Black Book, Fitch Ratings: Rise in Vehicle Depreciation Poses No Threat to Auto ABS
New report from Black Book and Fitch Ratings says rise in vehicle depreciation poses no detriment to U.S. Auto ABS.
GAINESVILLE, Ga. — Vehicles are likely to depreciate to a greater degree this year, though not enough to present any major obstacles to U.S. auto loan and lease ABS, according to a new report from Black Book and Fitch Ratings.
According to Black Book, vehicle depreciation rates averaged just less than 13 percent in 2012 (below the historical range of 15 to 18 percent). Auto ABS has benefited from relatively benign depreciation rates over the past two years, which has resulted in very low loss rates of under 0.45 percent on auto loan ABS, and strong residual values gains of 11 percent in auto lease ABS transactions through year-end 2012.
Black Book expects vehicle depreciation rates in 2013 to remain low but rise to the lower end of the historical range mentioned above. The average monthly depreciation on wholesale values of one- to five-year-old vehicles was 2.1 percent in late 2012 (based on sales volumes over the past 12 months at wholesale vehicle auctions).
During the last quarter of 2012, even with high gas prices, compact cars, entry-level cars, entry mid-size cars and upper mid-size cars (all more fuel efficient models) depreciated at inflated levels of monthly averages of 3.3 percent and 1.5 percent, respectively.
With that said, Fitch believes auto loan ABS asset performance will still benefit from healthy used-vehicle values in 2013, even as vehicle depreciation rises as higher used-vehicle volumes enter the wholesale vehicle market.
“A higher amount of auto leases coming due this year will squeeze auto lease residual values down marginally from current elevated levels, but not enough to impact auto ABS asset performance materially,” said Fitch Ratings Senior Director Hylton Heard.
The report is part of a new partnership between Black Book and Fitch Ratings. The two firms will begin issuing quarterly reports using Black Book’s used-vehicle depreciation data.
“Auto lenders are continuously searching for ways to assess risks related to changes in values to automobiles backing retail loans and leases and ultimately loss rates, and this new report helps to identify risk exposure levels for various individual vehicle segments,” said Tom Cross, president of Black Book.
In the initial report, Black Book discussed, among other items, factors that drive vehicle depreciation rates within individual vehicle segments, while Fitch focused on how recent low depreciation has positively impacted used-vehicle values and continues to support auto ABS asset performance and ratings.
“Black Book is one of the leading sources for automobile data and insight that may be instrumental to the auto lender community,” said Heard. “The new report will show key trends tied to auto supply and demand that drives vehicle depreciation rates and ultimately impacts the auto ABS sector.”
To obtain a copy of the Black Book-Fitch Vehicle Depreciation Report, email LenderSolutions@BlackBookUSA.com.
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