The Unemployment Odometer

Edmunds, a consumer auto site, has run some numbers on the average mileage of old cars being traded in for new cars and found that it’s increased alongside the rising unemployment rate. The Web site's interpretation is that people are holding off on new-car purchases but that there’s interest—interest that the automakers should try to tap in an effort to drive a recovery:

Consumers are holding onto their vehicles longer than in previous years. Edmunds.com analysts have calculated that the average mileage on trade-in vehicles is up 8% as compared to a year ago, and up 15% since January 2008. (The current average trade-in mileage is 65,883, while one year ago it was 61,038 and in January 2008 it was 57,079.)

Throughout the auto business right now, there’s a mounting sense that the current downturn can’t possibly last much longer and that we should see signs of a prolonged and sustainable increase in new-vehicle sales pretty soon. Cash for clunkers has kicked in, and the opportunity to pick up a $3,500-$4,500 voucher for trading in an older vehicles appears to have begun clearing dealer lots.

However, unemployment remains an issue. All those people holding off on a new car purchase because they’re worried about job loss or have already lost a job may hold off further. One of the drawbacks of building better and better cars over the past decade is that many of the vehicles on the road have plenty of life left in them, even if their odometers have hit six digits. And even people who are trading in an older car are often purchasing a cheaper used car. In fact, the used car market has become more competitive of late than the new car market.

Two things probably have to happen for an auto-sector recovery to gain speed. First, lending standards have to drop. Consumers with stressed credit who want a new car need to at least believe they have a shot at a loan, even if the interest rates might be high. Second, unemployment has to stabilize. Companies like Hyundai have addressed this anxiety with “assurance” programs, essentially insurance that allows a consumer to get out of their auto loan if they lose their job. But anyone who’s unsure about the paycheck six months down the road will hesitate on signing papers for a loan that could last five years.

The auto recovery will come, but it’s going to be bumpy. On the bright side, older, well-maintained cars offer everyone the chance to practice sustainability and, for a while anyway, experiment with stepping off the consumption treadmill. Pride of total ownership can be a good thing. Trading in isn’t always trading up.