Black Book® and Fitch Ratings, Inc., today released their latest joint vehicle depreciation report, showing that overall vehicle depreciation for two- to six-year old vehicles is expected to reach 15% in 2016, an increase from the 13.2% level experienced in 2015. Click here to download the full report. Click here to download the report.

The projected level of depreciation will mark the first time in the previous five years that annual depreciation crests above 14%. Despite this rate still remaining below average 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.

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 (ANL) will creep up in conjunction with marginally higher vehicle depreciation in 2016, as predicted by Black Book.

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

The variability in depreciation across the segments increased during 2015. Among the trucks, the depreciation ranged from 2%-23% across the segments, while among the car segments, the depreciation rates ranged from 14%-22%. Given the spread and volatility across various segments, it becomes important for a lender to have a diversified portfolio. Portfolios concentrated in smaller segments experienced the steepest decline in equity. With longer terms and softening used vehicle values, portfolio equity will experience higher risk as it would take longer for a loan to enter into a positive equity position.

Pressure on residual performance will trend higher in 2016 due to expectations of elevated new vehicle sales, and higher fleet and rental volumes entering the secondary market during the year. Despite this, Fitch believes auto loan and lease ABS ratings performance will not be impacted by the negative asset performance trends in 2016. The agency has a positive rating outlook for loan ABS in 2016, with the pace of upgrades expected to continue and be consistent with 2015 albeit at a slightly slower pace. The outlook for auto lease ABS asset performance is stable in 2016 given pressure on residual values, but no impacted is expected on ratings which also have a stable outlook.

“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.”

The Black Book-Fitch vehicle depreciation report is a joint venture by the two companies utilizing Black Book’s used vehicle depreciation data, and Fitch’s U.S. Auto ABS indices data.

Black Book tracks used vehicle market depreciation rates providing an understanding of how vehicle prices impact automobile lenders and lessors, auto ABS transactions, consumers and other auto market constituents.

“All eyes will remain on the health of the economy and state of the wholesale vehicle market this year” said Hylton Heard, Senior Director of Fitch Ratings. “Additionally, rising off-lease returns will result in overall higher used vehicle volumes hitting the market and will pressure auto lease residual performance in 2016.”

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

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 majority owned by Hearst Corporation.

Black Book® is best known in the automotive industry for providing timely, independent and accurate vehicle pricing information, and is available to industry-qualified users through online subscription products, mobile applications and licensing agreements. A leading provider 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 division of Hearst Business Media, and the company maintains offices in Georgia, Florida, and Maryland as well as the Canadian Black Book in Toronto.