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Polk in the News: Motorists holding on to cars longer in uncertain economy, 08/16/2011

Tuesday, August 16, 2011

Source: The Detroit News, Andrea Rumbaugh

Natalie Crafts and her boyfriend have been sharing her 1999 Ford Taurus for the past three months since his car became unreliable. Tired of swapping keys and coordinating schedules, Crafts decided to shop recently for a new vehicle.

But not even her friends-and-family discount could ease the shock of a $27,000 price tag on one Ford Fusion she looked at. A new car will have to wait.

"The way the economy is, you can't guarantee you'll have a job," the 45-year-old Dearborn resident said. "And to get locked into payments, I can't afford it."

While new automobile sales are up nearly 11 percent for the year, Crafts is among the many drivers who are keeping their vehicles longer.

While the trend appears troubling for automakers, experts say it has had little impact on new vehicle sales.

There is demand for new vehicles in the wake of the recession that caused buyers to hold off on purchases, said Michael Robinet of IHS Automotive in Northville.

"We're relying more on pent-up demand for new vehicles and less on the churn (of customers) from leasing," Robinet said.

The aging of cars on the road coincided with an industry-wide decrease in new-car sales during the recession, but the trend didn't cause the sales decline, said General Motors Co. spokesman Tom Henderson. He predicted pent-up demand will continue to drive new vehicle sales higher as the economy recovers.

In addition, two-car families still are looking to replace at least one vehicle, said Lonnie Miller, vice president of marketing and industry analysis for Polk, a Southfield auto research firm.

"You've got a subset of Americans who are in a position to buy a new vehicle as well as hold on to an older one," he said. "You've got others who are going to have to hold on to their vehicle" longer.

Vehicles' age steadily rises

The past 15 years have seen a steady increase in the average age of vehicles. In 2010, the average was 11 years old, up more than 2½ years from 8.4 years old in 1995, according to Polk.

Likewise, customers are holding on to their cars longer. Based on data from the second quarter of 2010, owners kept their vehicle an average of 63.9 months, or more than five years, an increase of 4.5 months from the same time in 2009, Polk reported.

Drivers are finding it cheaper to fix an old car than buy a new one, said Alec Gutierrez, manager of vehicle valuations for Kelley Blue Book. In addition, new and used cars are selling at higher prices — which can make it more difficult to obtain auto loans, he said.

"Anyone that thinks it's wise to swap out of a new vehicle every three to five years are probably going to find that they are leaving money on the table," Gutierrez said, "as opposed to trying to extract the maximum value of that vehicle."

Cars are also lasting longer. Manufacturers are producing cars on global platforms, so they can spend more money creating durable vehicles, Robinet said. Automakers are continuously improving their products, and some manufacturers are offering longer warranties, he said.

As a result, "everybody has had to raise their game," Robinet said.

The trend of aging cars and trucks on the road has been good news for auto parts stores. It has contributed to a 14-month year-over-year growth in seasonally adjusted automotive aftermarket retails sales, an industry that includes repairs and maintenance made after a vehicle leaves the dealership.

Although higher gas prices slowed its growth so far this year, experts expect it to remain a profitable sector of the retail industry, said Paul McCarthy, vice president of industry analysis for Automotive Aftermarket Suppliers Association, based in Research Triangle Park, N.C.

Revenues have increased the past two years at Advance Auto Parts Inc. and AutoZone Inc. Advance Auto Parts saw its revenues grow 5.3 percent in 2009 and 9.5 percent in 2010. AutoZone's revenue rose 4.5 percent in 2009 and 8 percent last year.

"In the last decade, this is probably the best numbers they've seen," said Tony Cristello, managing director and senior equity research analyst with BB&T Capital Markets.

Richard's Auto Parts, a Detroit business that delivers parts to a few hundred repair shops in Detroit and Dearborn, has also seen a boost in revenues. Owner Mike Zada said local shops have ordered more parts, and he hired three employees in the past two years to keep up with demand.

"The auto parts business has always been a recession-proof business because people need to drive to get to work," he said.

Less spent on repairs

But budget-conscious drivers are often spending less on the repairs they do make.

Unperformed automobile repairs hit $62 billion in 2010, a number that has increased annually during the past few years, according to an analysis by the Automotive Aftermarket Suppliers Association.

Yaya Habhab, manager of University Auto Care in Detroit, said people are looking to spend the bare minimum on repairs.

"They're not looking to buy new tires most of the time," he said, adding that most vehicles in his shop are between eight and 10 years old and have 120,000 to 130,000 miles.

Some auto dealers are seeing some of the same repair trends.

Ford Motor Co. said it has seen an overall decrease in dealership service in the past 10 years due to higher-quality products.

"We know that people with older vehicles do bring them in, but to a lesser degree," said Elizabeth Weigandt, dealer communications manager for Ford.

GM dealerships saw a nearly 10 percent increase in service sales for out-of-warranty vehicles through July, said spokesman Henderson.

Southfield Dodge Chrysler Jeep Ram has had an about 21 percent increase in out-of-warranty services in the past 13 to 15 months, but revenues on these vehicles have been down. The dealership was forced to lower its prices to remain competitive, said Dan Frost, owner of the dealership.

Tino Barrera, a 56-year-old Westland resident, has postponed purchasing a new vehicle for about four months. Owner of a 2001 Ford Focus and 1987 Chevrolet Celebrity, he said it's cheaper to pay a one-time repair fee than a monthly car payment.

But Barrera said the Chevy will probably be replaced within a month."We just want to put it off as long as possible," he said.

Kelley Blue Book analyst Gutierrez said he expects owners to continue holding on to their vehicles longer, especially while the economy struggles to recover.

That is the plan for Deborah Thornhill, a 59-year-old Southfield resident who owns a 2001 Hyundai Elantra five-speed and a 2001 Hyundai XG300. She hasn't had a car note in five years and would rather spend her money on traveling.

Thornhill hopes to drive the two vehicles for another three years.

"I'm still not going to buy a brand new car," she said.

From The Detroit News:

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