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Used Car Tune-up vs That New Car Smell

28 May 2015 in Trading Ideas

Economic sluggishness has pushed consumers to stretch out the lives of their current rides. However, following manufacturing capacity cuts in the last recession, it could be time for the new-car business to shine. Which theme ultimately wins out?

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MAKING DO WITH MORE MILEAGE

The recession put the brakes on consumer spending, and made credit harder to come by. As a result, fewer people bought new cars, which boosted the average age of US cars to a record 11.4 years in 20121. Spending on car maintenance increased, and that helped companies that serve the aftermarket for replacement parts and services. Additionally, more consumers started fishing for deals on used cars. That increased sales of pre-owned vehicles by 4.4% from 2011 to 20122, while the average price of a used car (up to eight years old) increased 1.2%.3 All of which revs the engines of car dealers, who earn higher margins on used car sales vs. new cars.

The Used Car Tune-up motif provides exposure to the companies that may benefit from the surge in the auto aftermarket business caused by the extended use of aging cars.

RECOVERY MAY REV NEW CAR SALES

Historically, the average car on a US road has been a little more than 8 years old4. But the recession forced more drivers to stay behind the wheels of their aging cars. As new vehicle sales dropped by more than one-third to 10.4 million in 20095, the average age of cars grew to a record 10.8 years. As existing cars age and maintenance costs rise, consumers may actually find it cheaper to replace them with newer models. During the last recession, automakers and their suppliers cut their manufacturing capacity, offering a potential benefit if consumer demand returned. In 2013, worldwide vehicle sales rose 5.2% from prior year, supported by a 13% increase in North America6.

The New Car Smell motif provides exposure to companies that make cars, auto parts and related components that could be in need as more consumers swap their old car keys for new ones.

STOCKS WITHIN THE USED CAR TUNE-UP MOTIF 

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STOCKS WITHIN THE THAT NEW CAR SMELL MOTIF

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(1) Average age of cars on U.S. roads hits record 11.4 years, August 2013 http://www.latimes.com/business/autos/la-fi-hy-polk-car-age-20130806,0,3174440.story

(2) Used-car sales climb as Americans hold onto older vehicles, Feb 2013 http://editorial.autos.msn.com/blogs/autosblogpost.aspx?post=91bf2fef-50e6-4926-8f34-32fc16cbfebc

(3) Used Car Prices Stay High, Feb 2013 http://www.forbes.com/sites/jimgorzelany/2013/02/14/used-car-prices-stay-high-heres-where-to-find-the-best-deals/

(4) Associated Press, “Our cars are getting older, too: Average age now 10.8 years” USA Today, Jan. 17, 2012, “http://www.usatoday.com/money/autos/story/2012-01-17/cars-trucks-age-polk/52613102/1,” (accessed Sept. 21, 2012).

(5) National Automobile Dealers Association, State of the Industry Report 2012, http://www.nada.org/NR/rdonlyres/C1C58F5A-BE0E-4E1A-9B56-1C3025B5B452/0/NADADATA2012Final.pdf,” (accessed Sept. 21, 2012).

(6)) Solid North American Growth Boosts World Vehicle Sales in July, http://wardsauto.com/world/solid-north-american-growth-boosts-world-vehicle-sales-july (accessed Sept 30, 2013)

  1. Ellen Banks
    23 Jun at 11:46 am

    I was surprised to read that the average age of U.S. cars is 11.4 years. Logically, I can see why the recession would curb spending and leave consumers buying fewer cars and driving their current ones for longer. My car is older than I am, so I can relate to this article and found the information very interesting.

    Reply
  2. Tae
    29 Jun at 3:11 am

    Both

    Reply

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