Study Shows Consumers Holding on to Vehicles Longer

A new study from automotive information company Polk shows that consumers are holding on to their new and used vehicles for the longest periods seen since the company began tracking information on vehicle ownership about 10 years ago.

Average car owners are now keeping their cars and trucks for an average of 57 months, or 4.75 years.

That’s up approximately 50 percent from the fourth quarter of 2002, when the average was about 38 months.

Ownership time has been slowly trending upward since 2002 but began rising dramatically at the end of 2008, when the national economy turned for the worse.

In the report, Polk cites the following developments as main drivers of the trend:

  • Resistance to invest in big-ticket items because of the economy
  • Longer financing periods for vehicles that lead to longer “ownership cycles”
  • Increased durability in new American cars and trucks
  • Initiatives from a handful of companies to offer extended warranty periods that make it less risky to drive older cars

The trend toward longer ownership cycles is shown more prominently in the data on new vehicles.

Americans are now keeping new vehicles for an average of 71 months, or about 5.9 years. The average length rose by about  27 percent over the past three years. Between the end of 2002 and the end of 2008, the average ownership period increased by just 12 percent.

The average time Americans hold on to used vehicles is now 50 months, or about 4.16 years, according to Polk. That reflects a rise of about 25 percent since the end of 2008. To put that rate in perspective, the average used-car ownership cycle rose about 32 percent in the six years before that.

Implications for Insurers and Policyholders

While many lenders require new car owners to purchase comprehensive and collision coverages that will pay for damage to the insured vehicle, regardless of fault, these are optional insurance coverages that policyholders often shed when a vehicle gets older.

Consumers getting auto insurance quotes for these coverages often see that they make up a significant portion of the premium. According to data from the National Association of Insurance Commissioners (NAIC), the optional portion accounted for about 47 percent of the total premium for a policy that includes comprehensive, collision and liability.

The conventional wisdom offered by the Insurance Information Institute (III) is that it may not be cost effective to keep comprehensive and collision coverage if the car is worth less than 10 times the premium.

III says consumers can ask auto dealers and banks about the value of their vehicle, or they can check it out on Kelley’s Blue Book, in order to help make this decision.

And NAIC data show a significant portion of people are in fact opting to not get these optional coverages.

Between 2008 and 2009, the ratio of liability policies that included collision coverage dropped 1.05 percent, while the ratio of policies that included comprehensive coverage dropped 0.87 percent.

While that may not seem incredibly significant, both of those ratios had actually been on the rise between 2006 and 2008.

In 2009, about 76 percent of liability policies included comprehensive coverage, and about 71.5 percent included collision covearge.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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