Black Book expects used vehicles to depreciate at a rate of 16.5% this year, up from 13.2% the year prior, reflecting an influx of off-lease vehicles, Anil Goyal, executive vice president of operations told Auto Finance News.
The increased severity of used-vehicle depreciation that was expected in 2017 never came due to hurricanes destroying excess inventory and a growing economy that performed better than expected.
At the beginning of 2017, Black Book had predicted a 17.5% depreciation rate, but the year ended four percentage points better at 13.2%. “We tempered [our 2018 predictions] a bit from the 17.5% depreciation we were expecting last year, because of the tax laws that are being put in place,” Goyal told AFN. “It will bring more money to the pockets of middle America and provide more cash flow for them to purchase vehicles.”
The depreciation is largely driven by the influx of off-lease vehicles. This year, Black Book is anticipating 3.7 million off-lease vehicles coming back into the market, up from 3.3 million last year and 2.7 million in 2016. Until now, much of that volume has been cars, but higher value compact SUVs and trucks are starting to come back to market, as well, Ivan Drury, senior analyst at Edmunds, told AFN.
Since these low mileage off-lease vehicles come with a higher price tag, consumers may find it harder to pay in cash and turn to financing instead, he added.
“This year we expect to end at 16.8 million new-vehicle sales,” Goyal said. “That’s still very good, but it’s more of a decline for new vehicles as more consumers will be persuaded to purchase slightly used vehicles as those off-lease returns offer pretty good value for money.”Like This Post