The average vehicle age in the United States has risen to an all-time high. While exceptional manufacturing leading to longer automobile lifespans could be a factor, the major culprits have been the sizable price tags and ballooning borrowing costs. Vehicle ownership has now transformed into a luxury for millions of people.
US Vehicle Age Record High
According to new data from S&P Global Mobility, the average age of cars and light trucks in the United States is 12.6 years, up by two months in 2023. A deeper dive into the report shows the average age of cars is 14 years, and light trucks is 11.9 years. Market analysts note that the increase in average vehicle age is potentially slowing as new car registrations normalize, presenting improved opportunities for the auto industry. In the meantime, repair shops are booming.
"With average age growth, more vehicles are entering the prime range for aftermarket service, typically from 6 to 14 years of age," said Todd Campau, aftermarket practice lead at S&P Global Mobility, in the report. "With more than 110 million vehicles in that sweet spot — reflecting nearly 38 percent of the fleet on the road — we expect continued growth in the volume of vehicles in that age range to rise to an estimated 40 percent through 2028."
Experts assert that various factors have contributed to the growth in the average vehicle age, such as motorists waiting to determine if they should transition to an electric vehicle or automakers producing better products. Of course, the most significant influencing factor is price.
Calculating Car Ownership Costs
How much does it cost to purchase a new automobile? According to the latest data from Edmunds, the average price paid for a new car is more than $47,000. J.D. Power estimates it is a little more than $45,000. Since January 2021, new car and truck prices have rocketed at a cumulative rate of 20%. Of course, this is the upfront sticker shock. Should motorists finance the latest model, they better be ready to hand over an arm, leg, kidney, and perhaps a soul (depending on the dealer).
Bankrate, using fourth-quarter data from the Experian State of Automotive Finance Market, crunched the numbers. Analysts found that monthly car payments for new cars average $738 based on three factors: a $40,366 loan amount, a 7.18% interest rate, and a loan term of 67.87 months.
“The $35,000, six-year loan at an eight percent rate costs more than $44,000. Yet the vehicle will only be worth about one-third of what you paid for it six years from now," explained Greg McBride, the chief financial analyst at Bankrate. "Vehicle costs can be budget-busters that become difficult to get out from under."
Indeed, in the final quarter of 2023, about a fifth of new vehicle sales containing a trade-in maintained subzero equity, and negative equity values surged to a record high of more than $6,000.
A storm is brewing in the US marketplace, as depicted in the latest Federal Reserve Bank of New York study. The regional central bank’s first-quarter Quarterly Report on Household Debt and Credit highlighted that total auto debt exceeded $1.6 trillion and flow into serious delinquency (90 days or more) rose to 2.78%. Private estimates for subprime car loan borrowers at least 60 days past due topped 6% to finish 2023.
Will New Car Prices Fall?
Recent trends suggest that affordability might not be restored for a long time. While Kelley Blue Book data indicate that the average transaction price for new cars rose by 2.2% month-over-month in April to $48,510, the increase was flat compared to the same time a year ago. Additionally, new vehicle affordability slipped in April "as manufacturers and dealers were less aggressive on promotions and discounting than they were for the quarter end." The only area of the car market where drivers see relief is in the used-car segment, with prices slumping 10% year-over-year. Believe it or not, pre-owned electric vehicles are the ones getting cheaper.
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