Americans keep their cars longer as prices rise and credit tightens

The average vehicle on U.S. roadways has reached a record 12.6 years old this year, thanks to lofty prices and low credit access.

The age of vehicles people drive has risen steadily since the end of the pandemic, according to S&P Global Mobility, which tracks national vehicle registration data.

Three years into our worst bout with inflation in four decades, the high cost of vehicle ownership has put a new set of wheels out of reach for many.

“It’s prohibitively high for a lot of households now,” Todd Campau, an aftermarket leader at S&P Global Mobility, told the Associated Press.

“So I think consumers are being painted into the corner of having to keep the vehicle on the road longer.”

Forced to drive old vehicles until the wheels fall off

For Americans who have already been hard hit by slowing wage growth and dwindling savings, auto sticker shock has made a new vehicle an expense they can no longer afford.

After all, automobiles are a major purchase, the second-most expensive buy for most people after their home.

The median price of a vehicle is $49,305, that’s 28% higher than pre-pandemic levels, according to car-shopping app CoPilot's Car Price Index.

Auto sales industry execs expect pent-up demand created by Americans hanging onto their vehicles longer to keep costs elevated for the foreseeable future, meaning consumers should expect a long ride before the vehicle prices return to normal.

The Fed began raising interest rates last year to combat inflation, leaving rates running at their highest level since 2001.

Auto lending tends to track the five-year U.S. Treasury note, which is impacted by the Fed’s key benchmark rate. That translates to equally high auto finance charges.

The average rate on new car loans in April was 7.2%, according to Edmunds.com. But that’s only part of the equation.

A borrower’s credit history, the type of vehicle being purchased and the down payment amount all factor into determining auto loan rates.

Making matters worse, lenders have been tightening auto loan terms, making it harder for those willing and able to take the leap to get approved for financing.

That means less people have had access to new car loans compared with last year, according to Dealertrack, a service that monitors credit availability based on loan approvals, terms and down payments.

So, drivers are rethinking new vehicle ownership and stretching the number of years they are willing to hold on to their existing car or truck.

It’s a prudent move, given the high delinquency rates on auto loans received in 2022 and 2023, “because buyers during those years faced higher car prices and may have been pressed to borrow more and at higher interest rates,” New York Fed researchers wrote in a blog post in February.

To attract buyers, carmakers are offering incentives like low-rate financing, and dealerships have followed suit with financial perks including cash-back rebates.

That spells good news for anyone considering upgrading their old ride.