Thinking of buying a new car? Well, you're part of a rare breed.
Buying a new car can be one of the most expensive purchases for most consumers, right behind keeping a roof over their heads.
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Car prices rose dramatically in 2022 as a result of global supply chain issues, J.P. Morgan (JPM) said in a January report, with a persistent chip shortage holding up production in the auto industry.
Ryan Brinkman, J.P. Morgan’s lead automotive equity research analyst, said in a statement that the group estimated "half of the increase in new vehicle prices relates to the passing along of higher input costs."
More recently, the average price of a new car in the US rose to $48,008 in March up 30% from March 2020, according to Kelley Blue Book.
The spiraling price tag of a new ride means there are more older vehicles out on the road.
Cars Are Getting Older
The average age of cars and light trucks in the U.S. has risen again this year to a new record of 12.5 years, up by more than three months over 2022, S&P Global Mobility said.
This marks the sixth straight year of increase in the average vehicle age of the U.S. fleet.
It also reflects the highest yearly increase since the 2008-2009 recession, which boosted the average age beyond its traditional rate due to the sharp decline in new-vehicle sales demand.
Retail and fleet sales of new light vehicles in the US dropped 8% from 2021's 14.6 million units to 13.9 million units in 2022, the lowest level recorded in over a decade.
With more older vehicles on the road will benefit the vehicle service industry, since an older fleet means vehicles will continue to need repair work and service.
Todd Campau, associate director of aftermarket solutions for S&P Global Mobility, said there are almost 122 million vehicles in operation over 12 years old.
That's an awful lot of cars when you realize there are more than 284 million vehicles in operation on U.S. roads.
Light Trucks Continue to Sell
"Traditionally, the 'sweet spot' for aftermarket repair was considered 6-11 years of age, but with average age at 12.5 years, the sweet spot for aftermarket repair is growing," Campau said.
Vehicles older than six years will account for more than 74% of the vehicle fleet in 2028, S&P estimated.
However, despite economic headwinds, S&P estimated that new vehicle sales will surpass 14.5 million units in 2023.
"While pressure will remain on average age in 2023, we expect the curve to begin to flatten this year as we look toward returning to historical norms for new vehicle sales in 2024," Campau said.
Meanwhile, light truck and utility growth has been going up for the last several years, S&P said, with 78% of all new vehicles registered in the U.S. last year were in this category.
Within the next 18-24 months, the total volume of passenger cars – sedans, coupes, wagons, hatchbacks – on the road in the U.S. could drop below 100 million for the first time since 1978, S&P said.
This strong consumer preference for light trucks over cars points to a growing business potential for the vehicle service industry, as light trucks and utilities generally cost more to maintain than cars, and people also tend to keep them longer.
