Residual Value of 3-Year-Old Vehicles Slipping
The average residual value of a three-year-old vehicle — the most commonly remarketed fleet vehicle — will fall 8% by 2019 as a result of an increase in the supply of used vehicles, according to a Black Book forecast.
Residuals on an average three-year-old vehicle will dip from the current three-year retention of 52.0% in 2016, to 47.8% by 2019, according to Black Book's May forecast. The percent is forecasted to drop to 50.1% in 2017 and to 48.6% in 2018.
Favorable credit availability, continued growth in demand, and consistently low gas prices have provided support in keeping retention rates high in the last five years, according to Black Book. Increased used supply in the marketplace, driven by the significantly large volume of sales on new cars and trucks has played a driving role in slipping retention rates this year.
"Despite the industry’s continued efforts to maintain a strong pace of sales on new cars and trucks, the increased level of supply in the used market has begun to weaken prices on both cars and trucks," said Anil Goyal, senior vice president of automotive valuation and analytics. "We saw the first sign of this in 2015, when cars saw above-average depreciation on the year, and this year we will see rising depreciation for truck segments as well."
Retention values on a three-year-old vehicle peaked in 2013 when vehicles were retaining approximately 54.5% of their original typically-equipped retail value.