The price of new and used cars remains high, with many car owners planning to delay selling their vehicles, along with rising borrowing rates and high inflation cutting into many Americans’ expenses.
The average age of a passenger vehicle in the United States hit a record 12.5 years in 2023, according to data gathered by S&P Global Mobility.
A sudden push by the government to encourage a transition towards electric vehicles and the supply chain crisis has triggered a global shortage of automotive semiconductor chips.
These vital chips are now essential to run most existing cars on the road today, to operate everything from radios to gas pedals, to transmissions.
The component shortage drastically slowed global assembly lines, making new vehicles scarce on dealer lots when consumers were increasingly eager to buy.
Cars Becoming Too Expensive
Although prices have eased from their record highs, the average cost of a car has become too expensive for many Americans, especially when considering higher loan rates.The average cost of a new vehicle has soared 24 percent to nearly $48,000 as of April, according to Edmunds, the car shopping guide.
Meanwhile, the typical loan rate for a new car purchase has ballooned to 7 percent due to the Federal Reserve’s aggressive interest rate policy to combat and lower high inflation.
The national average monthly auto loan payment has surged to $729 since 2020, well beyond the means of millions of struggling Americans.
Analysts told S&P that most families living at median U.S. household income levels could no longer afford new car payments while also paying for housing, food, and utilities.
Even the average price of a used vehicle has increased by 40 percent since the pandemic to almost $29,000.
The average loan rate has reached 11 percent, while the typical monthly used-vehicle payment is now at $563.
Auto Repair Business Booms
With vehicle prices climbing, more owners are willing to stick with their old vehicles, even if the maintenance and repair costs are high.“The repair-versus-buy equation changed,” said Todd Campau, an Associate Director at S&P.
Even with rising repair costs, it is usually more cost-effective to fix an older vehicle than buy a new one, said Campau.
Average Car Price Up
The average vehicle age has been rising since 2019 and has accelerated greatly this year over the past three months.
Campau noted that although most cars are 12.5 years on average, an increasing amount of vehicles are now on the road for 20 years or more, with a few having three or four successive owners.
Many of those vehicles on their third or fourth owner are aging on average more than in the past, with nearly 122 million vehicles on the road over a dozen years old.
It is predicted that the number of older vehicles will continue to rise by 10 million by 2028, said Campau.
S&P also predicts that new vehicle sales will hit 14.5 million this year after falling to about 13.9 million in 2022, mainly due to rising stocks of cars after a shortage.
Automakers are beginning to restore some discounts that have traditionally benefited car buyers, leading to an increase in sales in the first half of 2023.
This could actually slow the advancing age of cars in the United States, but most experts are not predicting a return to pre-pandemic sales of around 17 million a year in the near future.
Discounts will only have some effect, as new vehicle prices are likely to remain much higher than pre-2020 levels for now.
