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Black Book forecasting an annual depreciation rate of 5% for used vehicles in 2021

LAWRNECEVILLE, Ga.—Black Book, in a joint report with Fitch Ratings, is forecasting an annual depreciation rate of 5% for used vehicles in 2021 as the effects of the pandemic continue to be felt.

The forecast comes after a record-low depreciation rate in 2020 at 2.0%.

Report Highlights:

Other forecasts from Black Book include:
  • Manufacturing shutdowns impacted new sales, and this, coupled with the government stimulus payments and added benefits, led to an uptick in demand of used inventory
  • On the other hand, lack of repossessions and delayed lease returns created used inventory shortages
  • Full-size trucks and luxury segments in 2020 outperformed depreciation expectations, with full-size trucks appreciating 8.7%. Additionally, the premium luxury car segment depreciated a mere 8.1%, compared to 2019’s 25.9%
  • Fitch said it believes auto loan and lease ABS (auto ABS) asset performance will be supported by strong used vehicle values containing loss severity, and resulting in positive asset recovery and residual value (RV) performance
  • Fitch Auto ABS Rating Outlooks are stable for 2021 consistent with 2020, and reflect expected stable asset performance, transaction structural protections, and Fitch’s conservative establishment of transaction base case loss proxies
  • Prime auto ABS asset performance demonstrated considerable resiliency in 2020, and both frequency and severity continue to contain loss levels

2020 Depreciation Trends

The annual depreciation rate on two-to-six-year-old vehicles fell by only 2% in 2020, a sharp contrast to the 16.8% annual depreciation in 2019, according to the forecast. Strength in the market was felt largely in Q3, due to the federal stimulus benefits and constrained new inventory levels.

In addition, Black Book and Fitch said moratoriums on repossessions and delayed lease returns kept the available used supply low and further fueled the appreciation of used vehicles.
The report stated the Compact Car segment fell sharply in the fall amid low fuel prices and increased new inventory levels, depreciating 10.6% in 2020. Full-size trucks and SUVs remained strong as continuing inventory shortages put a premium on used units.
The Black Book Used Vehicle Retention Index decreased 0.8% from 115.4 in January 2019 to 114.5 in January 2020. The Index began 2020 strong, but the effects of the pandemic began to be felt by the end of March 2020. Throughout the summer months, the Index climbed to a record 130.08 points before stabilizing and finishing the year at 128.8 points, up 13.7% compared to December 2019, according to the company.

A Look Ahead at 2021 Trends

According to Black Book and Fitch, as the economy continues to recover from the COVID-induced recession, wholesale and retail prices are expected to be strong in 2021 with projected annual depreciation of just 5%. The forecast predicts this will leave wholesale prices at the end of 2021 well above pre-COVID levels.

“Used inventory levels will remain tight throughout this year, contributing to the strength of the used market. New vehicle production and sales will return to some normality later this year, and we expect the wholesale market to return to typical seasonal depreciation in Q4,” Black Book said.

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