Black Book, known in the automotive industry for providing timely, independent and precise vehicle pricing information, announced today its latest joint U.S. Vehicle Depreciation and Auto Asset Backed Securities (ABS) report with Fitch Ratings. Black Book forecasts an annual depreciation rate of 15% in 2019 as the supply of used cars and trucks increases, up from noticeably strong 12.4% depreciation rate in 2018. The latest jointly issued report can be downloaded by clicking here.

Among the Report Highlights:

• New light vehicle sales volume increased in 2018 to 17.3 million, from 17.1 million in 2017. It was the fourth-straight year where the auto industry saw 17+ million units sold.
• Car segments constituted only 31% of the new sales volume compared to 47% in 2014.
• SUVs and pickup trucks are driving more new sales, while competition is heating up in these segments as more auto manufacturers introduce new and redesigned products.
• After several years of declining prices, mainstream sedan segments saw a bounce up from the lows in the used market. With lagging growth in real income levels, affordability remained front and center, driving demand higher for used cars.
• Prime auto ABS asset performance slowed in 2018 coming off peak 2017 levels, but ABS loss rates remain comfortably within Fitch’s initial expectations.
• Fitch expects stable ABS performance in 2019 driven by healthy macro conditions and auto industry fundamentals, despite the increase in depreciation rates and marginal move higher in ABS losses predicted.
• Fitch’s Auto Loan and Lease ABS Rating Outlooks are Positive for 2019, consistent with 2018.

2018 Depreciation Trends

The demand for used vehicles peaked in 2018 due to a confluence of favorable factors: low interest rates, excellent credit availability with lower delinquencies, extremely high job growth, tax cuts enabling both consumers and commercial buyers to upgrade, increased marketing of off-lease vehicles, and disciplined

incentives on new vehicles with rising transaction prices.

A Look Ahead at 2019 Trends

Currently, Black Book’s base residual value models assume a GDP growth of 2.2%, and jobs growth at an average of 160,000 per month in 2019. Black Book and Fitch are projecting good demand, but not as strong as in 2018, which was unusually high, spurred by tax cuts. Weakness in home sales, and volatility in the stock market could pose additional headwinds for the auto market. With growing uncertainty, it is important to consider the impact of alternative economic scenarios. Black Book’s Scenario-Based Residuals, under Federal Reserve’s Severely Adverse economic stress test, show a substantial drop of between 12% to 24% in used vehicle values, depending on the vehicle segment.

The Black Book Used Vehicle Retention Index increased by 2.1% from 113.1 in January 2018 to 115.4 in January 2019. The Index has not seen this level of increase since 2012. During the months of May through September, the Index showed a strong lift, which is unusual for that time of the year. After a strong performance in 2018, the Index is forecasted to decline in 2019 as vehicles register slightly larger depreciation.

“While the economy is expected to continue to expand in 2019, overall demand for cars and trucks may normalize,” said Anil Goyal, Executive Vice President, Operations at Black Book. “In addition, we expect sustained high levels of supply of used vehicles in the market. As such, we are forecasting overall depreciation to rise in 2019.”

U.S. Auto ABS Outlook for 2019

While prime auto ABS asset performance peaked in 2017 and slowed marginally last year, Fitch expects 2019 to be another year of solid performance against a backdrop of supportive macro conditions and auto industry fundamentals. Auto loan and lease ABS Rating Outlooks are Positive for 2019, consistent with 2018, reflecting stable asset performance and transaction structural protections.

Fitch expects prime auto loan ABS losses to remain within our expectations in 2019, even as they slowly rise closer to 2005–2006 levels. Loss frequency will pick up this year, but severity should be relatively stable on the back of healthy-to-stable wholesale vehicle prices, as indicated by Black Book. Deleveraging transactions and building credit enhancement (CE) will support rating upgrades in 2019.

Subprime auto loan ABS remains more vulnerable to performance volatility given weaker borrower profiles and acute competition. Despite this, the three subprime auto loan ABS platforms (AmeriCredit Automobile Receivables Trust; Santander Drive Auto Receivables Trust; and World Omni Select Auto Trust) rated by Fitch are expected to produce loss levels within range of our expectations in 2019.

However, the smaller, deeper subprime lenders’ ABS transactions, which are all not rated by Fitch, could be impacted and drive losses to record levels in 2019. Consolidation of these lenders could pick up in 2019, particularly if sales remain flat and there is limited opportunity for growth combined with intense competition, and executing ABS funding becomes more challenging” said Hylton Heard, Senior Director, Fitch Ratings. Further, servicing capacity and effectiveness will be a key focus if losses move higher in 2019, and will test systems and practices at these institutions.

The Black Book-Fitch Vehicle Depreciation Report is available for download by clicking here.

About Fitch Ratings

Fitch Ratings is a leading provider of credit ratings, commentary and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by strong local market experience and credit market expertise. Fitch Ratings is part of Fitch Group, a global leader in financial information services. Fitch Group is owned by Hearst.

About Black Book

Black Book® is best known in the automotive industry for providing timely, independent and precise vehicle pricing information, and is available to industry-qualified users through online subscription products, mobile applications and licensing agreements. Since 1955 Black Book has continuously evolved to ensure that it achieves its goal of delivering mission-critical information to its customers, along with the insight necessary to successfully buy, sell, and lend. Black Book data is published daily by National Auto Research, a Hearst company, and maintains offices in Georgia as well as the Canadian Black Book in Toronto. For more information, please visit BlackBook.com or call 800.554.1026.