Black Book and Fitch Ratings have released the firms' latest joint U.S. Vehicle Depreciation and Auto Asset Backed Securities report. Black Book analysts forecast an annual depreciation rate of 15% in 2019 as the supply of used cars and trucks increases, up from a "noticeably strong" 12.4% depreciation rate in 2018.
Prime auto ABS asset performance slowed in 2018 coming off peak 2017 levels, but ABS loss rates remain comfortably within Fitch's initial expectations, analysts said, predicting stable ABS performance in 2019 driven by healthy macro conditions and auto industry fundamentals — despite the predicted increase in depreciation rates and marginally higher ABS losses.
The demand for used vehicles peaked in 2018 due to a confluence of favorable factors: low interest rates, excellent credit availability with lower delinquencies, extremely high job growth, tax cuts enabling both consumers and commercial buyers to upgrade, increased marketing of off-lease vehicles, and disciplined incentives on new vehicles, coupled with rising transaction prices, according to the report.
"While the economy is expected to continue to expand in 2019, overall demand for cars and trucks may normalize," said Anil Goyal, executive vice president of operations at Black Book. "In addition, we expect sustained high levels of supply of used vehicles in the market. As such, we are forecasting overall depreciation to rise in 2019."
Editor's note: This story originally ran on F&I and Showroom, a companion Bobit Business Media publication.