In 2011, the average age of cars and light duty trucks in operation reached a record 10.8 years, according to Polk. It’s an interesting statistic with implications for new vehicle sales, but it is wrong to consider this simple aging of the fleet as some sort of quantification of pent-up demand. There is no relationship between the average age of vehicles in operation and future new vehicle sales – either statistically, or theoretically, speaking.
As for the statistics, note that the vehicle parc has aged steadily for decades. The average age was 6.5 years in 1975, 7.7 years in 1985, 8.4 years in 1995, and 9.5 in 2005. Those earlier numbers would now be considered a “young” fleet, but that did not stop new vehicle sales from reaching new highs each decade. Conversely, the average age of the fleet first hit the double-digit mark on July 1st, 2008. That did not even mitigate, much less stop, the subsequent plunge in new vehicle sales.
The aging of the fleet is as much engineering-driven, as economics-driven. Vehicles today simply last longer. And, with multi-vehicle households, individual vehicles do not rack up miles as fast as they use to. For example, yours truly owns a 13-year old Chevrolet pickup. It is not the primary vehicle in the household, but it is more than capable of serving its specific purpose. And I expect it will continue to do so for many more years. In no way does this truck represent pent-up demand for a new one, as it will be replaced with a used one.
And that is where we also find the underlying theory wanting. Much of the increase in the average age of the vehicle parc is a result of the growing share accounted for by very old units. (In other words, the average age has risen more than the median age) After 15 years of use, less than 29% of the 1970 model-year vehicles sold were still on the road. For 1990 model-year vehicles, that percentage rose to 60%.
Pent-up demand for new vehicles comes from vehicles 3 to 6-years old, not those over 10 years old. And the number of 3 to 6-year-old vehicles in operation will hit a cyclical trough this year. The older vehicles only have second-order derivative effects in creating new vehicle demand as, for example, the 10-year-old vehicle is traded for a 6-year-old one, and that owner then trades for a 3-year-old one, and that owner then trades for a new one. We see that effect through used vehicle valuations, and there is no doubt that the run up in wholesale used vehicle prices has been, and will continue to be, beneficial to new vehicle sales.
But for now, let’s just stick with the mathematically unchallengeable: “new vehicle sales influence the age of vehicles in operation.” The reverse statement is much less certain.
