Automotive Fleet

DEC 2013

Magazine for the car and truck fleet and leasing industry

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DEPRECIATION Average Monthly Miles Average Months in Service Average Cap Cost Monthly Depreciation Cost in CPM Depreciation Dollars per Month 2,128.70 50 $25,122.16 $0.17 $353.12 Residual strength in the light-duty truck segment has been strong due to increased vocational demand for used trucks. 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. 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 fve years, due to heavy of-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 thereafer," said Langmandel of LANGMANDEL 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 frst 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. 30 AUTOMOTIVE FLEET I DECEMBER 2013 2013-CY DEPRECIATION EXPENSES: SUVs Average Monthly Miles 2,132.48 Average Months in Service Average Cap Cost 31 $24,176.89 Monthly Depreciation Cost in CPM Depreciation Dollars per Month $0.21 $432.09 SOURCE: AF RESEARCH DEPT. SOURCE: AF RESEARCH DEPT. 2013-CY DEPRECIATION EXPENSES: LIGHT-DUTY TRUCKS The higher inventory of used SUVs in the wholesale market has caused slight drop in resale prices. Te trend line for the next sevveral 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 fgures es barring any major economic disruptions. Tis 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 feets returning to their strategic plans with regular replacement cycles," said Graham of ARI. As we approach the frst two quarters of 2014, used-vehicle activity traditionally begins to increase due to tax refunds being used to buy used vehicles. "Te normal seasonal increase in wholesale demand and pricing is projected for the frst quarter of 2014, as dealers ramp up usedvehicle inventory for tax refund season. However, as wholesale inventories increase with rising of-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. Te 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 resid- ua ual retention vehicles will be truck, v 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 g greater depreciation in 2014 than 201 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 defate 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 oflease vehicles entering the used-vehicle market may increase overall wholesale inventory higher than buyer demand. "We anticipate slight increases in the depreciation of our feet 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 feet 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 profts and losses (P&L) at replacement time," said Graham of ARI. AF

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