People Can't Afford Cars, Keep Old Ones

Two things are certain: the average car on the American road is over 12 years, and the price of the average new car is over $45,000. It is a formula for a drop in new car sales, particularly if there is a recession. (These 15 cars hold their value the longest.)

S&P Mobility says the average age of an American car is 12.5 years. That is up from under 10 years two decades ago. Among theories about why cars are around longer is that they are built better and do not fall apart as quickly as cars made early in the century. There is also the fact that the Great Recession may have made people hang on to cars longer. Each makes sense.

The average price of a new car sold in America is about $48,000. That puts many cars beyond people’s financial reach, so they keep their old cars longer. This forms a kind of circle. In the meantime, the trend is a temporary profit bonanza for car companies, as higher prices also tend to push margins higher.

The car companies will enjoy their newfound profits for only a few years, if not a shorter period. As new car prices rise, people will keep their cars even longer. The average age will push toward 15 years. Car companies will find the universe of buyers is shrinking. If interest rates stay high, financing a new car will cost even more. It is a perfect storm against manufacturers.

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