Millions of cars on the road today are being held together with the proverbial bailing wire-and a prayer.
How old are those cars that consumers won`t part with? And how many are actually on the road?
”There are more than 40 million cars and 20 million trucks on the road today with 100,000 miles or more on them,” says Michael Ward, who heads Ward Transportation Research Inc., a research and brokerage firm in New Rochelle, N.Y.
From 1970 to 1989, the number of cars on the road that were five years old or less rose from 40.5 million to 47.5 million. But in that same time period, the number of cars on the road that were 10 years old or older soared from 12.2 million to 44.1 million, according to the Motor Vehicle Manufacturers Association.
There are so many old cars on the road that industry observers say one of the major factors keeping the automakers from selling more new vehicles is that motorists are clinging to so many old ones.
”Of all the 1981 models built, 76.4 percent are still on the road, along with 69.3 percent of the `80s, 63.7 percent of the `79s, and 54.1 percent of the `78s,” Ward said.
Thanks to inroads in medicine, organ transplants can add years of life to a human being. When it comes to automobiles, engine, transmission and brakes can be replaced to keep a car running years longer, too. After a certain point, however, a replacement engine, transmission, or brakes cost more than the car is worth.
It would seem logical, then, that the number of old cars will serve as the basis for a recovery in new-car sales. When the mechanic says it will cost $500 to replace the transmission in a $300 car, most people will bite the bullet and part with their aged machine.
But there`s debate as to when and if old cars will prompt a rush into new cars to replace the junks.
”The amount of old cars on the road definitely will spur a recovery,”
Ward insists. ”People only have three choices when it comes to a car: Buy a new one, buy a used one or walk.”
Ray Windecker, retired statistician and sales researcher for Ford Motor Co. who now runs his own research and consulting firm, thinks more
caustically.
”The American public is a group of economic lemmings who blindly follow one another into the sea of high economic costs,” he said. ”They buy too many cars when the economy is in an upsurge and too few when the economy is in a downslide. They think it`s dumb to buy when sales are down and wise to buy when sales are up.
”A new car is a postponable purchase. People don`t have to buy one. Twenty years ago a car fell apart in four years, but that doesn`t happen today,” Windecker said.
There are a variety of reasons people have held onto their cars longer:
– New-car prices have risen dramatically, making the cost of a new car prohibitive.
– When they do buy a new car, many consumers have opted for 60-month financing. This effectively keeps them out of the market for five years, until they build up enough equity in the vehicle to be able to trade it in on another.
– The recession has consumers uncertain about their own financial futures, and this translates into a lack of confidence in making an investment in a big-ticket item such as a house or car.
– The Labor Department reported that the nation`s jobless rate climbed to 6.8 percent in March, or 8.6 million people, the highest level in more than four years. The civilian jobless rate has gone up the last five consecutive months. The unemployed, or those who think they might be soon, don`t commit to 60 monthly payments on a new car.
– The longer the buyer holds on to the old car, the greater the spread between the value of that vehicle and the new car, which only serves to make a new-car purchase more expensive.
– Banks and savings and loans have been plagued by their own problems, which have caused the lending institutions to stiffen requirements for loans, making it difficult for some consumers to purchase a car.
Still, there are optimists who see opportunity for the automakers from the death knell that has to sound for the junks still roaming the highways.
”There`s 190 million cars on the road, and all of them can`t drive past the graveyard,” noted independent Detroit analyst Arvid Jouppi.
”We`re in a frugal economic period and want to make do with what we`ve got, but you can only make a car last so long,” Jouppi said. ”The average age of cars on the road today is too high, and people are holding on to them too long for their own benefit.”
Oddly enough, even if those who own old cars were to scrap them and run out to a dealership, many would buy used cars, not new ones. Yet, that still would have a favorable impact on the new-car market.
Most people who own a car five to six years old or less will buy a new car at the next purchase. Those who own a car seven to eight years old or more will buy a three- to four-year-old used car, Ward said.
”But that demand for used cars helps boost their values, and low used-car values have been an impediment to (new) car sales,” said David Cole, head of the office for the study of automotive transportation at the University of Michigan in Ann Arbor.
”As old-car owners buy other used cars, that will elevate the values of the used cars and that means it will elevate the value of the car the consumer wants to trade on a new one,” he said.
Yet, it will take more than old age to bring some buyers back into the market.
”For the near term, and I mean the next 12 months, two things count-consumer sentiment as measured by the University of Michigan survey and consumer income,” said Phil Fricke, analyst with Prudential Securities Corp. ”The University of Michigan consumer sentiment survey in March was at its highest level in history, though some of that may be post-war euphoria. But consumer income levels are down, and that`s a negative,” Fricke said.
”There`s always a lag between a rise in consumer confidence and actual buying behavior, and by no stretch of the imagination does the U. of M. survey suggest car sales will get back to normal overnight. It shouldn`t be a reason for false hope. It means consumers are more optimistic for the next couple of quarters and that we could see some pickup in demand in the fourth quarter,” he said.
