Lang Aftermarket iReport: Autos last longer & scrappage falls

“New car and light truck sales in the U.S. topped an annual average of 17 million between 2015 and 2019. Traditionally, this would have generated a sharp rise in vehicle scrappage (vehicles removed from operation). However, this has not been the case, as light vehicle scrappage rates have remained low.

“Low annual scrappage has implications for a wide range of key aftermarket issues: the number of vehicles in operation, vehicle age, mix of vehicle age groups, domestic and foreign nameplate share, as well as aftermarket inventory investment and parts proliferation.”

— Jim Lang, publisher, Lang Aftermarket iReport

Anticipated Higher Vehicle Scrappage Falls Short

The steady increase in vehicle age along with the rapid growth of older cars and light trucks on U.S. roads had prompted many analysts to expect a sharp spike in vehicle scrappage over the past five years, as new vehicle annual sales have averaged more than 17 million vehicles between 2015 and 2019.

However, the opposite occurred: average scrappage rates have declined over the past five years and have been lower than scrappage rates between 2004 and 2014.

Extended Vehicle Life

Cars and light trucks on U.S. roads are lasting much longer than ever before. Vehicles are currently scrapped at an average more than 3 years older than just 20 years ago.

If this trend continues (and indications are that it will), annual vehicle scrappage could remain at moderate levels for the foreseeable future.

Market Impact

Moderate vehicle scrappage will have a number of important consequences for the U.S. aftermarket: vehicles in operation (VIO), vehicle age, vehicle age mix, foreign and domestic nameplate registration share, as well as aftermarket inventory investment and parts proliferation.

Higher VIO in the U.S.

Moderate scrappage rates coupled with strong new vehicle sales have fueled the growth of vehicles in operation (VIO) across the U.S., reversing a trend of flat (and sometimes diminishing) annual VIO levels between 2007 and 2013.

More Vehicles & Their Age Mix

Longer vehicle life will increase the number of cars and light trucks on the road and expand the population of older vehicle age groups. Both of these developments will put upward pressure on vehicle average age.

Foreign & Domestic Nameplate Mix

The increased survival of older vehicles (domestic nameplates being the most numerous) will slow the share growth of foreign nameplates on the U.S. roads.

Growing Inventory Demands & Parts Proliferation

The older mix of vehicles will increase the need to keep vehicle parts in inventory for more years than historically has been necessary. This will intensify the problems of parts proliferation and inventory investment along the distribution chain.

Falling 2020 Vehicle Sales & Low Scrappage

The dramatic impact of the 2020 Virus on new vehicle volume in the U.S. will send 2020 annual sales to historic low levels, with the decline in 2020 annual vehicle sales exceeding the impact of the 2008 Recession on the new vehicle market.

This will further reduce the level of scrappage during 2020 as Americans repair their vehicles to keep them on the road (rather than purchase new vehicles) in a time of economic uncertainty that is expected to continue for some time.

Six Major Takeaways

• Despite the sharp increase in new vehicle annual sales between 2015 and 2019, vehicle scrappage rates have remained moderate
• Vehicles are lasting longer, with scrappage occurring at an average age more than 3 years older than just 20 years ago.
• Moderate scrappage rates coupled with strong vehicle sales have fueled the growth of vehicles in operation across the U.S. over the past five years.
• The increasing average age of cars and light trucks on U.S. roads along with the growth of older age groups are two of the most significant consequences of vehicles lasting longer.
• Vehicle scrappage is expected to fall even lower during 2020 as new vehicle sales suffer a historic plunge as a result of the Coronavirus.
• As vehicles remain in operation for more years, aftermarket product inventories carried along the distribution chain must support an expanding vehicle age range, requiring increased inventory investment and setting off a wave of parts proliferation.

Copyright 2019 by Lang Marketing Resources, Inc.

NOTE: Special thanks to publisher Jim Lang for granting us permission to publish the Lang Aftermarket iReport.