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Report: Vehicle Depreciation to Accelerate in 2016

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Depreciation

Vehicle values in 2016 are expected to depreciate faster this year than they have in the past five, according to a new report from Black Book and Fitch Ratings.

The companies released the latest joint vehicle depreciation report Wednesday, showing that overall vehicle depreciation for two- to six-year old vehicles is expected to reach 15 percent in 2016, an increase from the 13.2 percent level experienced in 2015.

The projected level of depreciation will mark the first time in the previous five years that annual depreciation has crested above 14 percent, but the rate remains below pre-recession levels.

Fitch and Black Book believe this increase will be driven by several factors.

Black Book forecasts new-car sales to grow slightly to 17.6 million units in 2016. This level of sales activity, which brings a high volume of trade activity, coupled with a large amount of lease returns, will contribute to the continued increase in depreciation rates, according to the release.

Fitch expects U.S. prime and subprime auto loan and lease ABS performance to be stable and within historical loss levels, although annualized net losses will creep up in conjunction with marginally higher vehicle depreciation in 2016, as predicted by Black Book.

Truck segments largely drove the strength in last year’s performance. The truck segments as a whole experienced half the depreciation rate of the car segments, with annual depreciation of trucks at 9.2 percent and cars at 18.2 percent.

The variability in depreciation across the segments increased during 2015. Among the trucks, the depreciation ranged from 2 to 23 percent across the segments. Among the car segments, the depreciation rates ranged from 14 to 22 percent.

“The focus in 2016 will be in the depreciation disparity between car and truck segments, which showed a widening spread toward the end of last year,” said Anil Goyal, Senior Vice President of Automotive Valuation and Analytics for Black Book. “We expect this spread to remain, however there is growing belief that cars are nearing their floor in terms of depreciation changes.”

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