U.S. Customers are Keeping Cars Longer

(MoneyWatch)  NEW ORLEANS -- Nobody is wishing for a return to the bad old days of poor quality for Chrysler, Ford and GM -- they have enough trouble defending their market share.

But in today's market, households that are tightening their belts can safely hang onto their cars and trucks longer, and they are.

In the fourth quarter of 2008, the age of the average trade-in jumped to 76 months, up from 68 months in the fourth quarter of 2007, and 68 months in the fourth quarter of 2006, according to J.D. Power and Associates. Ford is touting in its advertising and public relations that its quality is on a par with Honda and Toyota. GM and Chrysler both claim they are building the best-quality cars they ever built. In a Jan. 23 speech here sponsored by J.D. Power, Chrysler Vice Chairman and President Jim Press said Chrysler's warranty costs are the lowest in the history of the company.

"The quality is superb. You can't distinguish between one company and another," he said.

The downside for the auto industry is that better quality and longer warranties have made it less urgent to trade in vehicles that are more than four years old.

Better quality also makes it possible for customers to postpone service visits, and that has a big impact on dealerships. Dealerships survive on parts and service business, when new-vehicle sales are down.

In addition, many buyers are "upside-down" in their vehicles, said Gary Dilts, J.D. Power senior vice president. That means they owe more on their existing vehicle than it's worth as a trade-in.

In a better market, people would be more likely to trade it in anyway, and simply pay off the negative equity in their old vehicle, or add it to the amount borrowed, for their new vehicle. Customers today are less willing to borrow more, and lenders would be less likely to approve if they tried.

"They're going to keep making those payments, they are not going to write a check to get out of this," Dilts said. He estimated there are probably 6 million upside-down U.S. customers that are postponing new-vehicle purchases.

The good news for the auto industry is that those buyers in the long run represent pent-up demand, Dilts said.