Issue: Mar 2013

Analyst on Demand for Vehicles in the U.S.

Vehicle Population Supports Sustained Demand at Above-Average Levels

by Michael Ward, CFA

Our Call

The average age of the U.S. vehicle fleet reached an all-time high of 11.4 years in 2012 and more than 40% of the total is older than 12 years. While the scrappage rate was one of the lowest on record in 2012, the growing number of older vehicles supports historically high and sustained levels of U.S. light vehicle demand over the next 3-5 years, which in our view, will generate record profitability for the industry.

• The population of light vehicles in the U.S. totaled 251 million at January 1, 2013, up 2.5 million units from the comparable period last year, but the population has been relatively flat since 2007 despite the addition of 11 million drivers and 7 million households.

• The population of vehicles over 12 years of age totaled 101 million units at year-end 2012, accounting for 40% of the vehicle fleet and well above all comparable totals. The disappearance or scrappage rate accelerates as a vehicle ages; a vehicle aged 12-16 years disappears at an 11% average rate or about four times the rate of a vehicle 5-10 years of age.

• A growing number and higher percentage of older vehicles on the road, in our view, support higher demand levels in the U.S. light vehicle market. However, in the near term, we believe people will keep their vehicles longer and mixed economic variables will limit the upside, resulting in a range-bound recovery. On a positive note, the strong underlying demographic data support sustained demand at above-average levels over the next 3-5 years.

• The Figure below looks at the population of light vehicles in the U.S. along with the average age of the fleet since 2002.

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