I did a brief interview for a public radio program last week and they asked me about people and their ownership patterns of cars and trucks. Specifically, they wanted to know if people were hanging onto their wheels longer and why. Short answer: "Yes."
Americans Continue to Hold Onto Vehicles Longer
The trend we've seen over the last 8 years is pretty stark. As new and used vehicle sales in the U.S. have taken a hit in recent years, the chances that we'll hold onto our vehicle for longer periods of time has definitely risen. In late 2001, the average number of months we Americans held onto a new car or truck was 47.5 months. As of September 2009, it was over 60 months. Same pattern, but at different levels, apply for used vehicles, too. Why? How?
- The economy helped this, but it's not the only reason. I won't elaborate on the old news of what a recession does to individual spending in the auto market. But that's not the only contributor motivating you and I to hold onto our vehicles longer.
- Financing. Leasing options were more difficult to come by in 2009, particularly as Chrysler Finance and GMAC withdrew from this type of activity. That hurts the "churn" of someone being able to move from a temporary owned vehicle into another one. Plus, there are more deals out there where you can finance for longer term lengths. You've heard of 72 month car loans? They're growing. That'll add to the average ownership length. I found an article from LendingTree dated 2007 citing the beginning of this pattern.
- Warranties and extended warranties. Automakers are covering their powertrains for longer periods of time and bumper to bumper warranties are also growing. Go talk to a dealer and they'll be happy to sell you an extended warranty as well. Add another factor to my motivation to hang on to 'ol Betsy.
- Vehicle durability is rising. While perceived durability and reliability may be an issue for some brands, consumer research shows that more and more brands are on par with one another regarding their overall product quality ratings. That is a systematic factor allowing you and I to deal with the same set of wheels for a longer period of time.
The trend bodes well for the automotive aftermarket. (Repair business is good - have you checked out AutoZone's stock lately?) It does suppress the annual sales rate for new sales, but if you are a franchised dealer, can you think of a better reason to have for building a customer retention game plan for your service business? I can't.
Posted by Lonnie Miller, Vice President, Marketing & Industry Analysis, Polk