Why vehicles are lasting longer
In October, DesRosiers Automotive Consultants released a report on light vehicle registrations in Canada. The report stated that 22.2 million vehicles were registered in 2011, compared to 20.2 million registered five years ago in 2007.
The report also found that the number of vehicles in the eight to 12-year old range has risen by 23 per cent since 2007. This trend is attributed to two factors: lower scrappage fees and improved durability of newer vehicles.
Scrappage is an industry term used to describe incentive programs to induce car owners to retire their older model vehicles that don’t conform to current emissions standards. These programs are sponsored by governments and automakers.
The DesRosiers report prompted me to examine other trends that contribute to the length of time a vehicle stays registered on the road.
When someone purchases or leases a new vehicle, he/she expects to drive it for a given number of years. For some, it might be three to four years; for others, eight to 12 years, as the DesRosiers study confirmed.
The life cycle of any vehicle depends on a long list of factors. In the past three decades, the average life expectancy of a vehicle has been steadily increasing. In the 1970s and 1980s, customers kept vehicles for four to six years on average before trading them in.
In the 1990s and beyond, the average length of car ownership began to steadily increase (more so in the past five years).
Increased competition has played a key role in this trend. As competition increased, consumers realized that vehicles still performed well after five or six years and it was no longer necessary to sell or trade them after they had finished paying for them.
The growing popularity of the “weekend” vehicle has also contributed to this trend of longer shelf life. Canadians are investing in collector vehicles in greater numbers, for their own pleasure and enjoyment and for investment purposes. This trend is evidenced by the emergence of collector car clubs, the explosion of websites, blogs and magazines, representation at auto shows and the increased value of vintage vehicles.
Another contributing factor to longer vehicle shelf life has to do with the extended length of manufacturers’ warranties, pre-owned warranty programs and extended service contracts. New and pre-owned vehicle warranties have grown more extensive and comprehensive, providing car owners with added protections and peace of mind.
Today, a standard manufacturer’s warranty on new passenger vehicles is three years and at least 60,000 km, whichever comes first. Factory extended warranties are also available that provide consumers with safety and assurance for a longer period of time: 150,000 km or an additional three years.
Auto leasing has also played a role in longer vehicle shelf life. In 2007, at the start of the global economic recession, many manufacturers discontinued leasing as an option, which left consumers with little choice but to purchase new vehicles outright (leasing has since returned).
Prior to 2007, when lessees returned their vehicles after four years, they were motivated to lease another vehicle (after all, driving a new vehicle every few years is attractive to many). With the decline of leasing, however, that cycle largely came to an end.
This trend toward longer shelf life for vehicles has resulted in a significant pent-up demand in the market. An increase in new vehicle sales in Canada in 2012 bears this out; September was the second best month ever for new car sales.
In the past few years, pre-owned vehicle sales have also been on the rise in Canada, due to market forces and the growing popularity of certified pre-owned vehicle programs, which I’ll discuss in next week’s column.