No New Wheels
The average age of passenger vehicles in the US just reached a record high this year. That means Americans are developing a preference for holding onto their cars longer instead of buying new ones.
The impetus for this trend likely goes beyond rising sentimentality and nostalgia for the models of yesteryear. Simply put, repairing an older car tends to be a better financial choice these days than purchasing a new vehicle — or even a used one.
During the pandemic, supply chains were disrupted all over the world, halting the production of new cars. This led to a surge in the prices of used cars as new car buyers flocked to the secondary market. Now, even with the pandemic in the rearview, prices for used cars remain high.
The Perfect Storm
Currently, the average car in the US is 12.5 years old, according to data from S&P Global (SPGI). Cars on US roads are also getting older at the fastest rate since the Great Recession in 2008.
Americans are driving through the perfect storm of low supply coupled with high inflation and interest rates. Not only are cars more expensive, but Americans have less discretionary income to spend on a new car. The cost of financing has also grown significantly more expensive.
Repair or Buy?
While these conditions are not ideal for US drivers, they’ve been a boon for auto repair shops. Companies like AutoZone (AZO), O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP), which make money helping people repair their cars, will likely continue to grow as the average vehicle ages and requires more maintenance.
Similarly, it could be a blessing for dealer service centers — although the gains may not outweigh the hit to new vehicle sales.
As for the drivers themselves, the big question remains. Do you bite the bullet and buy a slightly overpriced car, or continue spending money to repair an older one? This decision will be different for everyone depending on the state of your existing car. But if you do decide to spring for the new ride, it might be worth affording extra weight to the cost of auto parts.
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