Americans wait to buy new cars to avoid high prices.

The Average Age of Cars on American Roads Reaches Record High

What’s Happening?

The average age of cars and light-duty trucks on American roads has reached a record high of 12.5 years, according to a report from S&P Global. This comes as supply chain issues and elevated inflation continue to impact households.

S&P Global notes that 2023 marks the sixth consecutive year of increased average vehicle ages. The three-month rise between 2022 and 2023 constituted the largest year-over-year increase since the recession which struck the United States between 2008 and 2009, during which consumers likewise tightened their budgets in response to economic turmoil.

Why is This Happening?

S&P Global links the higher average vehicle ages in 2022 to “supply constraints that caused low levels of new vehicle inventory” in the first half of the year, followed by “slowing demand as interest rates and inflation reduced consumer demand” in the second half.

Lockdowns and public health mandates imposed over the past three years by governments across the world fostered unpredictable supply chain shocks, contributing to inflation in many countries. Sectors impacted most severely by foreign bottleneck exposure, such as automotive manufacturing, textiles, and basic metals, also witnessed the most extreme inflationary pressures, according to an analysis from the Federal Reserve Bank of St. Louis.

What’s Next?

There are presently more than 284 million vehicles in operation on American roads; continual increases in popularity for light-duty trucks will cause the number of passenger vehicles to decline below 100 million for the first time in nearly five decades. Firms in the aftermarket repair sector are slated to experience windfalls as the number of cars between six and 14 years old is forecasted to increase by 10 million in the next five years.

While pressure will remain on average age in 2023, S&P Global expects the curve to begin to flatten this year as we look toward returning to historical norms for new vehicle sales in 2024.

What’s the Impact?

Officials at the Federal Reserve have increased the target federal funds rate to combat the inflationary pressures: target rates now sit between 5.0% and 5.25%, increasing borrowing costs for consumers, including those who finance their car purchases with debt. American economic growth slowed to a 1.1% annualized rate in the first quarter, marking a significant decline from previous quarters as the economic headwinds slow recovery from the recession and the interest rate hikes decrease demand, according to an advance estimate from the Bureau of Economic Analysis.

As the number of cars between six and 14 years old is forecasted to increase by 10 million in the next five years, firms in the aftermarket repair sector are slated to experience windfalls.

Key Takeaways:

• The average age of cars and light-duty trucks on American roads has reached a record high of 12.5 years.
• Supply chain issues and elevated inflation continue to impact households.
• Continual increases in popularity for light-duty trucks will cause the number of passenger vehicles to decline below 100 million for the first time in nearly five decades.
• Firms in the aftermarket repair sector are slated to experience windfalls as the number of cars between six and 14 years old is forecasted to increase by 10 million in the next five years.
• Officials at the Federal Reserve have increased the target federal funds rate to combat the inflationary pressures.