Photo by Chris Wolski.

Photo by Chris Wolski.

The used-vehicle market has always been driven by supply and demand. In the 2013 calendar-year, vehicle supply in the wholesale market continued to be tight relative to demand, helping bolster resale values.

"The two biggest drivers in the used-vehicle market for CY-2013 were the continued shortage of quality used vehicles in the market and the availability of low interest rates for dealers to floor plan inventory and to finance retail buyers," said Darrin Aiken, assistant VP, vehicle remarketing for Wheels Inc. 

In addition, lower acquisition costs and longer loan terms helped bolster the used-vehicle market. "The only challenge was supply being so tight due to fewer vehicles being sold and fewer traded in at the new-car stores, and even fewer finding their way into the wholesale market," said Ricky Beggs, VP and editorial director of Black Book.

However, the supply of used vehicles is continuing to increase each year, which will eventually create a supply/demand equilibrium in the wholesale used-vehicle market.

GE Capital Fleet Services quantified the increase in inventory in the wholesale market. "Volume in the wholesale used-vehicle market is up in 2013 by approximately 3 percent after having been steady in 2012 when compared to 2011," said Steve Jastrow, strategic consulting manager for GE Capital Fleet Services.

"In 2012, the wholesale market was past its historic peak, and resale values were mildly declining as volume returned to normal levels," said Bob Graham, VP, vehicle remarketing for ARI. "Although the wholesale market to date in 2013 has been weaker than 2012, resale values currently remain slightly above the traditional average. We expect resale values to continue declining as the number of used vehicles returning to the marketplace increases and becomes level with inventory demands."

One factor that helped boost resale values was the higher transaction prices for new vehicles, which acts as an informal ratio to calculate used-vehicle values for comparable, but older vehicles.

"Although rising wholesale inventory levels were projected to result in a decrease in year-over-year resale values in CY-2013, increased new-vehicle transaction prices and lower new-vehicle inventory levels mitigated the projected decline in pricing," said Paul Fortin, economist and VP, strategic modeling and analytics research team for LeasePlan USA.

Another perspective is offered by Donlen. "Prices behaved 'normally' in 2013, in that sale prices declined month to month on similar vehicles," said Gus Xamplas, VP of remarketing for Donlen.

As new-vehicle sales continue to increase, the used-vehicle market is beginning to see better supplies from trade-ins, along with more trade-ins actually making their way into the wholesale channels, instead of remaining with franchised dealers and sold to their customers.

"The wholesale market was still strong by historical standards, but showed a steady erosion of prices throughout the year. Inventory increased slightly as the year progressed, which tends to drive down pricing. The fleet market, though, seemed to show slight decreases in inventory, which may be attributable to several factors. Fleets are tending to hold onto vehicles slightly longer as months-in-service and mileage showed increases during the year. Increases in truck and SUV orders versus traditional automobiles tend to move the in-service times and mileages upward," said Jack Rennels, VP, remarketing for Emkay.

Depreciation Trends Broken Out by Vehicle Class

Depreciation trends for all classes of vehicles were relatively stable during CY-2013. Below is a summary of depreciation trends broken out by vehicle class:

  • Intermediate-Size Cars: "Depreciation costs for intermediate vehicles in CY-2013 were lower compared to CY-2012 as the used-vehicle market still enjoyed a lower supply of intermediate cars through most of the year. There was only a slight adjustment to prices in the second quarter of 2013 as supply increased due to an increase in rental units and trade-ins," said Aiken of Wheels Inc. 

Higher retail transaction prices for used intermediate-sized cars helped boost wholesale values.

"Depreciation costs for intermediate sedans declined nominally in CY-2013 when compared to CY-2012. Although the increase in off-lease penetration increased wholesale vehicle levels for the segment in CY-2013, sale prices were not affected due to upward pressure from higher retail transaction prices driven by a decrease in manufacturer incentives," said Fortin of LeasePlan USA.

In addition to the lower supply of intermediate-sized cars in the wholesale market, these fleet vehicles, on average, were being kept in service for shorter than traditional norms, resulting in a slight uptick in resale value.

"Depreciation for intermediate-sized vehicles decreased from an average of 1.7 percent to 1.52 percent in 2013, compared to 2012 numbers. While we saw an increase in the average capitalized costs (3 percent) and a rise in monthly miles (4.3 percent) from 2,069 to 2,162, the months in service decreased slightly from 35 months in service (MIS) to 34 MIS (-3 percent)," said Graham of ARI.

GE Capital Fleet Services reported similar data. "Depreciation trends for intermediate-size cars in CY-2013 are down approximately 2 percent compared to CY-2012," said Jastrow of GE Capital Fleet Services.


But, on average, resale values were lower when compared to CY-2012.

  • Compact Cars: "This segment of cars actually held firm in CY-2013 compared to CY-2012, as consumers became accustomed to fuel prices more than $3 a gallon, but there were other causes, such as an increase in supply in other vehicle segments and improved fuel ratings," said Aiken of Wheels.

However, as fuel prices started to decline in 2013, so, too, did resale values for compact models.

"Depreciation costs increased significantly year-over-year for compact cars due to a decline in market demand for the segment as a result of falling fuel prices in CY-2013," said Becky Langmandel, director, strategic modeling and analytics research team for LeasePlan USA.

On average, compact cars performed comparably to intermediate-sized vehicles in the wholesale market.

"Vehicle depreciation for compact-size vehicles remained relatively flat, decreasing slightly from an average of 1.43 percent to 1.41 percent in 2013, as compared to 2012 numbers. While we saw an increase in average capitalized costs (2.5 percent) and a rise in monthly miles (19.7 percent) from 1,616 to 2,014, the months in service decreased significantly from 52 MIS to 36.2 MIS or -43.5 percent," said Graham of ARI. 

According to Jastrow of GE Capital Fleet Services, "depreciation trends for compact cars in CY-2013 are down  approximately 3 percent compared to CY-2012."

However, compared to 2012, there was "slightly greater depreciation for compact cars in 2013," added Xamplas of Donlen.

  • Light-Duty Trucks: In CY-2013, truck depreciation was less than that of the cars. During the past year, 14 of the 24 segments tracked by Black Book depreciated less than pre-recession levels. Twelve of those were truck-related, with the top four being the three pickup segments and the compact SUVs, all decreasing at less than 6 percent.

"The light-duty truck segment continued to be stronger than CY-2012, as the market experienced used-supply shortages, greater demand, improving economy, and higher newer truck costs, which all contributed to the higher prices for used trucks for CY-2013," said Aiken of Wheels.

One key reason for the residual strength in the truck segment has been increased vocational demand for used trucks as the housing and construction markets begin to improve.

"Vehicle depreciation for light-duty trucks decreased slightly from an average of 1.27 percent to 1.17 percent in 2013, compared to 2012 numbers. While we saw an increase in the average months in service (12.3 percent) from 54.6 to 62.2 months and a rise in capitalized costs (8.4 percent), the average monthly miles decreased slightly from 2,067 to 1,951 (-5.9 percent)," said Graham of ARI.

Compared to CY-2012, trucks were a  bright spot in fleet remarketing with "slightly less depreciation in 2013," said Xamplas of Donlen.

A similar observation was made by GE Capital Fleet Services. "Depreciation trends for light-duty trucks in CY-2013 were up  approximately 5 percent compared to CY-2012," said Jastrow of GE Capital Fleet Services.

The key factors keeping truck depreciation low was the uptick in home construction, lower fuel prices, and increased truck fuel efficiency.


"Depreciation costs for light trucks were static for CY-2013 compared to CY-2012. Light trucks were the winning segment in CY-2013 in terms of year-over-year resale prices, due to increased demand from lower fuel prices and the resurgence in new-home construction. However, depreciation costs held rather than fell for the segment due to higher transaction prices for our mix of units sold in CY-2013," said Langmandel of LeasePlan USA.

  • Minivans: "Vehicle depreciation for minivans has remained relatively flat, decreasing slightly from an average of 1.48 percent to 1.46 percent in 2013, compared to 2012 numbers. While we saw an increase in average capitalized costs (1 percent), the average monthly miles decreased slightly from 2,270 to 2,251 miles (-0.9 percent) and the months in service decreased from 44.3 MIS to 44 MIS (-0.8 percent)," said Graham of ARI.

However, there continues to be a limited supply of used minivans in the wholesale market, vis-à-vis buyer demand, which is putting upward pressure on their resale prices.

"Depreciation costs for minivans for CY-2013 were lower than CY-2012, but not by much as this segment continued to see strong prices due to limited supply and the continued popularity of this segment in the retail market as people movers," said Aiken of Wheels.

Compared to 2012, minivan depreciation was "slightly more in 2013," said Xamplas of Donlen.

  • Full-Size Cars:  "Vehicle depreciation for full-size sedans decreased from an average of 1.17 percent to 1.05 percent in 2013, compared to 2012 numbers. While we saw an increase in average capitalized costs (0.2 percent), the months-in-service and average monthly miles decreased slightly from 60.4 MIS to 58 MIS (-4.1 percent) and from 2,201 to 2,080 miles or -5.8 percent, respectively," said Graham of ARI.

Similarly, supply was tight for full-size cars, while they have become more attractive to used-vehicle buyers due to their improved fuel efficiency.

"Full-size vehicles experienced slightly lower depreciation costs for CY-2013 versus CY-2012 as supply and demand continued to be strong and fuel economy for full-sized sedans continues to improve," said Aiken of Wheels.

Compared to CY-2012, depreciation was  greater in 2013, according to Xamplas of Donlen.

  • SUVs: "In CY-2013, depreciation costs increased slightly compared to CY-2012 as supply increased in the segment this year causing a slight drop in prices," said Aiken of Wheels.

The higher inventory of SUVs in the wholesale market caused an uptick in depreciation. "Vehicle depreciation for SUVs decreased from an average of 1.31 percent to 1.29 percent in 2013, compared to 2012 numbers. This segment of vehicles saw an increase in average capitalized costs (5.8 percent), monthly miles (1.3 percent), and months in service (1.3 percent). The average monthly miles and months in service shifted from 2,070 to 2,098 miles and 34.6 MIS to 36.6 MIS respectively," said Graham of ARI.

Compared to CY-2012, depreciation was "greater in 2013," said Xamplas of Donlen.

GE Capital Fleet Services provided a breakdown of SUV depreciation by SUV size. "In CY-2013, depreciation trends for large SUVs was up approximately 5 percent, mid-size SUVs were up approximately 3 percent, while small SUVs were up approximately 1 percent," said Jastrow of GE Capital Fleet Services.[PAGEBREAK]

Forecast of Fleet Depreciation Trends for CY-2014

"With the new vehicle seasonally adjusted annual rate (SAAR) trending at 15.22 million in October 2013 and new-vehicle sales projected to exceed 16 million units in 2014, wholesale vehicle supplies could reach pre-recession levels in the next three to five years, due to heavy off-lease vehicle penetration. If credit remains widely available and the U.S. economy continues to grow, the increased supply should not have a severe effect on used-vehicle prices. Industry analysts are projecting wholesale prices to decrease around 5 percent in the next one to two years and level out thereafter," said Langmandel of LeasePlan USA.

Wheels foresees resale values moderating in the second half of CY-2014, near the start of the 2015 model-year. "I believe during the first six months of the year the market will still be very good for used-vehicle values as many of our customers will be selling 2012 and 2011 models, which were purchased at great prices when purchased new. As we head into the second-half of the 2014 calendar-year and into the start up the 2015 model-year, supply in the used-vehicle market will start to have increases from retail lease returns and rental car returns causing used-vehicle supply to increase," said Aiken of Wheels.

The trend line for the next several years points to a normalization of resale values back to historic norms. "While vehicle depreciation percentages have been normalizing for the past year-and-a-half, 2014 should see a return to more normal figures barring any major economic disruptions. This is due, in part, to the improved balance in the supply of new and used vehicles in comparison with the past few years, combined with the results of fleets returning to their strategic plans with regular replacement cycles," said Graham of ARI. 

As we approach the first two quarters of 2014, used-vehicle activity traditionally begins to increase due to tax refunds being used to buy used vehicles.

"The normal seasonal increase in wholesale demand and pricing is projected for the first quarter of 2014, as dealers ramp up used-vehicle inventory for tax refund season. However, as wholesale inventories increase with rising off-lease penetration and new-vehicle inventory levels increase (potentially putting upward pressure on manufacturer incentives), a decline in pricing, and, therefore an increase in depreciation cost, is projected for 2014," said Fortin of LeasePlan USA.

While resale values for most vehicle segments is moderating, truck resale values will continue to remain strong.

"If you look within the market itself, not all segments reacted equally. The pace of returning to normal is proving to be a bit slower for the light- and medium-duty truck segments. An upswing within the construction and manufacturing industry sectors has kept demand stronger for trucks, keeping prices higher than other segments where supply and demand have almost equalized," said Graham of ARI.

According to Black Book, the better residual retention vehicles will be truck, van, and utility units, based on historical  resale value data.

"I expect pickups to hold up better than other segments; however, in general, I expect greater depreciation in 2014 than 2013," said Xamplas of Donlen. "An acceleration in the economic recovery could slow the rate of depreciation in 2014."

GE Capital Fleet Services also believes used-vehicle prices will remain stable for 2014 and start to decline in CY-2015. "We think the market will start to deflate in 2015 by approximately 1 percent. Customers should continue to take a hard look at accelerated replacements, especially in certain vehicle classes, as there are incremental savings to be achieved," said Jastrow of GE Capital Fleet Services.

One area of concern is the increased volume of retail leasing and the resulting off-lease vehicles entering the used-vehicle market may increase overall wholesale inventory higher than buyer demand.

"We anticipate slight increases in the depreciation of our fleet vehicles in CY-2014. Inventory levels are increasing overall and the prices for the sales of used vehicles will continue trending slightly downward. Increased levels of retail leasing over the past two years will help fuel inventory increases as these vehicles will come back through the dealers in 2014," said Rennels of Emkay.

One cautionary word of advice is that fleet manager should not try to "wing it" in a market where depreciation is increasing.

"Fleet managers should continue to engage their partners or subject-matter experts in reviewing depreciation for their annual vehicle orders, to ensure they are on track to mitigate any surprises or impact to their profits and losses (P&L) at replacement time," said Graham of ARI.


Fleet Depreciation Rates Decrease in CY-2012

Depreciation Decreases in 2011

Originally posted on Automotive Fleet

About the author
Mike Antich

Mike Antich

Former Editor and Associate Publisher

Mike Antich covered fleet management and remarketing for more than 20 years and was inducted into the Fleet Hall of Fame in 2010 and the Global Fleet of Hal in 2022. He also won the Industry Icon Award, presented jointly by the IARA and NAAA industry associations.

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