The average car on the road is now 11 years old, according to Experian Automotive.
- Quality is better. Cars don’t need to be replaced as often. Earlier this year, J.D. Power and Associates said in its 2012 Vehicle Dependability Study that 3-year-old cars had the fewest problems on average since the study began, in 1990. Many brands got scores for 3-year-old cars that would have been great for new cars a decade ago.
- Consumers are worried. Jobs, the housing market, and the slow pace of recovery are on the short list of worries. Stating the obvious, worried consumers are less likely to plunk down money on a new car.
- Leasing fell out of favor. This concept is a little esoteric, but significant. Leasing fell out of favor in the recession, with auto lenders and with consumers. That served to lengthen the average trade-in cycle, because customers who take out a loan keep their cars longer. According to J.D. Power, the average trade-in is now more than six years old.
Leasing has largely come back, but that earlier drop is still affecting the market.
Auto lenders own leased cars and trucks throughout the lease. At lease end, consumers can buy them, or dealers can buy them to sell at retail. Or, consumers simply turn the cars back in at the dealership, and they end up back in the hands of the auto lender. In that case, the lenders typically auction them off.
The car companies and their “captive” lenders got badly burned – several car companies were forced to write off billions of dollars – when gas prices spiked in 2008, and the actual resale value of vehicles coming back from leases fell far below what the car companies expected.
Several auto lenders responded by quitting leasing entirely, especially banks, and most auto lenders cut way back on leasing. Even many of the captive finance companies cut back on leasing. Leasing has since come back, but slowly.
Meanwhile, many consumers decided they would rather buy than lease. Leasing is fine for a customer who doesn’t drive too many miles per year, and who wants a new car every two, or three, or four years.
But the leased car is never paid for. If you buy a car or truck, the monthly payment will be higher than a comparable lease while the loan lasts. But eventually the loan is paid off, and the monthly payment goes to zero. That never happens in leasing.
The net result is that Experian Automotive announced recently that the average vehicle on the road in the United States in the first quarter of 2012 was 11 years old, up 1.9 percent from the same quarter a year ago. That’s a sharp increase in only one year, considering there were more than 245 million vehicles on the road – or “vehicles in operation,” to use Experian’s term. The auto industry also uses the term UIO, for “units in operation.”
For new-car sales to accelerate more than they already have, the auto industry needs more of those old cars to head for the junkyard.