Used-vehicle values are likely to depreciate 15% by yearend, compared with the 12.4% total depreciation seen in 2018, Black Book‘s Executive Vice President of Operations, Anil Goyal, told Auto Finance News.
“We had a great year last year in terms of used vehicle value retention, and it’s highly unlikely it’ll repeat itself this year,” Goyal said, noting the typical spring bump in used-vehicle values won’t happen this year.
In 2019, used vehicle values have followed “seasonal patterns of depreciation,” Goyal said. The depreciation will continue in March — when values typically experience a seasonal lift from tax returns. An expectation of smaller tax refunds this year, along with industry headwinds, are likely to dampen the increase, Goyal said.
Also Read: How Smaller Tax Refunds Could Impact Auto Finance in 2019
Black Book also noted an influx of OEM incentives on new vehicles is going to drive down used car values throughout 2019.
“Last year, the OEMs were fairly disciplined in keeping the incentives pretty much flat,” Goyal said. As a result, new car transaction prices went up, directing more consumers towards used cars because the gap between the new car price and the used car price increased, he said.
In turn, it was more affordable for consumers to purchase used cars in an economy where there’s a lot of growth in new jobs being created, Goyal said. “As you have more people entering the workforce, they’re inclined to look for more affordable options.”
It will be essential for lenders to align 2019 strategies with the forecasted depreciation. Leveraging residual value forecasts can help lenders ensure they have a better grip on how the loan is going to come in equity, Goyal said. “If the depreciation increases, it’ll take longer for that loan to come into the equity position,” he said.
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