Average vehicle age rises; car shoppers buy used, delay new purchases

by Jeff Della Rosa ([email protected]) 1,250 views 

Over the past decade, the average age of vehicles in U.S. households has risen to nearly 11 years old as buyers turn to the used car market or delay purchases of new vehicles.

In July, new vehicle sales declined to a seasonally adjusted rate of sales of 16.7 million vehicles after maintaining a rate of more than 17 million vehicles over the past four consecutive months, according to J.D. Power Valuation Services. Also in July, the average new vehicle price rose $985, or 2.9%, to $35,359, from the same month in 2017, and Tim Fleming, analyst for Kelley Blue Book, expects new vehicle prices to continue to rise as the average days of vehicle inventory has started to fall for the first time this decade.

“The high prices are keeping folks out of the new car market,” said Jeff Williams, president and CEO of Bentonville-based America’s Car-Mart.

The average vehicle age is 10 years for the buy here, pay here used car dealer, and Williams expects the average age of vehicles in U.S. households to continue to rise as vehicle quality improves.

“Not that many years ago 100,000 miles was considered high mileage and end-of-life, but now there is a lot of life left in the car,” he said.

While prices increased in July, consumer demand for new cars declined, Fleming said. The daily selling rate for cars fell 13.8%, from July 2017, while the rate for trucks increased 8.5% and accounted for 69.5% of the total market, a record high, according to J.D. Power Valuation Services. The market share for trucks might surpass 70% by the end of the year.

Between 2009 and 2017, the average age of vehicles in U.S. households has risen from 9.3 years to 10.5 years, according to the 2017 National Household Travel Survey. This suggests that many households have delayed buying a new vehicle or purchased a used vehicle and the continuation of a trend that households are operating vehicles longer. The trend includes all vehicle types, especially pickups, vans and sport utility vehicles, and could have implications on fuel consumption because newer vehicles tend to have better fuel economies.

Fuel economy has continued to rise because technology has improved across all vehicle types, according to the U.S. Environmental Protection Agency. And recently, spending on vehicle repairs and maintenance has increased, according to data from the Bureau of Labor Statistics. Households with lower incomes often have older vehicles compared to those with higher incomes, but since 2009, the gap has narrowed. The average age of vehicles used by higher-income households has risen more than those used by lower-income households. Between 2009 and 2017, the average age of vehicles rose from 7.3 to 8.9 years for households earning $100,000 or more. Over the same period, the average age of vehicles rose from 11.9 to 13 years for households earnings less than $25,000.

Over the past year, used vehicle prices have been rising and have remained strong throughout the summer, according to J.D. Power Valuation Services. In July, wholesale prices of vehicles up to eight years old usually decline 2%, from the previous month, but they fell 0.5%, from June. The strength in the used vehicle market can be attributed to an increased dealer focus on used vehicle operations and vehicle affordability.

On Aug. 20, shares of Car-Mart (NASDAQ: CRMT) reached a 52-week high of $89.85 after the company on Aug. 16 reported net income rose 55.7% to $10.874 million, or $1.53 per share, in the first quarter of fiscal 2019 that ended July 31. Revenue rose 12% to $164.015 million, and earnings and revenue beat estimates. In the period, vehicle sales rose 5.9% to 12,533, and average retail sales price increased 6.1% to $11,015, from the same period in the previous year. The sales price rose in part because of an increase in sales of SUVs and trucks and in vehicle purchase prices, said Vickie Judy, chief financial officer.

On Aug. 23, Car-Mart’s share price closed at $83, down 35 cents, or 0.42%. In the past 52-weeks, the stock has ranged between $89.85 and $36.50.

In 2018, used vehicle prices are expected to rise 1%, according to J.D. Power Valuation Services. Factors that could hurt the used vehicle market include new vehicle incentives, increased used vehicle supply, decreasing credit conditions and rising gasoline prices. Automakers increased incentive spending for the 40th consecutive month in July to $3,776 per vehicle, from $3,640 in July 2017, according to Autodata.

However, positive factors such as favorable labor conditions, increasing home prices and long-term improvements to vehicle quality will offset the negatives.