On a recent weekend in Madison, Wisconsin, cars on the street had the look of a bygone era. I saw surviving Saturns, Oldsmobile minivans, even that funky old greenhouse on wheels, the AMC Pacer.
Turns out, cars in the rest of the country are going vintage, too. The average light vehicle on U.S. roadways has now reached 12.2 years old – the highest figure since tracking began more than two decades ago.
Part of this is due to more durable vehicles that last longer. Part stems from shadetree mechanics keeping older cars they can fix, rather than new ones they can’t. Yet most of this trend is caused by pain at the dealership. With microchip shortages limiting selection, dealers charging thousands of dollars over sticker price, and inflation attacking consumer spending power, consumers are asking themselves, Why do I need to pay $800 a month for seven years, just to say I’m driving a $46,000 car?
The new consumer economy
The stats say all you need to know. The average price of a new vehicle is now a record $47,148, according to Kelley Blue Book. The average loan is creeping toward $40,000. The average interest rate is hovering around nine percent.
All this comes at a time of increasing financial chaos. Mortgage rates are trending skyward. So is the price of rent, food, and gas. If inflation is pushing up your remaining costs by 8.6 percent, you’re going to think twice about heading to the dealership. Especially when inventory shortages give dealers the power to charge whatever they will.
Covid also brought distinct changes to the way we drive. If you’re only commuting to the office once a week, that 2010 Camry will do just fine. And if you’re now back to commuting after two years at home, chances are the money you would have spent on a new car is now invested in things like Hulu, gym equipment, and all the creature comforts that made isolation more bearable.
So what may have been a conscious decision concerning a rising crisis has now turned to an economic imperative. Your wages are rising nowhere near the pace of inflation. Where are you going to come up with hundreds of dollars more for a new car payment?
Winners and losers
The winners in all this are mechanics. The increasing sophistication of the modern vehicle is already pushing aside home mechanics. Now, as autos move deeper into their geriatric years, the service bays at Pep Boys and Midas will be bustling.
The same can’t be said for dealers. They may be able to tack thousands of dollars in “market adjustment” fees atop a new car’s MSRP. But they’re not winning customer loyalty in the process. Nor are they winning friends with the automakers that supply them. In fact, they may be pushing themselves to extinction.
Ford CEO Jim Farley recently announced his intention to move to 100 percent online sales, with fixed prices and no negotiation. There will be zero inventory at dealerships. Pickup and delivery will be fully remote. The move would not only allow Ford to rein in wayward dealers, but to claim a larger chunk of the profits for itself.
Still, the transformation of a giant firm takes years in the making. In the meantime, automakers will have to do something to win back consumers who are now turning their backs.
It will likely involve things like reducing the number of microchips in individual vehicles to stretch inventory. So while you can still get powered adjustable seats, they won’t come standard. And though you may be able to order them, the dealer might not have any idea when your car will be ready.
Automakers have little choice. The need to do something to demonstrate value. If you’re now selling an F-150 at $8,000 over MSRP and 14 percent interest, that’s not a recipe for robust sales. Manufacturer-subsidized interest rates and financing options should serve as another tactic to persuade customers off the sidelines.
In the meantime, consumers should take care of the car they already have. Don’t skip oil changes. Be diligent with scheduled maintenance. Make sure you’re getting that timing belt replaced on schedule. We’re also likely to see a renewed emphasis on the extended warranty.
Even if supply chains come back to health, and cars return to selling for MSRP, the price of a new vehicle rarely goes down. Whatever that sticker says in the future, it’s going to include a big number.