Depreciation rates on used vehicles are nearing levels not seen since the recession, though the trend will soon reverse and likely lead to marginally higher losses, according to the latest joint vehicle depreciation report from Black Book and Fitch Ratings.
According to Black Book, both new- and used-vehicle markets are seeing positive growth after hitting a low of 10.3 million new-vehicle sales in 2009. As a result, depreciation has increased every year since 2011. Black Book projects new-vehicles sales to finish north of 16 million units this year and at least 16.5 million in 2015.
“As a result, annual depreciation levels on used vehicles will begin climbing to roughly 13 percent in 2014 and 15 percent in 2015,” said Black Book Senior Vice President and Editorial Director, Ricky Beggs.
Among the highlights from the latest joint report, auto depreciation is expected to rise above 13 percent in 2014. This level is still below the average pre-recession depreciation rate of between 15-18 percent annually. Fitch points out that rising interest rates, not likely to occur until 2015, can result in higher vehicle depreciation if this were to dent consumer demand for new and used vehicles.
In the auto lease asset-backed securities (ABS) sector, rising supply from off-lease volumes in 2014 will contribute to higher depreciation in 2014, and pressure residual value (RV) losses. This is not expected to pose any material threat to overall asset performance nor outstanding ratings. In the rental car ABS sector, rental car company fleet depreciation rates will creep up, but stay within the historical range of 1-2 percent per month, depending on each rental car company’s fleet mix.
Housing and service industries will continue to be a net positive for larger vehicle sales and retention levels, although trucks and later-model vehicles are exhibiting higher-than-normal valuation volatility.
The Black Book-Fitch vehicle depreciation report is a joint venture by the two companies utilizing Black Book’s used vehicle depreciation data.
The Black Book-Fitch Vehicle Depreciation Report is available for download by clicking here.