Study finds improved quality affecting used vehicle demand, prices

(August 31, 2015) MCLEAN, Va. —  In its most recent report, the Used Car Guide division of J.D. Power determined what factors affect used vehicle demand due to improved product quality. Durability has vastly improved over the last 20 years, and the report analyzes findings from several different data sources as evidence.

For instance, according to the J.D. Power 2015 U.S. Vehicle Dependability Study, from 2005 to 2013 the industry average for overall dependability fell from 237 problems per 100 vehicles (PP100) to 126 PP100 — a 47% improvement. Sourcing Polk data, the age of the average vehicle on the road increased to 11.4 years in 2014, up from 8.4 years in 1995.

Average mileage of compact and mid-size cars at wholesale auction increased 6% over the past 10 years, averaging 126,000 miles in 2004 to 133,000 miles in 2014.

Key Findings

• Vehicle ownership terms are increasing
• Consumers are more open to buying used vehicles
• Used vehicles are assuming a more prominent role at franchised dealerships
• Used vehicle prices are stronger

"Used Car Guide analysis revealed the average time for a new vehicle to enter the used market reached 64.7 months in 2014," said Jonathan Banks, executive analyst at the Used Car Guide division of J.D. Power. "Also when we analyzed J.D. Power Power Information Network [PIN] data, we found new vehicle loan terms currently average 67.3 months. The length of new vehicle ownership is basically keeping pace with longer loan terms."

Improved product quality has reduced consumer anxiety about long-term dependability, thus making shoppers more likely to purchase a pre-owned vehicle.

According to Larry Dixon, senior manager of market intelligence at the Used Car Guide division of J.D. Power, "The used vehicle market is three times larger than the new vehicle market, and used vehicles are often more profitable than new ones. A growing supply of reliable and more affordable pre-owned cars and trucks is helping fuel franchise dealers' plans to expand used vehicle operations."

Increasing quality has played a vital role toward improving demand of used vehicles. In the report, insights from the NADA Used Car Guide Used Vehicle Price Forecast model note it is taking vehicles much longer to depreciate to a point where the price of the vehicle stabilizes. For instance, in 1996 it took about 12 years for vehicle depreciation to stabilize. In the past two decades, the average vehicle age has grown to 15.3 years — a 29% increase.

While increased vehicle age, dependability, and mileage are all evidence used vehicle durability has increased over the past 10 years, the report identifies several key findings driving used vehicle demand.