The Auto Channel--Aftermarket Business Magazine

Used-vehicle market continues growth

FOR THE THIRD consecutive year the number of used-vehicle transactions in the United States has shown steady growth, according to findings released today by The Polk Company. In 1997, nearly 37 million used vehicles traded hands in the United States, a 4.6 percent increase from the previous year.

Since 1994, virtually all of the growth in the market has been on the used-vehicle market side. According to Polk data, the used-vehicle market has grown from 32.07 million units in 1994 to 36.79 million last calendar year, an average of 4.7 percent annual growth over the period. New-vehicle registrations, on the other hand, were stagnant over the same period.

In 1997, there were 15.06 million new cars sold, compared to 36.79 million for used vehicles. The new car figure has barely changed since 1994 when 14.95 million new vehicles were sold, compared to 32.07 million used vehicle being sold.

"The record number of vehicles on the road and their increasing reliability and durability have certainly contributed to market growth," said Richard Spitzer, director of industry analysis for Polk. "These factors remain very positive for the used-car market."

Polk, which tracks the automotive industry and provides analytic services, introduced its used vehicle database in 1996 and unveiled a methodology to determine used-car market size. The database (based on Polk's census of vehicle registrations) and methodology resulted in a widely accepted benchmark of used car market size.

"The increased used-vehicle activity in light of stable new-vehicle sales suggests that consumers are taking advantage of attractive new-vehicle pricing to trade up, which, in turn, causes a ripple effect throughout the used car market," said Spitzer.

Largely, this is the result of a strong economy and aggressive marketing efforts by automobile manufacturers. Leasing popularity has grown significantly in recent years, and, as a result, more high quality, late-model used vehicles are available in the marketplace.

Polk data shows the influx of 2-year-old and 3-year-old vehicles has dramatically affected the point at which people trade a vehicle. The share of the used-car market for these vehicles increased from 12.1 percent in 1995 to 14.6 percent in 1997.

At the same time, the market share represented by 4-year-old to 7-year-old vehicles declined from 23.6 percent to 20.9 percent. This suggests that the increasing supply of late-model, low mileage vehicles has resulted in consumers buying newer vehicles and keeping them longer. The used-car market share of vehicles aged four to 10 years old traded has dropped, while there has been a concurrent increase in the share represented by vehicles 11 to 14 years old.

The growing used-car market can also be attributed to an increasing trading rate. Polk compared used-vehicle transaction volume against the total number of vehicles on the road (passenger cars and light trucks) to determine "turnover rate" - the portion changing hands in a given year. Turnover of all vehicles in operation has increased steadily from 17.6 percent in 1994 to 19.1 percent in 1997.

Should the observed trend continue, it bodes well for the used-car market. If the turnover rate continues to rise as it has the last three years, the combination of more vehicles on the road and faster turnover will result in a projected used-car market growth of more than 1.5 million transactions per year between 1998 and 2000.

Polk provides multi-dimensional intelligence information solutions to companies as a statistician for the motor vehicle industry; as a direct-marketing resource; as a supplier of demographic and lifestyle data and database-marketing services; as a publisher of city directories; and as a data enabler for geographic information systems.

Polk is a privately held firm with facilities around the world, including the United States, Canada, England, Germany, and Costa Rica.

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