Thanks to high new car prices, low vehicle inventories and high interest rates, drivers are avoiding trade-ins and upgrades at an unprecedented rate. The average age of passenger vehicles on U.S. roads set a new record by 2023, according to a new report from S&P Global Mobility.
Tough market: rising car prices and production delays
According to a report on car prices by Cox Auto Group (opens in a new tab), the US new car market is becoming a luxury market, where new vehicles are only available to the wealthiest buyers. The shift stems from supply disruptions, new technology, tight inventories, higher interest rates and automakers increasingly focusing on wealthy buyers.
As of December 2017, Cox tracked 36 models with an MSRP (manufacturer’s suggested retail price) below $25,000. At the time, cars under $25,000 accounted for 13% of total new vehicle sales. As of December 2022, only 10 models with MSRPs below $25,000 remained on the market, a share of just under 4%.
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Meanwhile, luxury brands took more market share and non-luxury brands moved into the luxury category. In December 2017, the share of vehicles priced over $60,000 was less than 8%, with 61 models. By December 2022, at least 25% of new car sales were over $60,000, with 90 unique models.
High costs = drivers keep vehicles longer
S&P Global (opens in a new tab) The new report tracks the average age of the more than 284 million vehicles in operation on US roads. According to the report, the average age of cars and light trucks in the U.S. rose this year to a new record of 12.5 years, more than three months longer than the previous peak in 2022. The growth is broken down into a 3.8% increase for passenger cars with an average age of 13.6 years, and a 1.7% increase in trucks, SUVs and crossovers to a new record of 11.8 years.
The trend dates back to disruptions in the new car market last year, when S&P Global correctly predicted that depressed new vehicle sales would put upward pressure on the average age of cars on the road.
In 2022, the combined effect of slowing auto production and declining consumer demand caused US retail and fleet sales of new light vehicles to fall 8% from 14.6 million units in 2021 to 13.9 million units in 2022. This was the lowest level recorded in more than a decade.
This is the sixth consecutive year of increase in the average age of vehicles in the US fleet. It also reflects the highest annual increase since the 2008-2009 recession.
(Image credit: S&P Global Mobility)
Tips for struggling new car buyers
At this time, car manufacturers are offering more and more new vehicles in the luxury market. Cash-strapped drivers might do well to look for a quality used car that fits their budget better.
But if you have your heart set on a new vehicle, follow these tips to soften the financial blow:
- Hold off on your new car purchase until later this year, when the Fed is widely expected to finally stop raising interest rates as inflation cools. Interest rates on new car loans should stabilize and even decline as the Fed pulls back and we face a potential recession.
- Look for car financing with your local bank, credit union and dealer. Ask about the full range of financing options before settling on the first offer.
- Consider low-priced cars with high resale value. The rapid depreciation of luxury models usually cannot be overcome with favorable financing and free maintenance.
- Order online. Major automakers like Volvo are switching to offering direct online shopping, as is Tesla. This can offer real savings by eliminating the car dealership and its fees.
- Consider an electric vehicle. The Inflation Reduction Act expanded the Electric Vehicle Tax Credit and the Electric Vehicle Home Charger Credit up to $7,500 off your vehicle’s MSRP.
- Even if you hate haggling over prices, consider face-to-face options like email, text, and live chat to unlock better deals.
