The U.S. auto market has recovered nicely from the dark days of the financial crisis. Barely 10 million new vehicles were sold in 2010, versus 17 million in 2000.
Currently, the carmakers are on pace to nearly match 2000 by the end of this year. Sales data for July is being released by car companies through the day, and it looks like a projected 16.7-16.9 million new cars and trucks could roll off dealer lots by the end of the year.
This rapid bounce-back has enabled the the U.S. to blast right through what industry observers call the “replacement rate” of around 15 million new vehicles sold per year.
So what’s turbocharging the market’s performance?
Some contrarians, such as Morgan Stanley analyst Adam Jonas, argue that the surge in sales is fuelled by low interest rates and by the willingness of lenders to finance car loans for customers with subprime credit.
But there’s another critical factor: vehicle age.
The average age of a car or truck on U.S. roads is at an all-time high of 11.4 years, reported the Los Angeles Times’ Jerry Hirsch, citing a study by IHS Automotive. By 2019, the average age could climb to nearly 12 years.
Cars are better than they used to be, so that explains some of this trend. But people are also hanging onto their vehicles for much longer than they have historically.
But even though it can be rewarding to drive a bought-and-paid-for set of wheels until…well, the wheels fall off, most Americans don’t want to do that. For one thing, an 11-year-old car is a technological dinosaur by comparison with a new vehicle.
Think about it: In 2003, GPS navigation systems were only just beginning to show up in cars and the first iPod had only been around for a few years.
An 11-year-old-car could also be pushing 200,000 miles on the odometer, assuming normal driving patterns. If you’ve been fastidious about maintenance, you can keep such a relic running. Or you can do as I did recently and finally throw in the towel on your antique: a salvage company took my 1998 Saab 900S off my hands for the princely sum of $US300.
After a while, it just doesn’t make financial sense to spend hundreds if not thousands to keep a car on the road when you can reset the clock, buy a new car, and drive relatively problem-free for a few years.
With the average age of a car in the U.S. set to remain stable at around 11 years for the immediate future, this factor should continue to support new vehicles sales for a while.
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