As an estimated 38 million drivers hit the road over Memorial Day weekend, they’ll be driving cars older than ever. The average age of US cars, trucks, and SUVs has now reached a record 12.6 years. Supply chain snags and chip shortages during the pandemic initially drove up vehicle ages. However, this year, higher car prices, insurance premiums, and auto-loan rates are the primary culprits.
Vintage is In: Rising New Car Costs
The cost of driving a new car off the lot surged to $48,500 last month, a 21% increase from April 2021. This steep price hike is causing potential new car buyers to reconsider their choices. The financial burden of purchasing new vehicles has made drivers more inclined to stick with their older models, leading to an aging fleet on the roads.
Lower-cost models have become a saving grace for some automakers. Toyota experienced a 20% spike in US sales in Q1, while Ford saw an 82% surge in sales of its more affordable trucks. These numbers signify a shift towards budget-friendly options as consumers navigate the high costs of new vehicles.
Fixer-Uppers: Boon for Repair Shops
With older cars dominating the roads, repair shops are thriving. The increased need for vehicle maintenance has resulted in significant growth for businesses in the automotive repair industry. For instance, O’Reilly reported a 7% year-over-year revenue growth last month, and AutoZone exceeded estimates, opening over 30 new US stores last quarter.
As maintenance costs rise, the demand for repair services is expected to continue growing. This trend benefits companies specializing in automotive parts and repairs, creating a robust market for these services. Drivers are investing more in keeping their older vehicles running smoothly, further bolstering the repair industry.
Runnin’ on Fumes: The High Cost of Car Ownership
Owning a car is pricier than ever. According to AAA, the average annual cost of having a new car reached $12,200 last year, amounting to 16% of the median US household income. Auto-insurance rates spiked by 22% last month, the highest jump in nearly half a century, while repair costs rose almost 8%. Additionally, automakers are phasing out more affordable sedans, such as GM’s Chevy Malibu and Subaru’s Legacy.
These escalating costs are straining household budgets, making it harder for Americans to save. In March, the personal savings rate fell to 3.2%, well below the long-term average of over 8%. The financial pressures of car ownership are a significant factor in the decline of consumer sentiment, which dropped to a six-month low.
Cars are slowing Americans down. As car costs pile up, people are finding it tougher to save money. The financial burden of driving, combined with rising costs across various aspects of car ownership, is putting a strain on household budgets. This Memorial Day weekend, the conversations around the BBQ might just reflect the growing challenges of car ownership in today’s economy.
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