Average Age of Cars and Light Trucks in the U.S. Approaches 12 Years, According to IHS Markit

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New research from IHS Markit (NYSE: INFO) shows that the average age of light vehicles in operation (VIO) in the US has risen to 11.9 years this year, about one month older than in 2019. Though slight, the increase can generate new business opportunities for companies operating in the aftermarket and vehicle servicing sector in the United States.

Several factors have contributed to push U.S. average vehicle age higher, according to the analysis. While vehicle scrappage rates have increased and would be expected to cause average age to drop, the growth in new vehicle sales has plateaued. Having fewer new vehicles added to the U.S. vehicle population has offset the potential drop in average age.

COVID-19 accelerating an already established trend on vehicle age

Underlying weakness in several segments of the market, combined with increased vehicle prices, provided upwards pressure on average age of vehicles, as consumers weigh their cyclical goods expenditure, opt for longer-term financing options or hold onto their vehicles for a longer period of time.

“At the start of 2020, all signs were pointing to moderate growth of the average age of vehicles through the first half of the decade, and there was certainly growing pessimism about how long the strong economic fundamentals could last,” said Todd Campau, associate director of Aftermarket Solutions at IHS Markit. “However, the COVID-19 pandemic has created the perfect storm to accelerate U.S. light vehicle average age in coming years. This should be a positive side effect for the aftermarket, as the majority of repairs for older vehicles come through the aftermarket channel.”

New vehicle sales provide the pipeline for young vehicles coming into the marketplace. Prior to the pandemic, sales in the U.S. were already trending downward, representing just 6.1 percent of vehicles in operation in 2019, compared to 6.7 percent in 2016, the last record-setting sales year. Given the latest IHS Markit forecasts for the further slowdown in light of COVID-19, US new vehicle sales in 2020 are expected to account for 5 percent or less of all vehicles on the road in 2020. Declining new vehicle share in the overall population means fewer younger vehicles to temper average age growth.

Scrappage is the measure of vehicles exiting the active population. In 2019, scrappage rate as a percent of vehicles on the road was 5.1 percent, while in record sales year 2016, was just 4.6 percent. An interesting comparison year for 2020 would be 2009 when new vehicles sold represented 4.2 percent of vehicles in operation (VIO) and scrappage stood at 5.2 percent, resulting in a rapid increase in average age, increasing by 4 months throughout that year.

“IHS Markit anticipates significant upward pressure on average age in 2020 and subsequent years as consumers work toward a new normal both economically and in how they use their personal vehicles in a post-COVID-19 era,” said Campau. “While work from home policies may continue for some time, there also has been increased reluctance in the use of public transit and ride sharing, and many consumers are opting for road trips instead of air travel for summer vacations. As a result, vehicle miles traveled (VMT) may not be impacted greatly in the coming years, given the increased personal use to offset everyday commuting.”

In light of COVID-19, dynamics of the changing vehicle fleet are anticipated to result in an increase in average age over the coming years, perhaps of 4-6 months, according to the analysis. In turn, more vehicles will be pushed into the aftermarket sector’s “sweet spot” – thereby creating good business opportunities. However, in the near term, with VMT dropping in recent months to levels not seen in years, given the various stay at home orders across the country, some aftermarket businesses have been substantially impacted. This has increased pressure on product supply streams and revenue which rely on this critical utilization metric.

280 million vehicles on the road still good news for aftermarket sector, with a few caveats

The U.S. vehicle population this year exceeded 280 million vehicles, according to IHS Markit, up just 1 percent from 2019. Overall, a growing fleet with increasing vehicle age presents a larger addressable market and opportunity for the aftermarket sector. However, opportunity size and its emergence largely depends on the distribution of the population of vehicles across different age categories.

Based on the analysis, the volume of vehicles 6 to 11 years old is expected to expand, which presents major opportunities for the sector due to dealer service plans and warranties expiring, netting new business opportunities for independent service and repair shops. Volumes of vehicles 12 to 15 years old, which have been an increasing source of revenue for the aftermarket, are expected to contract as aftermath of the lower volumes during the 2008-09 recession, which are still working their way through the vehicle population.

The impact of COVID-19 on vehicle average age is not expected to be uniform across the country, as vehicle age in some states will rise more rapidly while other states will stay closer to pre-pandemic norms. For aftermarket companies to capitalize most effectively on the opportunities created by the pandemic it will be beneficial to understand the nuances from one region to the next and be nimble enough to react accordingly at the local level.

About IHS Markit(www.ihsmarkit.com)

IHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

Automotive offerings and expertise at IHS Markit span every major market and the entire automotive value chain—from product planning to marketing, sales and the aftermarket. For additional information, please visit www.ihsmarkit.com/automotive or email automotive@ihsmarkit.com.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2020 IHS Markit Ltd. All rights reserved.

Editor’s Note: Average age and vehicles in operation based on a snapshot of vehicles in operation on Jan. 1, 2020, the most recent analysis from IHS Markit.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200728005200/en/

SOURCE: IHS Markit

Michelle Culver

IHS Markit

+1 248 728 7496

michelle.culver@ihsmarkit.com

Press Team

IHS Markit

press@ihsmarkit.com

COMTEX_368536283/2456/2020-07-28T07:00:14

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The MarketWatch News Department was not involved in the creation of this content.

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