The economy continues to show positive signs, and a big reason for that improvement is the auto industry’s growth reflected in new-car sales and an active used-car market. Many even think the positive economic signs are mostly connected to the auto industry and fleets in particular.
As of press time, the overall fleet vehicle market depreciation rate for the previous 12 months stood at 12.1 percent. As a reference point, pre-recession annual depreciation was generally in the 15-16 percent level. This current level of depreciation is another sign of a solid used market, supporting economic improvement.
When comparing levels of depreciation by car and truck configuration, there is a variance. As of press time, the depreciation rate for cars was 14.8 percent, while the depreciation rate for the mix of trucks, vans, and utilities was an extremely low 10 percent.
According to Black Book’s fleet data for the third quarter of 2014, in the fleet sedan market, the Ford Fusion topped the volume list of cars, while the Ford Escape led the list of truck-type units.
Let’s take a closer look at some values trending within the various passenger car segments:
Breaking Down Depreciation
Over the past year, even with the low overall depreciation, the six segments with the largest depreciation rates were car-related. The two largest segments were ones with a very small presence in the commercial fleet industry, consisting of the prestige luxury car and luxury-level car segments.
Some of these do appear in the executive level choices, although in small volumes, and they generally do not make it onto the commercial vehicle 25-plus vehicle volume reports during any quarterly reporting period.
The mid-size car segment, which has the highest volume of car models within the fleet industry, includes vehicles such as the Fusion, Chevrolet Malibu, and Nissan Altima. The combined entry and upper mid-size cars segment had a 14.9 percent annual depreciation. This is greater than the overall industry average of 12.1 percent, but much better than the luxury focused models of the prestige luxury car segment at 19.6 percent and the luxury-level car segment at 16.2 percent.
The next highest volume of fleet cars consist of the full-size car segment, which includes vehicles such as the Chevrolet Impala, Ford Taurus, and Dodge Charger.
The full-size car segment was not one of the six car segments with the largest depreciation rates. In fact, two car segments had lower annual depreciation — the premium sporty car segment and the entry sporty car segment, at 12.3 percent and 13.3 percent respectively. Note that neither of these segments have vehicles in the 25-plus count reports of the commercial vehicle market. The full-size car segment was at 13.7 percent during the past year, and continues to be of high interest in the wholesale and retail markets once the vehicles are retired from their fleet usage.
The remaining 25-plus cars came from the compact car segment, which includes the Ford Focus and Chevrolet Cruze. This segment is one that has some very distinguishable seasonal variances. Annual depreciation within this segment was 15.6 percent.
Increasing Depreciation in 2015
What do these statistics mean for the car market going into 2015? When answering this question, the primary fleet market needs to be looked at from the perspective of the compact, mid-size, and full-size car segment.
The highest volume is in the mid-size segment, and with all of the redesigns and refreshes since 2011, this area has done pretty well in retention. Higher gasoline prices until 2013 and 2014 had also supported this segment.
As these models age and supplies increase, the depreciation will increase slightly to an annual level of 15.5 percent for the mid-size cars. The full-size cars should be slightly higher at 15.7 percent.
The real question mark is regarding the compact cars. With gasoline prices continuing to drop, and a lower national average expected for 2015, this will put additional pressure on the more fuel-efficient models. Compact cars will have some seasonality peaks, but overall are expected to depreciate by about 15.8 percent for the year.
Bottom line: cars of various sizes play a huge part of the fleet industry and the growing economy. Having the right models to best fit the job needs continues to be key return on investment.
Ricky Beggs is the editorial director and senior vice president of Black Book.