IHS Markit today released their annual study on the average age of light vehicles registered in the U.S.. As expected, the average fleet age continues to tick up and currently stands at 11.6 years. While this may be great news for consumers, higher quality and longer useful lives can have a detrimental impact on annual auto sales.
“Quality of new vehicles continues to be a key driver of the rising average vehicle age over time,” Mark Seng, global automotive aftermarket practice director at IHS Markit, said in a statement.
Not only are vehicles getting older, consumers are keeping their vehicles for longer, too, IHS said. As of the end of 2015, the average length of ownership was 79.3 months — a record — up 1.5 months from the previous year.
About 11 million light vehicles were scrapped during 2015, or about 4.3 percent of the overall population, according to IHS.
IHS forecasts that the volume of vehicles in the new- to 5-years-old category will grow 16 percent by 2021, while vehicles in the 6- to 11-year-old range will grow 5 percent, and vehicles that are 12 or more years old will grow 10 percent.
The market research company said the oldest vehicles on the road are growing the fastest. Vehicles 16 years and older are expected to grow 30 percent from 62 million units today to 81 million in 2021.
IHS research also showed that there will be more than 20 million vehicles on the road in 2021that will be more than 25 years old.
Per data from the Bureau of Transportation, the aging auto fleet is nothing new. The average age of vehicles on the road in the U.S. has increased over 3 years in just the past 20 years.
That said, what is new is that there are roughly 265mm light vehicles registered in the U.S. today compared to only 255mm driving age people, or just over 1 car per driver. So, while annual auto sales have historically been able to absorb quality gains with increased penetration rates, that game is likely now over.
Just to illustrate the potential problem, the following table shows the implied U.S. auto SAAR based on varying useful life assumptions….each 1 year expansion in a vehcle’s useful life cuts about 1mm out of required annual sales.
Said another way, in order to maintain the current 18mm annual selling rate of vehicles in the US, with a 20-year assumed useful life, each driving age person would have to own 1.4 vehicles. We’re certainly not math geniuses but we’re pretty sure you can only drive 1 car at a time.
As our readers know, we’ve frequently noted that ,with an implied total SAAR of 18.0mm for the U.S. market, that auto sales have likely peaked.
With full penetration rates, increasing vehicle useful lives and the threat of autonomous vehicles increasing utilization rates, it’s difficult to see how “normalized” auto sales aren’t substantially lower than the current run-rate of 18mm. Moreover, with interest rates starting to rise and auto buyers extremely sensitive to monthly payments, we suspect the auto SAAR game is reaching the end of it’s useful life.
via http://ift.tt/2fGzsjV Tyler Durden