Keeping old cars on the road - includes related article on AutoZone's advertising strategy

American Demographics, July, 1997 by Alison Stein Wellner

My husband is car crazy. Not satisfied with a car that stops at red and goes on green, hes practically always looking for another car to fix up, speed up, or restore to its former glamour. Over the years, repairing old cars has cost us tens of thousands of dollars.

Even households without a car hobbyist spend money to maintain and repair their vehicles, and keeping cars on the road isnt cheap. U.S. households spend an average of $653 a year on vehicle maintenance, whether they do it themselves, pay a professional, or a combination of the two. All told, U.S. consumers spent an estimated $196 billion in 1996 on gasoline, tires, replacement parts, touch-up paint, and the like. Their spending in the automotive aftermarket has more than doubled, from $88 billion in 1980.

Theres more behind this increase than the desire to spruce up our cars with sheepskin seat covers. Americans are spending more on just about everything for their cars because they are keeping them longer. The median age of the U.S. vehicle fleet is almost eight years. Thats the oldest its been in more than 40 years, according to The Polk Company. In addition, there are more cars of all ages on the road than ever. In 1995, there were 193 million vehicles registered in the U.S. That represents an all-time record, and up more than 4.7 million vehicles from the year before.

Dollars and Sense

Why are Americans driving all of these old cars? Its probably not for sentimental reasons. The price of new vehicles is soaring. The average retail price of a 1997 vehicle was almost $22,000, up 7.3 percent from 1996, according to the National Automobile Dealers Association. In 1992, a new car would have cost closer to $17,000. As people with older cars start looking to replace them, sticker shock could have them looking for another way.

Faced with shoppers who cant or wont pay thousands more for a new car than they did for their last one, dealers heavily promote new-car leasing. The attraction for consumers is a new car with lower monthly payments than with purchasing. More than three in ten new vehicles are leased, says Donna Reichle, media relations manager for the National Automobile Dealers Association. Thats a huge leap from as recently as ten years ago. Consumer leases were virtually nonexistent then, she says.

Leasing gets new cars into the hands of people who otherwise wouldnt buy them. It also generates millions of relatively new used cars, when leased vehicles are returned. About 3 million leased cars will be returned to dealers in 1997, and consumers are just snapping them up, Reichle says.

The rising cost of a new car means people who make an outright purchase have a big incentive to keep their vehicles for many years. From the time a new car is driven off the dealers lot until well into the term of a typical car loan, its owner owes more on the car than the car is actually worth. To make payments affordable, many buyers opt for longer-term loans, extending that unfavorable time period. Few people want a new car badly enough to borrow for one before paying off their existing loan.

Borrowing heavily to finance a new car may be impossible for many Americans, who are already loaded with consumer debt. In November 1996, U.S. consumer debt totaled more than $1.19 trillion, according to the Federal Reserve. The Consumer Federation of America estimates average household consumer debt at $6,000. If interest rates rise, potential borrowers may be further dissuaded from trading in their old car for a new one.

Negative publicity about the safety and effectiveness of some new technologies, such as airbags and anti-lock brakes, may also be increasing the number of people keeping older-model vehicles, says Reichle of the National Automobile Dealers Association.

All these older cars should have retailers of parts and accessories sitting pretty. The typical new car is under warranty for at least three years, and cars older than that almost always require some maintenance and repair. A vehicle that is five years old or older is our kind of vehicle, says Eric Epperson, public relations manager of AutoZone, a major retail auto-parts chain.

Yet aftermarket sales are relatively stable. The industry as a whole only experienced a 3 percent increase in sales between 1994 and 1995 to $188 billion, while in other recent years, one-year growth has been as high as 10 percent. The culprits are some of the same factors that cause people to keep older vehicles in the first place.

Both original and replacement parts are of better quality than they used to be. The Automotive Parts and Accessories Association (APAA) reports that long-lasting parts have cut into sales in certain segments of the replacement-part market, such as exhaust system parts, engine hard parts, and general service parts. Although sales of replacement parts totaled more than $76 billion in 1995, they increased less than 1 percent from the previous year.

The popularity of leasing isnt all good news for the aftermarket, either. Not all leased vehicles that are returned are purchased; many are leased a second time, even though their age makes these cars and trucks more likely than new ones to need attention. A consumer who is leasing isnt going to invest in the accessories or appearance products that an owner would invest in, says Robert Ebbin, market analyst for the APAA. They do what they need to do to keep it on the road, but theyre not going to invest in the car.