Securitization residual values hit 12-year low

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The average residual value expected in auto lease securitizations this year dropped to a level unseen since 2007, according to a report published last week by Moody’s Investors Service.

Residual value risk, as measured by securitizations’ residual value settings, was set at an average of 46.2% of MSRP, down from 47.1% in 2018. “The lower the residual value setting, the more difficult for the ABS to have residual value loss,” the report stated.

Spurred, in part, by rising used-car prices, actual residual values increased 7.1% in the second quarter, after notching a 5.8% gain in the first quarter. Manheim’s Used Vehicle Value Index reached 139.5 last quarter from 135.5 in the prior period.

While large volumes of off-lease vehicles returning to the market are anticipated to pressure used-vehicle prices, potential tariffs may be a boon for the used market. If tariffs raise new-vehicle prices, buyers on the fence between new and used may purchase used, the report said.

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