Prices of new vehicles have been going up. At the same time, financing terms have been getting longer. So, it is not a surprise that people have been hanging on to their vehicles even longer. According to IHS Market, their research shows that the average age of light vehicles in operation is at 11.9 years in the United States. That is about one month older than in 2019.
Three contributing factors to longer ownership
There are three things that can be extrapolated from the longer ownership period. First, people may be shying away from new car pricing and looking instead at used cars for their next purchase. According to Kelly Blue Book, the average purchase for a new vehicle in the United States hit $38,530, in June. Just one year ago, it was 3.1% lower. Second, people are hanging on to the vehicles they own longer before jumping into the next big loan. Lastly, cars are being built better over time. There are more cars than ever hitting 200,000 miles. So, this is contributing to the longevity of a person’s car ownership experience.
The COVID-19 variable
One other factor is contributing to longer ownership, COVID-19. People have not been as pressed to trade their vehicles in because commuting to work is not happening like it was before. According to Todd Campau, the Associate Director of Aftermarket Solutions at IHS Markit, said,
“…the COVID-19 pandemic has created the perfect storm to accelerate U.S. light vehicle average age in coming years. This should be a positive side effect for the aftermarket, as the majority of repairs for older vehicles come through the aftermarket channel.”
Mr. Campau continued with his analysis,
“IHS Markit anticipates significant upward pressure on average age in 2020 and subsequent years as consumers work toward a new normal both economically and in how they use their personal vehicles in a post-COVID-19 era,”
Mr. Campau also says,
“While work from home policies may continue for some time, there also has been increased reluctance in the use of public transit and ride-sharing, and many consumers are opting for road trips instead of air travel for summer vacations. As a result, vehicle miles traveled (VMT) may not be impacted greatly in the coming years, given the increased personal use to offset everyday commuting.”
New car sales drop, confirming longer ownership periods
Seemingly confirming the IHS report, a joint forecast prepared by J.D. Power and LMC Automotive, and released yesterday, says July’s new-vehicle retail sales are projected to be lower than July 2019. A 9.5% reduction is what is anticipated when compared to last year. Interestingly though, the average transaction price has risen. So have vehicle prices.
Overall, the car ownership experience is getting longer. Until the world gets a better handle on the unpredictable reality that is COVID-19, it is conceivable that the average age of 11.9 years will continue to grow month by month. The shaky global economy will likely mean people will hang on to their vehicles until they feel more comfortable about the stability of their paycheck. But, if forced to buy something, the consumer will probably give a used car a second glance, whereas before, they might have scoffed at the idea. If not, they might repair or update their current ride. Either way, it looks like new car sales are taking a hit for the near term until a new norm is figured out.
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