In 1970, the average age of a car in use in the U.S. was less than 6 years. By 2016, the average age had climbed past 11 years. Why are cars getting older, and what role do recessions play?
In a recent Economic Synopses essay, Assistant Vice President and Economist Bill Dupor noted that while the number of cars on the road has been increasing, per capita sales of new vehicles have been falling. “This has occurred because the scrappage rate (i.e., the rate at which autos are taken out of use) has been falling,” he wrote.
Dupor also noted that new vehicle sales typically fall more heavily during recessions, which causes the average age of cars on the road to rise even faster. One of two things may happen during the subsequent recoveries:
Dupor noted that the latter effect was strongest following recessions after the mid-1980s.
Since 1970, the average age of cars on the road has never experienced a yearly decline. It has either held steady (as it did for 10 of the years in that period) or risen. Dupor broke the increases into two groups:
He found that in the years of a business cycle peak plus the four years that followed, the average age of cars increased by about two months, while the average age increased by one month in the other years.
Dupor provided a few reasons that new vehicle sales haven’t rebounded strongly following recent recessions. One is that cars may simply be more reliable now, lessening the need for households to buy new cars as their current cars age.
Another possibility he put forth was that negative shocks may have caused people to rethink how often they purchase new vehicles. “Once a negative shock—for example, a recession—forced the owner to hold a car for an additional year or two, he or she may have learned that the reliability of the car extended well into its fifth and sixth year—resetting the rule of thumb” for when to purchase a new car, Dupor wrote.