Bloomberg has had a look at the U.S. new car market and it seems that American consumers are busy joining their Japanese counterparts in a new trend: hanging onto their cars until they die. “Used vehicles being traded in at dealerships averaged 6.3 years of age after the Wall Street meltdown in late 2008, about 6 months older than before the crisis, according to forecaster J.D. Power & Associates in Troy, Michigan.” And you know which way this one’s going. TTAC’s Best and Brightest have been connecting those dots for some time. Still, it’s a bit startling to see the MSM do the same. “If the industry sells fewer than 12 million vehicles this year, the government will have to write more checks” media-friendly auto analyst John Casesa told Bloomies. “Otherwise GM, Ford and Chrysler will be gone, bankrupt.” TARP this. “’Even with a drop in the price of gasoline, families aren’t changing their decision to keep running the old car’ said the Conference Board’s Goldstein. Nor will steps such as an easing of credit standards at lender GMAC be enough on their own to revive showroom traffic, said Tom Libby, a J.D. Power analyst. ‘Just because GMAC has become a bit more lenient, it’s not like a light switch,’ Libby said. ‘It will take economic stability to reignite car buying, it will take some calm. That’s what a shopper needs for the confidence to spend $26,000.'”
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I literally have NO idea how people can afford to switch cars every 3-4 years. I have no idea why, either. Cars run great for 10+ years. People buy Japanese cars because they’re “reliable” but what’s the point if you’re going to get rid of it in 3-4 years? Besides, a 1994 Camry drives pretty much THE SAME as a 2009. Maybe better.
People just hate being seen in an old car, or get bored of their rides pretty quick, I guess. I also blame car companies for doing pointless redesigns to make older models obsolete and get people hyped about the “new.” Example: “Honey, the new RX330 got a new grille and chrome handles this year, we must have it! I’m bored of the old grille anyways, and everyone has an old RX330 now!” This wouldn’t be so costly irresponsible if it weren’t for epic depreciation and worse (never talked about: yearly 5% opportunity cost for interest).
‘It will take economic stability to reignite car buying, it will take some calm. That’s what a shopper needs for the confidence to spend $26,000.’”
No, it will take that $26,000 car being priced at $15,000 (or whatever the market deems) to reignite car buying.
The real bothersome thing about this trend for me is that the reservoir of nice three-four year old cars that I usually chose from (once every six-seven years) will dry up…who is going to pay my depreciation for me?
My family has been buying cars (typically a GM that is a few years old through private sale) and driving them until they die since I can remember. Yeah, it would be nice to have that new car smell but it sure is nice not having car payments. It doesn’t mean you have to drive the vehicle until it has holes in the floor pan or until the point it becomes unsafe.
When people need to put money into an old vehicle, they are so quick to get rid of it. Whereas, for maybe $800 they can hold on to the vehicle for another 2 years. Even if you have to put $400 into the car each year for repairs, it’s cheaper than $350/month for a new car.
Typically, we have had the best luck with basic vehicles. These typically have manual transmissions and crank windows. The less fancy, the less chance for stuff to break down. With vehicles becoming as reliable as they are, there is no reason to get rid of a vehicle with less than 200,000 miles on it. Any well maintained vehicle should reach this mileage without any drive train failures.
it will take that $26,000 car being priced at $15,000 (or whatever the market deems) to reignite car buying.
$26,000 cars cannot be sold for $15,000 at a profit. You might as well argue that restaurants will stay in business when they start selling filet mignon for $2.
Consumers are either going to have to learn to like $15,000 cars, in which case more of them will get built, or else they’re going to have to come up with the money to buy the $26,000 car.
Once the economy has stabilized, they’re going to do the latter. Americans like to have nice stuff, and they’ll spend accordingly when the all clear comes on.
in fairness to the auto manufacturers, i think we should acknowledge that this trend is largely due to the improvement of their product. when i was a kid (60’s & 70’s) odometers reset after 100k miles because it was unthinkable that a car would last that long. i also suspect that the suv craze might add to this trend. love ’em or hate ’em, a well built truck based suv has the potential to last a really long time.
So it’s unusual that, five years ago, I bought a new car with plans to keep it for 20+ years (or until some idiot hits me and writes it off like my last car)?
Just kidding; I already knew that I’m very unusual.
I’m daily driving a 10 year old 115K mile Bimmer. It requires some work but gets me around fine.
My daily driver Porsche currently has over 350K on the clock.
Unless it gets hit by a dumptruck, it’ll be going for another 350K.
“I literally have NO idea how people can afford to switch cars every 3-4 years. I have no idea why, either.”
When you can use your home as an ATM, I think the sky is the limit. What has astounded me are the people who would roll their upside-down-ness from one car to the next. Sick of that new gas guzzler? Well lets trade it in for another one that’s “better”! Oh, I’m tired of it (9 months later) so I’m going to trade it in again. I know people that did this.
House-as-an-ATM, credit as available as running water, dealers eager to make a deal and FOOLISH consumers, these are some of the reasons we’re in such a mess.
Speaking of upside down, I heard an ad on the radio on the way in that the local dealer (Kia, Hyundai, I forget) will take care of your “upside downess” up to $6,000! Can you imagine paying $20,000 plus for a ride and adding $6K to that to pay off the old loan? Thought those days were gone forever.
This is not a new trend. It has been in place for at least five years now if one looks at the average age of registered cars.
This established trend is another data point in questioning why auto executives thought annual new car sales would continue at historic rates.
“I literally have NO idea how people can afford to switch cars every 3-4 years.”
Leasing.
Which is why they aren’t doing now.
The last time I leased a car was in 1998, when I leased a new Chrysler T&C for my wife. I took a four year lease because the previous Chrysler vehicles had died after 5/6 years. The lease had a $13,000 call option at the end.
In 2002, when the lease ran, the bank called me and offered the vehicle to me for $10,000 if I just re-fied with them. I checked the values, decided it was a good deal and did it.
And that is why they aren’t doing it anymore.
BTW, as a guy with kids (now 26, 24 & 21) I doubt that I will be driving my 2002 accord much longer, somebody will move and need a ride.
I knew a guy who had been convinced by his small town Dodge dealer that he would lose money if he did not trade in his car every two years because of depreciation (he lost both his parents as a child and was easily swayed by strong parental types, so don’t be too harsh in your assessments). When I sat down with him and I showed him that he had been duped, he could not believe that his “friend” at the dealership had done this to him.
If folks bought their cars with cash, habits would change even more drastically.
One thing that still drives car swapping is a change in lifestyle.
A change in economic circumstances is obvious, but there are other things.
I’ve seen two women at work get pregnant within the past year, and both traded their mid-sized four doors for an SUV. Apparently it is not possible to transport children in anything less.
I’d sure like to get something newer than my ’98 Ranger, but hell, it runs fine and I have no payments. I’m going to pay cash for my next car – in about 5 years.
@porschespeed :
My daily driver Porsche currently has over 350K on the clock.
Unless it gets hit by a dumptruck, it’ll be going for another 350K
That’s awesome! Like a fine wine, Porsches get better as they age. My neighbor has a restored 72 911 that is absolutely stunning. Resale value isn’t bad either. A 72 911 S originally sold for $9495. According to the NADA Classic Guide, the current low retail is $30,700 and high retail is $46,800.
@porschespeed:
What model/year are you driving? What is yearly maintenance averaging for you? You’ve got me very curious.
I’ve bought and driven used cars most of my life. Nearly all of them purchased at the Iowa state used car auctions like my favorite car a ’97 Escort wagon. As pointed out above I’ve saved a lot of money doing this.
But now I’m 66 and have had enough of it. There are many in my age group and in the Baby Boomer age group following me that are tired of used and have some savings which will fall to someone who will spent it even more foolishly.
New is expensive but so what? At the end of one’s life saving every last dollar doesn’t mean much. Life is short and if cars are what you like, why not have a new one? Or two?
Quite a few of us sold our homes before the crash and have the cash. We old timers will be the ones that keep the car companies going until the economy recovers. Young is out and old is in, at least for now, in the new car business.
I literally have NO idea how people can afford to switch cars every 3-4 years
Because after year 4 is when a car usually has its first $1k+ repair. That has to be paid at once, and there is usually no savings to draw from. So it gets put on the credit card.
So the owner freaks. They wonder how long before the next $1k+ repair hits the family budget, and they decide that is a easier to finance a new car with nice predicable expenses rather than worry about the unknowns of an older car.
The cause of this is of course a lack of financial discipline. The hard math shows it is cheaper to pay for the repairs and forgo a car payment. But that is not how they see it. They see it as a monthly budget stretched to the limit, no savings, and no room for surprises.
The answer is easy; warranty. Our company wrote a report for one manufacturer on the likely effects of pushing out the warranty to a further number of years. The result? People held onto their cars longer, especially families.
Plus, of course, right now, mix in the current economic conditions and very few will change.
Our company will change cars however, because they are operated as a monthly cost. So if we change into new warrantied versions for about the same monthly cost, it will be done. It would be a bonus if the monthly goes down, or our finance guys might push the limit down to save some $$$, but the trades should hold up for the vehicles they bought.
As the number of replies to an article gets longer, the more chance that logic prevails.
I agree, the Warranty has a lot to do with it. However if your 3 yr/36 runs out on a Dodge the chances are that you are going to take a pretty big maintenance hit soon. If your Honda Civic runs past its warranty, the chances are a good deal less. My last car was a 98 Civic with 190k miles on it. Still running good. The new owner, a relative, is still running it at 250k. The manifold has developed a hole, but in this state, the only penalty is a loud car, so no repair. Other than that there has never been a repair on the Civic that was not due to wear and tear (tires, brakes etc), even the clutch is the original. The car has actually appreciated in value judging by the offer that our relative is getting for it, from other students.
My neighbour gave their Dodge POS Ram to their son for college, three days after the warranty went out, the A/C packed up. And on and on. The kid can’t afford the mainenance, he is one of those that offered a good price for our relative’s (nephew) Civic.
But then it is not that the Civic is Japanese (another neighbours Suburu has been a nightmare), it is how reliable the car has been reported to be. There is a contributer to this website that runs an excellent website that keeps track of reliability (Michael Karesh). There is Consumer Reports and the like. It is hard to kill a Buick, some Caddy’s and other US cars.
I think that those cars that offer increased reliability, as well as good fuel economy and make practical sense for their needs will do well in the future
FYI GM-CHRYSLER are already bankrupt. The gov is just trying to stop the inevitable. Call me in 3 years after Chrysler is gone the way of AMC and GM is rebuilt post bankruptcy (if they are lucky). Ford will take them to school in 2010-2011 when they become the DOMINANT DETROIT auto maker and have the best pickup (as the do now by far) and a great line of cars. Mulally ROCKS.
My family had a 96 cutlass for 4 years and we bought it for $1500. We put over 60,000 miles and sold it to a salvage company for $200. It gets better, we were hit by some idiot and we were paid fair market value $2400 and got to keep the car. With junkyard parts it was repaired and drove it for another year. After that experience I will have a hard time buying a new car.
Although I prefer to buy used and drive it into the ground, I see why people would buy new before driving it into the ground. If you take exceptional care of your car, you’ll know that you don’t have any surprises waiting for you.
My parents are very fiscally conservative, but new cars were one of their luxuries, and while they had one car they kept for years and years, the other would be a leaser they replaced every few years. They grew up in the Great Depression so I didn’t begrudge them that.
Would anyone care to generalise as to when most “standard” warranties in the USA changed from 12 months to 3 years and when it was that many companies started offering 5 years?
“It is hard to kill a Buick, some Caddy’s and other US cars.”
The tipping point that turned me away from GM was a Buick. After the warranty expired, it was costing me over $1000 in repairs annually just to keep running. I figured as long as it was lower than the annual depreciation, I would keep it. Then a couple of years ago, it cost me $5000 (!!!!) and I was hoping that was a one time anomaly. Then last year, it ran me $7000 to fix various engine leaks and electrical things that should not break. They broke at different times and I did not know what would go next. I had had enough. I have more than one car, but the Buick was the first car I had ever owned (I had a Vega that eeked out 120,000 miles and 12 years) that didn’t make it to 10 years old.
Americans hanging onto their cars until the car dies should bring up the resale value of those cars that are sold beforehand, shouldn’t it?
1985 Volvo 240 estate (wagon). Iceland is difficult on automobiles, poor roads, salty air and many bad drivers. Almost 500,000km and still going well. Vehicle came with air conditioning which was turned on once to verify it worked.
Hell, I’m 17 years old, and I’m pretty much stuck with my car until the insurance drops. A young enthusiast needs something sportier than a ’99 Civic. That means for the next six years, while the insurance companies still screw you for being young, I’m basically keeping that old Civic till it croaks. Hopefully it lasts longer so I can keep it as an economical daily driver, but that means paying to insure it and my next car, hopefully a first-gen stripper Miata powered by a Honda F20C from the first-gen S2000. God knows that will cost an arm and a leg (and a kidney, lung, and perhaps a testicle and a few pints of blood) to insure.
@Pete Moran,
When I was a kid in the ’60s, Chrysler had a 5 year/50k mile warranty, which to my recollection was the best on the market. Their cars were quite good during the ’60s as well. If they were as good now, I might be driving one.
I don’t have any intention of trading my ’99 Accord 5-speed, w/ 153k anytime soon. But I’m Mr. Conservative with money, and have always paid cash for my cars (new or used).
Something not mentioned above is the dramatic improvement in safety devices on the newer cars. Antilock brakes, traction control, stability something-or-other, smart air bags, and a host of other things.
The far more intelligent onboard diagnostics is a plus too.
The wife’s older car had most of the expensive repairs done, never saw a body shop but lacked nearly all of the current safety items, not to mention many of the current conveniences. We made the move in late 2007 for no other reason than for the improved safety. She is worth far more than saving money by driving a older, less advanced car.
If I am not mistaken, 2010 will see several new safety features hit the market, like reliable onboard tire pressure sensing. If that is the case, for heaven’s sake, hold on to what you have for another 9 months and get something much more likely to keep you from ending up in the back halls of a nursing home strung up on cables, dining through a tube, and wearing a diaper.
we need to force people to like those $15000 cars.
BTW, a lot of people do like those $15K cars. There just has never been much of a choice.
I think all the people who buy new cars every 3-5 years should give their current cars away. Don’t trade it in, give it to somebody.
BTW, If you can afford it, buy your kid a new car with all the new safety equipment. Don’t teach them financial reponsibility with something that can kill them.
Although I am a big fan of saving cash, I have recently come to believe that a newer car is worth it. There isn’t a car sold today that isn’t much safer than the best car sold 15 years ago. Multiple air bags help, but also much better safety electronics and above all, better steel. Nobody has really noticed how much better the steel being used today is, versus just a few years go.
My car is 25 years old now. In the last year, I’ve spent almost $60 in repairs. I figure to keep it another 25 years :)
I will give this argument another twist. Several people I know have switched from buying new American cars to used Japanese ones (toyota, Lexus, etc.) They don’t want to spend 25-30K on any new car and will not trust American used iron. I said here a year ago, the resale value will tell the story of survival.It has, and American cars have none and Japanese models are worse than they used to be. Thus, people go buy the now lower priced Japanese car used, and take the factory extended warranty for another 3 years. This seems to be the best choice for my friends, but it doesn’t help sell any new cars.
$26,000 cars cannot be sold for $15,000 at a profit. You might as well argue that restaurants will stay in business when they start selling filet mignon for $2.
Who said anything about a profit? The market dictates what the selling price is. Within that selling price it’s up to you to figure out how to make a profit. Or else to not be in that business.
If nobody is buying filet mignon until the price drops to $2, that is the market price of it. They can wish all they want to get more, but no one will buy.
All the way up the supply line prices will adjust to fall in line to meet the market, or they will no longer stay in business.
There is no divine right to a profit, and hence no divine right to set the price at $26,000. The carmakers don’t decide if that price is correct in an oversupply, the market does. And the market is saying, no.
Who said anything about a profit?
You missed the supply component of the economics course. Profit is an inherent part of the market pricing model.
If producers can’t make a profit over time, then they stop producing (or they run to the government for money.) No supply –> no consumption.
Your $26,000 car for $15,000 isn’t going to exist because nobody can keep the lights on building it for you. You want Dom Perignon champagne on a Budweiser budget, but you’re going to have to just skip the Dom. Nobody is going to sell you the good stuff at your price.
If you want a new $15,000 car, then you’ll have to accept a larger car with outdated technology (which is probably being sold at a loss that is being subsidized with a taxpayer bailout) or a smaller vehicle with less content. If you can’t hang with that, then you’ll need to buy used or find a nice bus pass.
The companies that survive this thing will not be following your advice, because they’d die if they did.
@ ronin
Dealer: Good morning sir, how can we help?
Buyer: I’ve got $15,000 and I want that car.
Dealer: But Sir, those cars cost $26,000.
Buyer: Too bad, I think it’s worth $15,000.
Dealer: Well, we have a different model for $15,000. It only has a V6 engine.
Buyer: But I’d only pay $10,000 for that.
Dealer: Well, we have a different model for $10,000. It only has a 4cyl engine and the lights are optional as are the seats.
Buyer: But I’m only prepared to pay $7,500 for it!
Dealer: Have you looked at our used cars yet sir?
(Sorry PCH101, you must have been posting at almost exactly the same time as me.)
Any Honda, Nissan, Mazda, Subaru, Ford, Buick, or Cadillac car made after about 1998 is good for 300,000 miles, with around $500-1000 of maintenance per year. Same goes for any Chevrolet or Pontiac bigger than a Malibu. Cars are built so well I wonder why anyone buys them.
For me the tipping point is more than around the low 20’s I won’t finance a car more than 60 monthes, but unfornately others do
I won’t lease but others do. I won’t borrow more but others do. I would never ever tap home equity but others did.
I know the difference between want and need. I buy new and drive it till the wheels fall off.
Also, why buy a new sports coupe? A C5 costs $15k now. You can get some pretty good double-A players for twenty grand new, but this one bats .270 in MLB.
Shermin Lin:
I won’t lease but others do.
+1. However, a well off friend suggests leasing if you want a sports/performance car for a year if you’ve never owned one (and have some ambivalence).
Keeping mine, going on 11 years now and the best part, at least for me, I do ALL my own repairs and repairs for my family.
It is so much cheaper to have parts replaced. I thought I wanted a new camaro, I’ll let someone else purchase the depreciation. As the boomer population declines the demand for new vehicles will too.
Vote against the, “cash for clunkers bill”, part of obomas nutty stimulus plan.
@ snafu
Vote against the, “cash for clunkers bill”, part of obomas nutty stimulus plan.
Really? Great. Is there a reference to that somewhere?