In the past year, the average age of vehicles in operation in the United States has crossed the 12-year threshold. According to IHS Markit data, the current average age of vehicles in the country now stands at 12.1 years, almost two months older than in early 2020. The cause of the average age increase, of course, was the pandemic.
New vehicle registrations plummeted not just in the US but worldwide during 2020. Here at home, the drastic reduction in sales combined with an increase in the number of vehicles being taken off the road to push the average higher. It might sound counterintuitive for scrappage to increase average vehicle age rather than decrease, but the number also reflects vehicles put into storage or with registrations lapsed.
“2020 was a radical departure from the norm and challenged assumptions about how vehicle owners use their vehicles and accumulate miles; from a vehicle fleet perspective, one of the real surprises was the number of vehicles that suddenly exited the active population,” said Todd Campau, associate director of Aftermarket Solutions at IHS Markit.
A blip on the radar
It’s expected that two lingering effects will continue to push the average age of vehicles in operation slightly higher in 2021. The ongoing chip shortage that plagues automotive manufacturing will suppress new car sales and deliveries this year, forcing some car buyers and fleets to hold onto their cars a little longer than they normally would. As well, the shifting workforce habits that include working from home and higher unemployment rates could prevent select car owners from renewing their car registration, or they might even get rid of their cars.
Campau states, “The microchip shortage and subsequent inventory levels for new vehicles have created a situation in which used vehicle values have gotten extremely high, so a vehicle owner who may have kept a vehicle in the garage that they were not using in 2020, now instead may take advantage of the opportunity to either reduce the number of vehicles in their garage or trade up to something newer while the demand and value is extremely high on their used vehicle.
“This is great news for the aftermarket as subsequent vehicle owners typically have a higher propensity to use independent repair shops for necessary maintenance and repair.”
As employment continues to stabilize and manufacturing is expected to regain some normalcy later this year, another burst of new car sales is likely to push the average vehicle age back down.
Target service revenue
Unlike other market influences, the average age of vehicles in operation won’t pull back much when its correction happens. As well, it will be several months before it returns to a sub-12-year average and the potential for a return to 2014’s 11.4-year average is a very long shot. That’s good news for service departments and independent repair shops in the US.
Shops should continue to drive traffic for aging vehicles – that’s where the revenue is. It’s notoriously difficult to attract older vehicles to franchised dealership service departments since car owners have the engrained belief they’re overpriced, but concentrated marketing that targets owners with vehicles over five years old could bring in much-needed service work. Offering a discount on cars over a certain age or mileage may lower ELR but the resulting volume can be expected to boost gross profit.
However it’s done, service departments and repair shops have an opportunity for increased profitability with the higher average age of vehicles on American roads.
Did you enjoy this article from Jason Unrau? Please share your thoughts, comments, or questions regarding this topic by submitting a letter to the editor here, or connect with us at firstname.lastname@example.org.
Be sure to follow us on Facebook and Twitter to stay up to date or catch-up on all of our podcasts on demand.
While you’re here, don’t forget to subscribe to our email newsletter for all the latest auto industry news from CBT News.