Retail Hazard Ahead: Vehicle Purchases Experiencing Some Delays

Articles | October 18, 2018

Author: Doug Van Sach

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The good news? To date, automotive sales have remained stronger than many analysts originally predicted, with customers of all ages continuing to buy both new and pre-owned vehicles. Considering some of the earlier ominous forecasts, it’s no wonder numerous retailers are breathing a collective sigh of relief.

The not-quite-so-good news, at least for those retailers, though, is that new AutoLoop analytics show that customers are holding on to their vehicles significantly longer before deciding to repurchase. Since a key indicator of upcoming sales is the length of present vehicle ownership, analyzing current trade-in activity among today’s customers is crucial, as it offers invaluable insight into future vehicle sales.

To determine exactly how long customers are keeping their rides now, AutoLoop analyzed trade-in activity over 100,000 vehicle purchases. As a result, we found that in the first half of 2018, the average age of a trade-in was 5.1 years.

In 2017, however, the average age was 4.7 years—and in 2016, just 4.5. While this trend was fairly consistent across vehicle brands, luxury and domestic dealers showed the biggest increase.

So how does this translate to actual numbers for a retailer?

According to the data, the age of a trade-in vehicle is increasing by 6% each year. Another interesting discovery is that longer loan periods did not factor into this trend. In fact, our research showed the exact opposite. Customers whose loan terms exceeded five years actually traded in their vehicles sooner than buyers with shorter finance periods.

Those findings are just as significant for dealers as the ones showing a higher age on trade-in vehicles. They indicate that revenue from loyal sales customers will likely decline as customers choose to stay in their current vehicles longer and delay subsequent repurchases. Accordingly, retailers should start placing a higher emphasis on service and sales loyalty now, combining those efforts with the most intelligent sales marketing. Dealers would also be wise to invest significantly more in retention programs that continuously engage customers throughout the life of a vehicle.

In addition, retailers should develop more sophisticated approaches to interacting with owners who are considering replacing their vehicle, particularly as this segment slowly declines. Digital retailing is one such technology that provides a wealth of resources aimed at capturing the customer’s attention. Using those technologies to create more engagement opportunities helps dealerships maintain a competitive advantage, especially with customers who are more hesitant than ever to contact a dealer during the vehicle purchase process. Plus, digital retailing technology allows dealers to expand and enhance customer profiles, thus helping them deliver the smart, uniquely personalized experience customers are seeking most.

Doug Van Sach
VP of Strategy & Analytics

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