Lang Aftermarket iReport: Vehicle scrappage is shaping the aftermarket

“Vehicle scrappage (attrition) is the removal of vehicles from operation. There are many causes for vehicle scrappage: wear and tear, accidents, airbag deployment, damage from fire or water, and other factors that render vehicles not worth the repair costs necessary to keep them on the road.

“The rate of vehicle scrappage in the U.S historically has increased with the growth of new vehicle sales. However, contrary to expectations, the rate of vehicle scrappage has declined in the U.S. between 2015 and 2019, despite record-high new vehicle sales. Vehicle scrappage has a significant impact on important characteristics of the vehicles in operation (VIO) and, therefore, aftermarket product volume.”

— Jim Lang, publisher, Lang Aftermarket iReport

Historic Pattern of Vehicle Scrappage

Vehicle scrappage in the U.S historically has moved in the same direction as new vehicle sales. As new car and light truck volume has increased, scrappage has also increased.

In contrast, a decline in new vehicle volume generally has caused scrappage rates to drop.

Unexpected Scrappage Rates

New vehicle annual sales were much higher during 2015 to 2019 compared to the previous five years. This should have boosted scrappage rates, but the opposite occurred.

Despite record-high car and light truck annual sales between 2015 and 2019 (five years with yearly sales averaging more than 17 million) annual scrappage averaged only 4.5% over this five-year span, significantly lower than 5.2% average annual scrappage rates during the previous five years (2010 to 2014).

Low Scrappage Results

Low rates of annual scrappage, particularly in conjunction with record new car and light truck annual sales, has affected the average age of vehicles on U.S. roads, the populations of older vehicle age groups, the mix of foreign and domestic nameplates, and the percentage of cars and light trucks.

Vehicle Average Age

The average age of cars and light trucks in the U.S. has steadily increased since 2015, despite the historic surge of new vehicle sales.

Vehicle scrappage, which generally is concentrated among older age groups, has been unexpectedly low, allowing the population of older vehicles to expand and counterbalance the surge of new cars and light trucks in operation.

Older Vehicle Age Groups

Cars and light trucks over 15 years of age represent one of the fastest growing VIO segments.

This reflects the low rate of vehicle scrappage, which disproportionately reduces older vehicle age groups.

Domestic & Foreign Nameplates

Low scrappage has slowed the rate of domestic nameplate decline across the U.S., since older vehicles (15 years and up) are predominantly domestic nameplates.

As a result, the number of domestic nameplates in operation during 2021 is greater than what it would have been had annual scrappage rates risen in conjunction with new vehicle sales growth during 2015 through 2019.

Cars and Light Trucks

Generally, light trucks are scrapped at lower rates than passenger cars, controlling for vehicle age.

This reflects the greater utility value of light trucks compared to most cars. Reduced scrappage is increasing light truck “survival” and generally boosting the number of light trucks on the road, particularly in older age groups.

Scrappage During 2020 and 2021

The plunge in new sales volume during 2020, one of the many results of Covid-19, further reduced scrappage rates last year. Lang Marketing projects that vehicle scrappage will remain at a low rate during 2021, even as new vehicle sales rebound.

Aftermarket Consequences

Vehicle scrappage is changing vehicle average age, the size of vehicle age groups, the mix of domestic and foreign nameplates, as well as the populations of cars and light trucks.

The impact of Covid-19 on new vehicle sales and scrappage will boost vehicle age growth during 2020 and 2021, as older vehicles remain on U.S. roads.

These vehicle changes will have important consequences for the aftermarket in terms of product volume, product brands, where products are sold and installed, and the channels through which products are distributed.

Six Major Takeaways

• Although vehicle scrappage traditionally has moved in the same direction as new vehicle sales, vehicle scrappage remained low between 2015 and 2019, despite record-high car and light truck annual sales.
• Low scrappage rates and the population growth of older vehicle age groups have helped to increase the average age of light vehicles in the U.S.
• The population of older vehicle age groups, particularly 15 years and higher, has been boosted by moderate scrappage rates. Older vehicles generally use more aftermarket products per mile travelled than new cars and light trucks.
• Since older vehicle age groups contain higher shares of domestic nameplates than younger groups, low scrappage has enabled more domestic nameplates to stay on the road.
• By keeping light trucks in operation longer, low scrappage rates are helping to increase aftermarket product volume, since light trucks in the U.S. average greater annual aftermarket product use per vehicle than cars.
• Lang Marketing expects scrappage rates will remain low during 2021, continuing these aftermarket-boosting trends in vehicle average age, the populations of older vehicle age groups, the mix of domestic and foreign nameplates, and the population percentages of cars and light trucks.

Copyright 2021 by Lang Marketing Resources, Inc.

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