Ryan Holdsworth intends to hold onto his 9-year-old Chevy Cruze for at least another four years due to the persistently high prices of both new and used cars. His primary focus is on reducing car payments and overall debt, making the purchase of a new vehicle a lower priority for him.
Ryan Holdsworth, a 35-year-old grocery store worker from Grand Rapids, Michigan, would likely consider buying a new vehicle in a few years, but the steep prices make it currently unattainable for him. He believes that finding a vehicle within his budget is nearly impossible at the moment.
Holdsworth is part of a growing trend among Americans who are holding onto their cars for longer periods. According to data from S&P Global Mobility, the average age of a passenger vehicle on the road has reached a record 12.5 years, with sedans like Holdsworth’s averaging even older at 13.6 years. The main reason for this trend can be attributed to the pandemic, which caused a global shortage of automotive computer chips in 2020. These chips are essential components that control various functions in vehicles, from radios to gas pedals and transmissions. The shortage disrupted global assembly lines, leading to a scarcity of new vehicles on dealer lots at a time when consumers were increasingly interested in buying. As a result, many people like Holdsworth have opted to keep their cars longer due to the limited availability and higher prices of new vehicles.
Vehicle prices have soared to unprecedented levels, and even though they have slightly eased, many Americans still find the cost of a new vehicle to be excessively high, especially when paired with the now much higher loan rates. Over the past three years since the pandemic hit, the average price of a new vehicle has surged by 24%, reaching nearly $48,000 as of April, according to Edmunds.com. At the same time, typical loan rates for new-car purchases have ballooned to 7%, a result of the Federal Reserve’s aggressive interest rate hikes aimed at combatting inflation. These factors have made purchasing a new car financially challenging for many consumers.
As a result of these factors, the national average monthly auto loan payment has skyrocketed to $729, making it prohibitively high for many consumers. Experts point out that a family with the median U.S. household income can no longer afford the average new car payment and still manage to cover essential expenses such as housing, food, and utilities.
Moreover, used vehicle prices have experienced an even more substantial surge since the pandemic began, rising by 40% to nearly $29,000 on average. Coupled with an average loan rate of 11%, the typical monthly payment for a used vehicle has now reached $563. These escalating costs have made it increasingly challenging for people to afford a vehicle within their budgetary constraints.
Confronted with the choice of making a large payment for a new vehicle or sticking with their current ones, more car owners are opting to keep their existing vehicles, even if it means incurring higher costs for repairs and maintenance.
As a result, auto mechanics are experiencing a surge in older and higher-mileage vehicles arriving at their shops, a phenomenon they had never encountered at such levels before. This trend reflects the financial strain caused by the soaring costs of new vehicles, prompting people to extend the life of their current cars and invest in repairs to keep them running for longer periods.
Jay Nuber, the owner of Japanese Auto Professional Service, a repair garage located near downtown Ann Arbor, Michigan, has observed a common sight of cars with exceptionally high mileage, reaching 250,000 or even 300,000 miles. Surprisingly, many of these vehicles have not required major repairs; instead, their owners have diligently maintained them with routine service and maintenance, allowing them to continue running reliably for an extended period.
Owners of older vehicles are not necessarily burdened with constant repair bills. A key reason why people can now hold onto their vehicles for longer periods is the significant improvement in auto manufacturing over time. Modern engines have enhanced durability, bodies are more resistant to rust, and various components have increased longevity. However, the soaring prices of both new and used vehicles are leaving many individuals with no viable option but to stick with their current cars for the time being.
“The repair-versus-buy equation has shifted,” explained Todd Campau, an associate director with S&P.
Despite the increase in repair costs, he stated that it is still generally more financially prudent to repair an older vehicle than to opt for a new purchase. The average vehicle age, which has been gradually increasing since 2019, has seen a significant acceleration this year, adding an extra three months to the average age. While the current average stands at 12.5 years, Campau pointed out that more vehicles are now remaining on the road for 20 years or longer, sometimes with three or four successive owners.
Consequently, third or fourth owners are obtaining considerably older cars compared to the past. Presently, there are nearly 122 million vehicles on the road that are over a dozen years old, as per Campau’s data. S&P predicts that the count of older vehicles will keep rising until at least 2028.
The increase in vehicle durability and extended lifespan has resulted in a boom for auto repair shops. Throughout much of last year, Nuber’s Japanese Auto experienced overwhelming demand from customers. Securing an appointment, whether for repairs or routine maintenance required by older vehicles, could take up to three weeks. Nuber stated:
“The phone just kept ringing, and the cars just kept coming.”
Some vehicle owners are facing a tough decision when repair costs exceed the value of their vehicles. Dave Weber, manager at Japanese Auto, shared an example of a customer who needed rear brakes, wheel bearings, and exhaust system repairs. The customer chose to do only half of the repairs and postponed the decision on whether to invest more money into the aging vehicle until later.
“They patch them up and drive them for however long, until the next major repair,” Weber said.
According to S&P’s forecast, U.S. new vehicle sales are expected to reach 14.5 million this year, up from about 13.9 million last year. The increase is due to the growing supply at dealerships and automakers restoring some discounts that had previously helped control prices. As a result, more people who can afford to buy are now able to do so, potentially slowing down the aging of the U.S. fleet and boosting overall sales.
However, experts do not foresee a return to pre-pandemic annual sales of around 17 million vehicles anytime soon. Despite discounts, new-vehicle prices are expected to remain significantly higher than pre-pandemic levels for the foreseeable future. As for Holdsworth, the Chevy Cruze owner, he intends to continue with the scheduled maintenance on his car, especially routine oil changes. Even if he were to encounter a major repair, he believes he would likely pay for it rather than considering a new vehicle purchase.
Holdsworth purchased his vehicle two years ago, and he still has about two years of payments left. It appears that his Cruze will likely reach the 12.5-year-old national average for vehicle age.
“I’ll finish paying it off,” he said, “and drive it for a couple more years.”