Fleet age rising

New Zealand’s fleet has aged rapidly over recent years, with cars in 2013 averaging 13.5 years of age compared with 11.6 years a decade earlier. This article looks behind the issue by giving an overview of its age structure and shows the key contributor to the fleet’s ageing is a glut of used imports manufactured in the mid-1990s. When Infometrics forecasts car sales, it takes a two-pronged approach to establishing its outlook view. Firstly, it models a likely demand scenario over the short to medium term based on factors such as employment conditions, economic growth, interest rates and the exchange rate – the latter affects prices. It then takes these numbers and cross-checks them against a model that looks at more fundamental drivers. This second model of drivers is based on issues such as car ownership and household formation rates, and vehicle replacement demand. The rest of this article focuses on the underlying age structure of the Kiwi fleet. Annual fleet statistics published by the Ministry of Transport (MoT) provides a starting point for exploring changes through time. They provide quantitative evidence of what’s seen on Kiwi roads – the average age of cars is rising. According to the MoT, the average age of cars was 11.6 years in 2003, but by 2013 this had risen to 13.5 years.   A closer examination of the data shows the ageing fleet is explained by sharp increases to the average age of used imports. In 2003, the average age of used imports on our roads was 11.5 years, while by 2013 it was typically 15.4 years old. By comparison, the average age of New Zealand-new cars was steady at around 11.6 years over the same period. To get behind the issue of why the used import fleet’s average age has risen so rapidly, the underlying age structure of the fleet by year of manufacture can be investiagted. There was a glut of used imports on New Zealand’s roads made in the mid-1990s. An incredible 5.7 per cent of all in-service vehicles– one out of every 18 – is a used import made in 1996, while used imports made from 1995-99 represent around 21 per cent (557,000 cars) of all vehicles in the fleet.

Each year, the glut of mid-1990s used imports is getting older, pushing up the average age of cars on our roads. But this trend can’t continue forever because all vehicles eventually reach the end of their useful economic lives. Even so, MoT data shows the average age at which light vehicles were scrapped in 2013 was 19.9 years – up from 18 years a decade earlier. The key reasons for a rising scrap age over recent years has been a combination of economic uncertainty – and less job security – since the global financial crisis, constraining willingness to replace old vehicles and technological advances to cars. For example, rust prevention technology in the early 1990s extended the life expectancy of cars. Infometrics’ central view is the average age at which vehicles are scrapped will stabilise over the next three years as brighter labour market prospects offset technological advances. Even if its view proves to be wrong and the average scrap age increases to 22 years by 2017, this won’t have hidden the fact all used imports made between 1995 and 1999 will have at least surpassed this milestone by that stage. As these cars are likely be owned by those less willing – or unable – to have large amounts of wealth tied up in car ownership, most will be replaced by affordable used imports rather than new alternatives. MoT statistics show annual scrap rates for vehicles made between 1995 and 1999 averaged just 4.4 per cent in 2013, while scrap rates for vehicles aged four years older than that averaged just over 14 per cent. To put these figures in perspective, if scrap rates for used imports made from 1995-99 rise to 14 per cent over the four years to 2017, then the replacement demand they generate alone will account for half of Informetrics’ 120,000 per annum forecast for used import demand by that time. As a result, replacement demand from this mid-1990s glut will be a key element driving vehicle demand over the forecast horizon, no matter what happens to average scrap ages.