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Fleet Depreciation Trends Remain Stable for CY-2013

The continued shortage of quality used vehicles and the availability of low interest rates for dealers to floor plan inventory and finance retail buyers were two key factors responsible for a stable wholesale used-vehicle market.

December 2013, by Mike Antich - Also by this author

Photo by Chris Wolski.
Photo by Chris Wolski.

The used-vehicle market has always been driven by supply and demand. In the 2013 calendar-year, vehicle supply in the wholesale market continued to be tight relative to demand, helping bolster resale values.

"The two biggest drivers in the used-vehicle market for CY-2013 were the continued shortage of quality used vehicles in the market and the availability of low interest rates for dealers to floor plan inventory and to finance retail buyers," said Darrin Aiken, assistant VP, vehicle remarketing for Wheels Inc. 

In addition, lower acquisition costs and longer loan terms helped bolster the used-vehicle market. "The only challenge was supply being so tight due to fewer vehicles being sold and fewer traded in at the new-car stores, and even fewer finding their way into the wholesale market," said Ricky Beggs, VP and editorial director of Black Book.

However, the supply of used vehicles is continuing to increase each year, which will eventually create a supply/demand equilibrium in the wholesale used-vehicle market.

GE Capital Fleet Services quantified the increase in inventory in the wholesale market. "Volume in the wholesale used-vehicle market is up in 2013 by approximately 3 percent after having been steady in 2012 when compared to 2011," said Steve Jastrow, strategic consulting manager for GE Capital Fleet Services.

"In 2012, the wholesale market was past its historic peak, and resale values were mildly declining as volume returned to normal levels," said Bob Graham, VP, vehicle remarketing for ARI. "Although the wholesale market to date in 2013 has been weaker than 2012, resale values currently remain slightly above the traditional average. We expect resale values to continue declining as the number of used vehicles returning to the marketplace increases and becomes level with inventory demands."

One factor that helped boost resale values was the higher transaction prices for new vehicles, which acts as an informal ratio to calculate used-vehicle values for comparable, but older vehicles.

"Although rising wholesale inventory levels were projected to result in a decrease in year-over-year resale values in CY-2013, increased new-vehicle transaction prices and lower new-vehicle inventory levels mitigated the projected decline in pricing," said Paul Fortin, economist and VP, strategic modeling and analytics research team for LeasePlan USA.

Another perspective is offered by Donlen. "Prices behaved 'normally' in 2013, in that sale prices declined month to month on similar vehicles," said Gus Xamplas, VP of remarketing for Donlen.

As new-vehicle sales continue to increase, the used-vehicle market is beginning to see better supplies from trade-ins, along with more trade-ins actually making their way into the wholesale channels, instead of remaining with franchised dealers and sold to their customers.

"The wholesale market was still strong by historical standards, but showed a steady erosion of prices throughout the year. Inventory increased slightly as the year progressed, which tends to drive down pricing. The fleet market, though, seemed to show slight decreases in inventory, which may be attributable to several factors. Fleets are tending to hold onto vehicles slightly longer as months-in-service and mileage showed increases during the year. Increases in truck and SUV orders versus traditional automobiles tend to move the in-service times and mileages upward," said Jack Rennels, VP, remarketing for Emkay.

Depreciation Trends Broken Out by Vehicle Class

Depreciation trends for all classes of vehicles were relatively stable during CY-2013. Below is a summary of depreciation trends broken out by vehicle class:

  • Intermediate-Size Cars: "Depreciation costs for intermediate vehicles in CY-2013 were lower compared to CY-2012 as the used-vehicle market still enjoyed a lower supply of intermediate cars through most of the year. There was only a slight adjustment to prices in the second quarter of 2013 as supply increased due to an increase in rental units and trade-ins," said Aiken of Wheels Inc. 

Higher retail transaction prices for used intermediate-sized cars helped boost wholesale values.

"Depreciation costs for intermediate sedans declined nominally in CY-2013 when compared to CY-2012. Although the increase in off-lease penetration increased wholesale vehicle levels for the segment in CY-2013, sale prices were not affected due to upward pressure from higher retail transaction prices driven by a decrease in manufacturer incentives," said Fortin of LeasePlan USA.

In addition to the lower supply of intermediate-sized cars in the wholesale market, these fleet vehicles, on average, were being kept in service for shorter than traditional norms, resulting in a slight uptick in resale value.

"Depreciation for intermediate-sized vehicles decreased from an average of 1.7 percent to 1.52 percent in 2013, compared to 2012 numbers. While we saw an increase in the average capitalized costs (3 percent) and a rise in monthly miles (4.3 percent) from 2,069 to 2,162, the months in service decreased slightly from 35 months in service (MIS) to 34 MIS (-3 percent)," said Graham of ARI.

GE Capital Fleet Services reported similar data. "Depreciation trends for intermediate-size cars in CY-2013 are down approximately 2 percent compared to CY-2012," said Jastrow of GE Capital Fleet Services.

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