The pandemic is affecting the car industry in unusual ways. New car sales are being impacted by a global shortage of semiconductor chips resulting in low supply of inventory and higher prices. The average new car price hit $41,000 in June, up 5% from a year ago, and the average used car price hit $26,500, up 27% from a year ago. Sales of automobiles dipped at the beginning of the pandemic and began rising again in the latter half of 2020. U.S. auto sales in 2020 were about 14.6 million, down by about 3 million from the previous year. In 2021, the forecast is for sales of about 15.7 million cars.
Rental car companies have been affected as well. Last year, rental companies sold off parts of their fleets when bookings were low to stay above water. This summer, demand for rental cars has skyrocketed, and rebuilding those fleets is taking time which has created a supply shortage that is driving up rental costs. In Hawaii, tourists have resorted to renting U-Hauls to avoid paying rental prices that are as much as $1,000 per day. Some have called the situation a “car rental apocalypse” as companies scramble to meet demand. Both Hertz and Enterprise expect excess demand to continue through the near future. RV rental company Outdoorsy witnessed a 1,500% surge in bookings from the lowest booking day amid the pandemic to the highest booking. Outdoorsy is the Airbnb of recreational vehicles. It’s an online marketplace where renters can book camper vans, trailers, and motorcoaches from RV owners. It gained popularity as a way for people to vacation and social distance during the pandemic.
For the first time, the average age of vehicles on the road in the U.S. has surpassed 12 years old. According to new research from IHS Markit, the average age of a car in the U.S. climbed two months to 12.1 years, up from 11.9 in 2020. A decade ago, the average age of a vehicle in the U.S. was 10.6 years according to IHS Markit, and in 2002, the average age was 9.6 years. Vehicles are becoming more durable and lasting longer, and older cars are holding their value. Analysts note that cars used to be ready to hit the scrapyard when they reached 100,000 miles, and now it’s not uncommon for cars to be driven up to two times that distance or more, particularly electric cars. This is due to advances in automotive technology, such as improved parts and materials, improved assembly, better electronics, the advent of fuel injection, and use of synthetic oil, to name a few.
2020 also saw a sudden increase in vehicle scrappage, which is vehicles leaving the road. The causes for vehicle scrappage are accidents, air bag deployment, wear and tear, damage from fire or water, and other factors that render vehicles too costly to repair. It may also encompass cars that were mothballed or stored due to the pandemic when owners opted not to renew registration. Scrappage saw its highest volume in two decades at over 15 million units, comprising 5.6% of vehicles in operation. Typically, an increase in the scrappage rate would be expected to decrease the average vehicle age mentioned above, but this has been a weird year for the car industry.
During the pandemic, Americans put fewer miles on their cars. Miles traveled declined more than 13% last year due to pandemic-induced lockdowns and people working from home. As offices re-open, vehicle owners who may have allowed registrations to lapse because they were working from home may renew those registrations. The high demand and high prices offered for older vehicles may motivate individuals to sell their current vehicle and trade up to something newer.
As journalist Jim Henry said, the auto industry is “pervasive, yet little understood.” The anomalies of the past two years, and their broad reaching effects, have really proven his point.