Over the past decade, the average number of years an American car is on the road has risen. In 2002, it was 9.6 years. That increased to 12.1 years in 2021. iSeeCars researchers recently reported more and more cars are being driven over 200,000 miles.
The 12.1 years could be extended closer to 15 years if the U.S. auto shortage persists. The short supply of microchips used in car electronic and navigation systems has cut auto supplies to historically low levels when matched against demand. New cars prices have risen by double-digit percentages this year, compared to last. People have started to hurt for used car alternatives. That has pushed these prices up as well.
Car manufacturers have hit a grim period. Assembly lines have been shuttered. Revenues have fallen. The saving grace the industry has enjoyed is the ability to drop the incentives that have hurt profits. The prices of some cars have risen above the manufacturer’s suggested retail price. While that has caused some manufacturers to criticize and threaten their dealers, the practice continues.
Another disadvantage for car companies comes as they release new fleets of electric cars. These cars operate with the same type of chips fossil-fuel-powered cars do. New products face an unprecedented log jam. The only large manufacturer that has dodged this recently has been Tesla, but its management stated recently that even it cannot overcome the barrier.
What happens when supply returns? One alternative is a rush to buy new cars. However, the prices of these may stay elevated as manufacturers use demand to keep sticker prices high and incentives low. In turn, people may decide to keep their cars even longer as a way to wait out a period when they have to pay top dollar. This problem for car companies could be compounded by high car loan rates as well.
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General Motors sales will be a good signal for what the consumer will do. It holds about 17% of the new car market in the United States, which means most months it is in first place by that measure. Additionally, it has said it will launch a large number of electric vehicles, as it chases Tesla and consumer demand for green cars with engines that do not rely on gasoline, the price of which has risen to record levels. Watch GM sales over the next year. They will say a great deal about the direction of the industry.
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