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.
