Depreciation rates on used vehicles are approaching levels not seen since the recession. That trend will soon reverse, however, and likely lead to marginally higher losses for auto ABS in the United States, according to a new joint report from Black Book and Fitch Ratings.
Both new and used vehicle markets are seeing positive growth after hitting a low of 10.3 million new vehicle sales in 2009. 
Because of that, depreciation has been on the rise every year since 2011. Black Book says new vehicle sales will finish just 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% in 2014 and 15% in 2015,’ said Black Book Senior Vice President and Editorial Director Ricky Beggs.
But the rise in depreciation rates will also lead to a moderate increase in auto ABS losses, albeit well within initial loss expectations according to Fitch. “Even at the prospect of a marginal increase in losses, used vehicle values are still relatively healthy and auto loan ABS can comfortably withstand a moderate increase,’ said Senior Director Hylton Heard in a release today.
Fitch says rising interest rates, an event not likely until 2015, could result in higher vehicle depreciation if rising rates dent consumer demand for new and used vehicles. ‘Rising rates could make purchasing a vehicle more expensive for consumers and in turn help accelerate depreciation levels, though not enough to move the needle on stable ABS performance,’ said Heard.
Nonetheless, Fitch said auto ABS is well placed to withstand any moderate slowdown given current 2010−2013 vintage auto ABS transaction performance, which remains comfortably within initial loss estimates to date, both for credit losses in auto loan and lease ABS and RV losses in auto lease ABS.
