The car on the road today is quite the old timer.

In fact, Polk reported in January that the vehicle population age hit a record high of 10.8 years last summer, after what was more than an 11-percent rise in the preceding five years.

And this graying of the vehicle fleet has begun showing up at trade-in time.

The average age for cars traded in during February (6.16 years) was the highest ever recorded in February, according to Edmunds.com.

“The average age of a trade-in is at its highest. People had been holding onto their vehicles the last several years,” said Joe Spina, senior manager of remarketing at Edmunds. “Older trades will be a reality for the near future.”

This, of course has been directly impacted by the fallout in new-vehicle sales from the recession, which saw new-car sales tumble in recent years before making a remarkable comeback.

Pulling from his past experience, ADESA’s Tom Kontos suggested that “because of the recession in 2008 and 2009, we know that many people who normally traded their cars in at that time delayed that trade-in and spent more money on servicing their car to keep them on the road longer than they might have otherwise.

“So, my belief is that the cars that are coming back as trade-ins these days might be a little longer in the tooth than the vehicles that would have been traded in (during) normal times when folks would have brought those cars back in maybe 08, 09, 2010 or even in 2011,” he continued.

CPO Market Impacts

And with his aging trade-in population, the certified pre-owned arena is impacted, as well.

Given the age of these units, many of today’s trade-ins aren’t likely to be within the requirements for most CPO programs.

According to Larry Dixon III, senior automotive analyst at NADA Used Car Guide, dealers say that roughly 60 percent of their new-vehicle sales have trades, and of this amount, dealers usually keep around 40 percent. Of these vehicles, anywhere from 15 percent to 30-35 percent are likely to be certified, depending on the specific market and somewhat on the brand, Dixon said.

However, Kontos emphasized that even with older, higher-mileage cars that perhaps aren’t CPO-worthy rolling into dealer lots, these units are “still good opportunities for dealers to make a good gross profit.”

He added: “And these days, with the Internet opening up avenues to retail vehicles that dealers might have otherwise wholesaled … it improves on the used-vehicle supply situation because the dealers now have a marketable, retailable, profitable unit.

“It may be older, it may be higher-mileage, but it still gives them a chance to make a good sale — to turn and earn, as we like to say — which might also make them less likely to come to the auction for it. So that helps alleviate some of the tightness in supply for folks at the auction,” Kontos continued.

Trade-In Scarcity

Not only are trade-ins typically older these days, they often hard to come by.

“We estimated that roughly 5 million cars were not in the market that would have been in the market in the absence of the recessionary period, and roughly 55 percent of new-car deals have a trade-in,” said Paul Taylor, chief economist with the National Automobile Dealers Association. “So, you’re getting about half as many trades in compared to the number of new cars that you’re selling, even if your sales ratio at the dealership is as much as 1:1, used-to-new.”

Taylor said there has been a modest drop-off in the past decade or so, from 60 percent of new sales having trade-ins to the aforementioned 55 percent.

“It’s fallen somewhat because the shortage of used cars, I believe, has led to people often selling their cars to their children or their neighbors,” Taylor said, adding that “because cars are in relatively short supply and prices are high, people actively seek the desirable car in the neighborhood before it ever goes through the trade-in process.”

Likewise, CNW Research president Art Spinella echoed much of the same in the firm’s March Retail Automotive Summary.

“Franchised new-car dealers are still shy on inventory of hot sellers because the people who have them are either keeping the car/truck or selling it privately. The 3-percent increase in March used sales by franchised dealers is more a reflection of this lack of fast-moving inventory than a weakness in the industry,” Spinella shared.

He added: “The independent dealers are suffering the same fate. While their prices are up and transaction prices are rising, they are finding better funded franchised dealers a hard competitor for the in-demand models.”

That said, things appear to be getting better. New-vehicle sales have jumped, so naturally, trade-ins tend to follow.

And for a dealer like Matt Lasco — general manager at Lasco Ford in Fenton, Mich. — high used resale values have allowed his store to “step up” and give more for trade-ins. Lasco said during his late-March interview with Auto Remarketing that his store has seen an uptick in trade-ins during the preceding 60 days.

In fact, Lasco Ford was taking in about 40 percent of the vehicles they appraised, compared to the 34-percent level spotted from November through January. What’s more, with resale values so high, customers can trade much earlier in the cycle, Lasco noted.

“Trade-ins are still difficult to come by; however, as sales continue to improve, most dealers are seeing an increase in trade-ins every month,” said Alec Gutierrez, senior market analyst of automotive insights at Kelley Blue Book. “Sales in February approached levels not seen since 2007 and we are expecting similar results in March.”

Gutierrez went on to point out that KBB’s Consumer Sentiment study from the fourth quarter showed that an overwhelming majority (97 percent) of new-vehicle intenders own a vehicle at the moment. And more than half (56 percent) of those shoppers are intending to trade that vehicle in.

“There is a strong relationship between trade-ins and sales growth, so again, expect trade volume to increase as sales improve,” Gutierrez continued.

Moreover, Spina explained that “at the current new-vehicle sales pace — and if the year continues with the current trade-in percentage — upwards of half a million additional used cars will be available.”

He added: “Some will be wholesaled, but if the cars are coming in high enough volume, dealers will be in a slightly better position to fulfill demand.”

Spina said that in February, about half of new-car sales had trade-ins.

“This has risen every year since 2008,” he said, referring to February year-by-year data, “when that percentage had bottomed out at about 35 percent.”

Chiming in, Dixon stated: “It is still scarce, but it is getting a little bit better, as you would expect. As new-vehicle sales go up, there are going to be increasing numbers of vehicles going back in trade. In our conversations with dealers … they’re seeing increasing number of trades coming back, although there is still pressure to find clean, late-model used vehicles.

“So there still is a challenge out there. We still have a ways to go before that challenge isn’t as difficult as it has been,” Dixon continued.

Segmented Trends

Looking at some trade-in trends within individual segments, CNW found through its nationwide analysis that high fuel costs haven’t deterred shoppers with trade-ins from buying within that segment again.

Though down modestly from five years ago, segment loyalty (for the four vehicle categories included in CNW’s analysis) is still rather high during new-vehicle sales with trade-ins.

The analysis — which looks at the first few months of the year — showed that nearly 82 percent of shoppers with a large car trade-in bought another large car, compared to 83.7 percent in 2007.

Among full-size pickup traders, 90.2 percent remained loyal to the segment, versus 92.7 percent five years ago. For minivan traders, 88.1 percent bought another one, essentially static with the 2007 level.

For sports car traders, 62.3 percent got another sports car, down from 71.4 percent in 2007.

“In a national analysis of trade-ins, it is clear that consumers are feeling the gasoline price pinch, but still not ready to give up on the type of vehicle they have been driving,” Spinella shared.

“When those who remained in their segment were asked about the primary motivation for selecting a vehicle and trading in their current model, fuel economy was listed among the top three reasons in better than 80 percent of the cases for every segment except sports cars,” he added.

“Fuel economy sells, but many consumers are not willing (or able) to give up on the type of vehicle already in the family fleet,” Spinella continued. “Downsizing is now a function of practicality or driving needs rather than an attempt to boost fuel economy.”

Spinella went on to note that for large car traders, just 7 percent opted to buy a smaller ride, which was just marginally higher than the 2007 level.

Mulling over whether or not this trend will go in reverse, he noted that “the threshold for drastic action on the part of consumers is about $4.75 per gallon. That day may come and the result may be a boom in small-car sales.

“How soon can it happen? As quickly as perhaps the end of this summer,” Spinella added.

Moving on, Spina of Edmunds looked at the vehicles most commonly traded in at dealerships. He found that, based purely on volume, the following is the top five:

1. Honda Accord
2. Ford F-150
3. Honda Civic
4. Toyota Camry
5. Chevrolet Silverado 1500

Same Brand or Competitor’s?

When asked whether dealers were more prone to go after their own brands for trade-ins that can be certified or take whatever comes their way, analysts noted that making the new-car sale and securing used inventory are the priority, so dealers aren’t necessarily extra picky.

“Dealers will take almost anything and everything on trade, for the right price of course. Dealers will aggressively pursue their own brand for CPO-eligible units; however, that does not preclude them from purchasing vehicles outside of their brand,” Gutierrez said.

“If the vehicle is in demand, they will take a trade and display it on their lot. If a dealer doesn’t want to retail the vehicle on their own, they will call a wholesaler to dispose of the vehicle or simply send it to auction,” he continued. “With used-car values still at record levels and climbing, dealers will take inventory any way they can find it.”

Given his background working for a large auction company, Kontos offered another perspective to the matter.

“Let’s contrast trade-ins with going to the auction. When you go to the auction, you’re proactively stocking your used-car inventory with vehicles you specifically select for your market,” he shared.

“In the case of a trade-in, you’re somewhat more reactive to whatever the customer is going to bring you. And, yeah, you can offer him less or more on that trade, and thereby maybe even take a trade or not take a trade based on what you’re willing to offer,” Kontos continued. “But because dealers are so highly motivated to score a sale on a vehicle, they’re going to err on the side of offering a customer enough on that trade to take that trade.

“Dealers are going to pretty much figure out any way to take any trade in order to make sure they close on the sale of the vehicle they’re trying to sell the customer, whether that’s a new vehicle or a used vehicle. As a result, the types of vehicles you may take might not necessarily be of their same brand or within a mileage target or age target that would be ideal for their market demographic,” he added.

Continuing on, Spina added: “Typically dealers will take almost any vehicle as a trade (for the right price), although when they actively solicit the public they tend to focus on their own brands. As far as doing so to certify the vehicle, that depends on the dealer. Many do so for OE certification, some for their own private label certification and others simply to have inventory to meet demand.”

And as Dixon points out, taking other-brand vehicles can allow dealer to diversify their used-car lots.

“No Chevy dealer wants all Chevy Traverses on their lot, for example. They’re really looking for a diverse selection, whether that is within their brand or a cross-brand,” Dixon said. “Given the state of the market today and the difficulty in tracking down vehicles with decent mileage that are in good shape, they’re more open to taking other brands.”