Average Age Of US Cars Trends Upward As New Sales Plateau
Average age of cars and light trucks in the US is approaching 12, according to IHS Markit
New study from IHS Markit (NYSE: INFO) shows the average age of light vehicles in circulation (VIO) in the United States has risen to 11.9 years this year, about a month higher than in 2019 Although slight, the increase may generate new business opportunities for companies operating in the aftermarket and vehicle service industry in the United States.
Several factors have contributed to increasing the average age of vehicles in the United States, according to the analysis. While vehicle scrapping rates have increased and are expected to lead to a decline in average age, growth in new vehicle sales has stabilized. Having fewer new vehicles added to the US vehicle population offset the potential decline in average age.
COVID-19 accelerates an already established trend in vehicle age
The underlying weakness in several market segments, combined with rising vehicle prices, has put upward pressure on the average age of vehicles as consumers assess their cyclical spending on goods, opt for options longer term financing or keep their vehicles longer.
“At the start of 2020, all signs were pointing to moderate growth in the average age of vehicles throughout the first half of the decade, and there was certainly growing pessimism about the duration of strong economic fundamentals,” he said. said Todd Campau, partner. Director of Aftermarket Solutions at IHS Markit. “However, the COVID-19 pandemic has created the perfect storm to accelerate the average age of American light vehicles in the years to come. This should be a positive side effect for the aftermarket, as the majority of repairs to older vehicles go through the aftermarket channel. “
New vehicle sales provide the pipeline for young vehicles entering the market. Before the pandemic, sales in the United States were already on a downward trend, accounting for just 6.1% of vehicles in service in 2019, up from 6.7% in 2016, the last record year. Based on IHS Markit’s latest forecast of the new slowdown in light of COVID-19, new vehicle sales in the United States in 2020 are expected to represent 5% or less of all vehicles on the road in 2020. The decline The share of new vehicles in the overall population means fewer younger vehicles to temper the average growth in age.
Scrapping is the measure of vehicles leaving the workforce. In 2019, the percentage scrapping rate of vehicles on the road was 5.1%, while in the record sales year 2016 it was only 4.6%. An interesting comparison year for 2020 would be 2009 where new vehicles sold accounted for 4.2% of vehicles in service (VIO) and scrapping was 5.2%, resulting in a rapid increase in the average age. , increasing by 4 months throughout this year.
“IHS Markit predicts significant upward pressure on average age in 2020 and beyond, as consumers work towards a new standard both economically and in the way they use their personal vehicles in a post-COVID-19 era, ”Campau said. “While work-from-home policies may continue for some time, there has also been an increased reluctance to use public transit and carpooling, and many consumers are opting for car travel rather than car travel. plane for summer vacation. Therefore, vehicle-kilometers traveled (VMT) may not be greatly affected in the coming years, given the increased personal use to compensate for daily trips. “
In light of COVID-19, the changing dynamics of the vehicle fleet are expected to lead to an increase in the average age over the next few years, perhaps 4 to 6 months, according to the analysis. In turn, more vehicles will be pushed into the aftermarket sweet spot, creating good business opportunities. However, in the short term, with VMT falling in recent months to levels not seen in years, given the various home support orders across the country, some aftermarket businesses have been hit hard. This has increased pressure on product supply flows and revenues that rely on this critical use metric.
280 million vehicles in circulation remain good news for the aftermarket sector, with some caveats
According to IHS Markit, the vehicle population in the United States this year exceeded 280 million vehicles, up just 1% from 2019. Overall, a growing fleet with increasing vehicle age presents a broader addressable market and opportunities for the aftermarket sector. However, the size of the opportunity and its emergence largely depend on the distribution of the vehicle population across different age categories.
Based on the analysis, the volume of 6-11 year old vehicles is expected to increase, presenting major opportunities for the industry due to the expiration of dealer service plans and expiring warranties, creating new business opportunities for independent service and repair shops. Volumes of 12- to 15-year-old vehicles, which have been a growing source of revenue for the aftermarket, are expected to contract following declining volumes during the 2008-2009 recession, which continue to spawn a path in the vehicle population.
The impact of COVID-19 on the average age of vehicles is not expected to be uniform across the country, as the age of vehicles in some states will increase more rapidly while other states will stay closer to pre-pandemic standards. For aftermarket companies to make the most of the opportunities created by the pandemic, it will be advantageous to understand the nuances of one region to another and to be agile enough to react accordingly at the local level.