used car worth more than a newer one, at least for now.
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