Over the past decade, the automotive industry in the U.S. has undergone significant transformation, driven by fluctuations in car prices, interest rates, and, to a great extent, consumer behavior. These factors have collectively influenced the average age of vehicles on the road, the growth of the automotive repair market and the overall dynamic of new and used car sales.
Rising Car Prices and Their Impact
The average price of a new car in the U.S. has increased substantially over the past 10 years. In 2014, the average transaction cost for a new vehicle was approximately $32,000. Fast forward to 2024, and this figure has risen to just under $48,000. The sharp increase has made it challenging for consumers to afford new vehicles, leading many to hold onto their existing cars for longer periods. Those rising costs have also contributed to the increasing average age of vehicles on the road, which was 11.4 years in 2014 and has climbed to 12.6 years in 2024, an increase of 10.5%. Inflationary pressures have also played a role, as the cost of raw materials, labor and other inputs has risen over the years.
Higher Interest Rates and Their Role
Higher interest rates have also played a crucial role in extending the lifespan of vehicles on the road. In 2022, the average rate for a new car loan was approximately 4.75%. Today, the rate has risen to around 6.8%. Higher interest rates increase the overall cost of financing a new car, making it less attractive for consumers to purchase new vehicles. As a result, many have opted to maintain and repair their current cars instead.
Decline in New Car Production
The past five years have also seen a decline in new car production, exacerbated by supply chain disruptions and shortages of critical components like semiconductors. The decline has led to lower inventories and higher prices, further contributing to the trend of consumers holding onto their vehicles for longer periods.
Comparing the Growth Rates: New Car Sales, Used Car Sales, and Service
The Compound Annual Growth Rate (CAGR) for select sectors within the automotive industry highlights the varying growth dynamics:
- New Car Sales: The global automotive market is expected to grow at a CAGR of approximately 3.7% from 2020 to 2030.
- Used Car Sales: The global used car market is projected to grow at a CAGR of approximately 6.3% from 2024 to 2031.
- Service: The global automotive repair and maintenance service market is anticipated to grow at a CAGR of approximately 10.2% from 2024 to 2032. Though estimates vary by source, this is a much faster growth rate than either new or used car sales growth estimates.
This comparison reveals that the service sector is experiencing the fastest growth, driven by the increasing need for maintenance and repairs as vehicles age.
The Opportunity in the Automotive Service Market
The aging vehicle fleet presents a significant opportunity for the automotive industry, particularly in the service sector. As cars stay on the road longer, the demand for repair and maintenance services continues to rise. This growth is fueled by the increasing age of vehicles, which leads to more frequent servicing and repairs due to wear and tear.
In conclusion, the combination of rising prices, higher interest rates and the aging vehicle fleet has reshaped the American automotive industry. While new and used car sales continue to grow, the service sector stands out as the most promising area, offering substantial opportunities for businesses to capitalize on the increasing need for vehicle maintenance and repairs. As consumers hold onto their cars longer, the automotive repair market is poised for continued growth, making it a vital component of the industry’s future.
About Schneider Downs Automotive Industry Group
The Schneider Downs Automotive industry group serves dealers of all sizes, from single-point locations to mega-dealerships. Our members cross departments and meet regularly to ensure efficiency in the services provided to our clients and discuss issues, regulations and trends affecting the automotive industry.
To learn more, visit our Automotive Industry Group page.
