Car Sales Climb as Drivers Finally Retire Older Vehicles

American consumers may not want new cars, but they apparently need them.

As Bloomberg News reported Monday (Oct. 2), car buyers are visiting dealerships “out of sheer necessity,” replacing vehicles that are — on average — a dozen years old in spite of high interest rates and prices.

“You’re seeing the effects of having the oldest fleet we’ve ever had” competing with higher interest rates and inflation, Toyota sales chief Jack Hollis told Bloomberg. “The industry is coming back to more of a normal state.”

With dealer inventories at their highest level in years, new car sales rose an estimated 15% over the summer, the report said, citing Cox Automotive research. Cox estimates sales will rise 14% for the year, with the average cost of a new car at $47,000, down from $50,000 earlier this year.

“Pleasantly surprised may be the best term to describe the new vehicle market,” said Cox Senior Economist Charlie Chesbrough, who noted that “pent-up demand created by post-COVID supply disruption” had helped boost sales.

It’s a big change from last year when the cost of buying a new car was leading consumers to hang on to existing vehicles. The situation has led many drivers to embrace financing methods like buy now, pay later (BNPL) to keep their cars on the road, CarParts.com CEO David Meniane told PYMNTS in a recent interview.

“Monthly payments are going up,” he said, “even as the value, or the car prices, are coming down.”

The Bloomberg report notes that the auto workers strike, now in its third week, could throw a wrench into things if the work stoppage persists and grows, leading to a reduction in inventory.

While consumers may be buying new cars, other vehicle shoppers are holding off on “new-to-them” cars, according to used auto retailer CarMax.

Buyers are “staying on the sidelines” thanks to interest rates and affordability issues, CarMax President and CEO Bill Nash said on an earnings call last week.

“I would say the trade-in cycles are a little longer,” Nash said. “As far as how to quantify that, I can’t give you a specific number, but we absolutely see traffic flow coming in at the top of the funnel where there’s interest and, again, continue to fall off at the conversion point when people actually start to see their monthly payments.”

And while the cost of a new car may have dipped somewhat, the days of buying a new vehicle for under $20,000 are all but over. Recent Cox data found that the average American needs 42 weeks of income to pay off a new vehicle, compared to 33 weeks prior to the pandemic.

It’s a situation that has brought auto loan delinquency rates to their highest level in 17 years despite a strong labor market.

“Usually you get the default spikes when unemployment spikes—it’s the biggest correlation in consumer credit,” Clayton Triick, a fund manager at Angel Oak Capital Advisors, told The Wall Street Journal in August. “To see them go up that much while unemployment is still low is not typical.”