In 2021, the average age of vehicles on the road in America
reached a record 12.1 years. Cars are getting faster, safer,
more tech heavy, and the average age of a vehicle in the US is
rising.
It has been increasing for really ever since we've been
recording it.
Two big reasons for this say industry analysts cars have been
growing more durable and more expensive. Drivers are holding
on to their cars longer and cars are spending more time in the
used vehicle market before they head to the junkyard.
I have a 1993 80-series Land Cruiser that I bought brand new
28 years ago and it has 215,000 miles on it and the engines
never been apart. I have serviced the vehicle regularly
and faithfully
Many buyers especially those with less money to spend are
seeking out used vehicles as new vehicle prices climb.
There is some concern that this is going to reduce the churn
rate or the number of folks that are going to be buying a new
vehicle.
So far though, plenty of Americans seem to be buying new
cars. New vehicle sales reached a record high of 17.5 million in
2016. And the number of vehicles per household has gradually
increased over time even as vehicle age has risen. But every
driver that chooses to hold on to a car for another year is
postponing a trip to the dealership and some industry
analysts wonder if rising vehicle ages and prices indicate
trouble for new car sales in the future. Automakers are stuffing
cars with new technology and improvements, but will that be
enough to keep buyers wanting the latest and greatest.
In the 1970s, a car would be expected to last at most 100,000
miles. At that time vehicles had five digit odometers so the
typical odometer only went up to 99,999 miles. But now it is
typical for cars to last well over 100,000 miles and many will
make it to 200,000 or more. 25% of the cars on the road in the
US are at least 16 years old. There are some cars that last an
especially long time iSeeCars a search engine for car shoppers
publishes a list of the longest lasting vehicles and brands on
the road. In order to make the list at least 2.5% of the cars
with a certain nameplate have to make it to the 200,000 mile mark
about 1% of the average vehicle model well make it past 200,000
miles. But some models are disproportionately represented
among higher mileage vehicles, SUVs and trucks from Toyota,
Honda, and General Motors. The Toyota Land Cruiser a favorite
vehicle of offroaders United Nations forces and wealthy SUV
buyers tops the list. More than 16% of Land Cruisers on the road
have at least 200,000 miles on the odometer. It is followed by
another large Toyota SUV, the Sequoia.
Then when you go to the third vehicle, which is the Chevrolet
Suburban, you're now at 5%. So the first vehicle on the list
has three times the percentage of models with 200,000 plus
miles versus the third vehicle on the list showing how A)
quickly it drops from the first few vehicles on the list and B)
how truly unique and capable and durable the Toyota LandCruiser
is. It really stands out even among this group.
Toyota especially has a reputation for making cars that
last a very, very long time.
We have 100 vehicles on display right now in the building and
quite a few of them have an awful lot of miles on them, over
200,000 miles 300,000 miles. We have one Japanese market Land
Cruiser Prado that was a highway service vehicle and it has over
420,000 miles on it with the original engine in the frame and
it runs beautifully.
One Toyota owner's full size Tundra pickup lasted for more
than a million miles for example, the automaker bought
the truck back and gave the owner a new one.
It's pretty clear that Toyotas have not just a reputation for
durability, but a proven track record of durability just just
by glancing at this list. Typically the cars on this list
especially at the top of the list are body on frame cars you
see a lot of body on frame vehicles here and you see a lot
of Toyotas. Of course the Land Cruiser is both it's a body on
frame Toyota, and the next vehicle on the list the Toyota
Sequoia is a body on frame Toyota.
Consumer Reports also publishes a list of 10 cars it says are
most likely to make it to the 200,000 mile mark and it is
populated entirely with Toyotas and Hondas. It is important to
note that just because a car is not on the iSeeCars list doesn't
mean it is not reliable. Porsche for example, has a strong
reputation for reliability, but might not make it onto a list
like this because Porsche owners often drive their cars
conservatively to keep mileage low. In addition to being more
durable cars are also becoming more expensive. In December
2020, the average price of a new vehicle in America reached a
record $38,000. Average new vehicle prices have been
bouncing around the mid $30,000 range for several years. As this
has happened, automakers have also appeared to trim their
portfolios of lower priced vehicles. In 2013, sales of cars
costing less than $20,000 made up 20.1% of total annual new car
sales. By 2020, that figure was 9.4%. Customers who are priced
out of buying new cars are likely to turn more and more to
use vehicles. But many owners are simply foregoing car
purchases altogether preferring to hold on to their cars for
another year or two.
Part of what makes it easier to hold on to vehicles longer is
the availability of parts of the internet even for obscure or old
cars. There are opportunities for shops even dealers to
provide services to cost conscious car owners looking to
delay the purchase of a new vehicle.
Fix operations of repair and servicing of vehicles is gonna
be an important part of dealers operations, and probably a
growing more important part of dealer operations. Because all
of these vehicles are going to need repairs. If you're going to
have a vehicle for 10 years or longer, you're probably going to
be visiting your car dealer more and more to try and repair all
the little issues that may pop up on that vehicle.
Outside of the vintage or classic car markets, consumers
might not be used to thinking of their cars as investments after
all cars are typically depreciating assets. But the
sheer cost of buying a new vehicle might make it more
appealing for consumers to put money into the cars they already
own. Even making major changes like swapping in a new engine.
So these trends could mean less demand for the new cars that
roll off assembly lines every year. So far, demand for new
vehicles hasn't waned, despite the rising age.
You think average age would lower the number of
opportunities for sales. But it doesn't seem to have done that.
It's been good news across the board for new vehicle dealers
used dealers and the service channel as well.
And there are reasons to think plenty of buyers will still want
the latest and greatest in new technology and features.
Lots of folks out there don't want to own a vehicle for 10
years, they want to keep a new vehicle around, they don't like
getting over a certain amount of mileage. And so those folks come
back to the market every three, five years, much more
frequently.
Automakers have a number of levers they can pull to induce a
customer to swap out their current vehicle for a new one.
New safety systems, better fuel economy, infotainment features,
cameras, and sensors can all entice buyers
Just like the iPhone 10 has to be substantially better than the
iPhone 9 for anybody to want to shell out another $1,000 to get
the latest and greatest much is the same in the new vehicle
market as well as in the used vehicle market. But that new
vehicle has to be substantially different than its used
counterpart, because folks are able to buy that use vehicle for
a substantial savings off the new vehicle price.
Automakers have always freshened their products from year to
year, but the pace at which they're doing so seems to be
accelerating.
The industry is finding that there's a lot of technology to
add on these vehicles. So the pace of of new components, new
capabilities, is constantly improving as well. And all of
that makes the vehicle market a much more rapidly changing
industry than it was just a few years ago.
There are a few short term reasons to think Americans might
hold on to their vehicles a bit longer.
The way people interact with their cars may be changing.
People staying at home more often for work than they have in
the past may actually cause people to consider if they need
that additional vehicle or if maybe we might actually see a
catalysts on the horizon for that approach to maybe reverse a
little bit where people decide they don't need quite as many
vehicles or maybe they want different vehicles for more
recreational purposes.
New vehicle sales hit a historic high of 17.5 million units in
2016. Since then they have been falling. Vehicle sales in 2020
were an especially low 14 million due to lock downs,
production stops, and shortages of critical supplies such as
microchips. That means there is a smaller supply of both new and
new-ish used vehicles coming into the market, including
expired leases, or cars tossed from rental fleets. But there is
another change coming, the rise of the electric vehicle.
Technology is changing so quickly that an EV made one year
might be pretty obsolete in a very short time. Consider how
much electric vehicle ranges have risen in the last several
years.
There's products out there right now that only have a range of
150 miles. Future products are suggesting they're going to have
ranges above 400 miles.
The upside is that it might bring more customers into the
market more frequently. The challenge is figuring out what
the residual values of EVs will be. It also might make customers
skittish to buy an electric vehicle in the first place.
If you bought an iPhone 5 Are you willing to sit with that
iPhone for 10 years till the iPhone 15 comes out. God knows
all of the capabilities that you'd be missing out on from
sticking to this technology at an early stage. Well, that's
what we're asking electric vehicle buyers to do. The
technology is still moving very quickly.
Nearly every major automaker is pursuing an EV strategy. But the
very rapid change and the pace of technological development
poses questions of vehicle value for dealers, banks, and
customers.
What is the value of a vehicle that gets half the range of a
new product that's coming out. And I think this is one of the
issues that the industry is struggling with. These retention
values are an important part of the industry, especially for the
financing side. Because the lending companies can't really
lease to a vehicle if they don't know what the residual values
are. Lenders may be reluctant to loan money to you if you're
going to buy a vehicle if they don't know what these values
are. So all of that can be very disruptive to the purchasing
side of the industry. And yet, with so much volatility in the
technology and development that's going on a daily basis,
it's going to be a moving target to try and estimate what these
retention values really are.
One solution for this says Chesbrough is vehicle
subscriptions, an idea that has been delved into a bit but not
yet fully explored. Subscription plans vary, but overall are
similar to leases with some important differences. They are
often more inclusive of the total cost of ownership. For
example, many subscription plans come with registration,
insurance, and maintenance costs bundled into the fee, so owners
don't have to account for those separately. Subscription plans
also allow customers to swap out one vehicle for another, for
example, a newer or different model as the customer's needs
change. Plans like these might allow buyers to sample new
vehicles such as electric cars without worrying that their
investment might be a bad one. And it might enable a car with
rapidly obsolescing technology to stay on the road a bit
longer. The European Union has said it plans to start phasing
out the sale of new internal combustion vehicles by 2035. New
York and California have recently set similar targets.
Higher fuel prices or fees such as a gas guzzler tax on
especially thirsty vehicles may turn consumers away from gas
cars shortening their usable lives.
The Covid 19 pandemic has changed what kinds of cars
people are buying. Sales of RVs and vehicles such as ATVs, and
dirt bikes have shot up and the transition away from passenger
cars and toward light trucks has quickened. These are signs
buyers are rethinking what kinds of cars they want to own,
especially as they continue to face the possibility of working
from home for a time. Others may simply be sitting on the
sidelines altogether, waiting to see what the future holds in
terms of new technology and their own needs. Millions of
Americans every year decide they want to plunk down the cash for
a brand new car but for many others there is nothing like
driving around a beloved old one.