Automotive Fleet

SEP 2013

Magazine for the car and truck fleet and leasing industry

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Page 25 of 77

REMARKETING Chart 3 COMPARING ANNUAL & QUARTERLY DEPRECIATION LEVELS: SIX-YEAR-OLD VEHICLES 3-MONTH COMPARISON 12-MONTH COMPARISON 19,162 18,000 17,500 16,843 [-12.1%] 17,000 16,500 16,000 15,500 8/1/11 8/1/12 Average Values ($) 18,500 SOURCE: BLACK BOOK USA Average Values ($) 19,000 17,444 17,500 17,400 17,300 17,200 17,100 17,000 16,900 16,800 16,700 16,600 16,500 16,843 [-3.4%] 5/1/12 8/1/12 SOURCE: BLACK BOOK USA 19,500 Depreciation of -12.1 percent and -3.4 percent are well below the traditional annual levels (-15 to -18 percent) and quarterly levels (-4.5 to -4.8 percent). The better retention is driven primarily by low levels of inventory that are currently increasing from rising new-car sales volumes. 22 AUTOMOTIVE FLEET I SEPTEMBER 2013 Chart 4 Average age of cars on the road is currently at 11.4 years. Average Age of Trade 2007: 2-3 years 2013: 5-6 years At a recent auction run of 30-plus units, more than 75 percent were older than nine years old. Older cars on the road are raising the age of trade-ins. These ft well in the subprime and BHPH markets, while also pulling down slightly newer used-vehicle market values. these trade-ins actually making their way into the wholesale channels instead of all staying on the franchised retail lots. Te age of the trade-in is starting to ease back down to a slightly newer model as well. Tis is great news for the buyer, while not as enticing for the seller or remarketer. Looking to the Future Is there a market or segment that should fare better during the next few months or year, or one to be more wary of in depreciation levels? Looking at some historical movement in values some of the better retention vehicles will come from truck, van, and utility units. During the past year from Aug. 1, 2012, to Aug. 1, 2013, except for the most recent monthly period with the cars at -1.4 percent and the trucks at -1.3 percent, the quarterly period at -4 percent for cars and -3.3 percent for trucks and then the full year cars at -15.5 percent and the trucks at -11.4 percent the truck depreciation has been less than for the cars. One year ago, from Aug. 1, 2011, to Aug. 1, 2012, the same depreciation diference occurred for the yearly period, -13.7 percent for cars and -10.5 percent for trucks, while the quarterly period was slightly more for trucks at -3.4 percent for cars and -3.5 percent for trucks. Te most recent monthly level of depreciation was the same for both segment types. Another way to look at depreciation/retention is by actual segment type. During the past year, 14 of the 24 segments tracked by Black Book depreciated less than prerecession levels. Twelve of those were truck related, with the top four being the three pickup segments and the compact SUVs, all at less than -6 percent. Only one segment declined greater than expected from traditional levels: entry midsize cars at -20.5 percent. Tis is a competitive segment with around 16 current models and 56 players in the three smallest, more SOURCE: BLACK BOOK USA matter what year, the retention is much better than prerecession levels of -15 percent to -18 percent annually and -4.5 percent to -4.8 percent for quarterly periods. Even with larger depreciation in more current times, the market is still termed as "pretty solid." As a remarketer or risk analyst, one might want to understand the reason for the larger levels of change and whether to expect that trend to continue or even increase. At least for the vehicles in the feet remarketing eforts, there is not a direct competition to the more recently advertised and incentivized new car sales, which pushes the one- and two-year-old models even further down. Te used-vehicle market has always been driven by supply and demand. Finding that one vehicle that sends the market over the clif and tips the scales to excess supply is the unknown. During and since the recession years, the demand for solid used vehicles over new vehicles became more prevalent. Lower acquisition costs, very reasonable fnance rates, and also longer loan terms all got the attention of consumers. Te only challenge was supply being so tight due to fewer vehicles being sold and thus fewer traded in at the new car stores and even fewer fnding their way into the wholesale market. Nearing the end of the recession period those trade-ins also became signifcantly older, with upwards of 20,000 to 50,000 more miles on the odometer than desired. As new-car sales continue to increase, we are now beginning to see better supplies from trade-ins along with more of

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