Looking for a used car? This might be the year to start shopping. Ratings agency Fitch and Cars.com partner Black Book, a used-car valuation service, said in a new report that increasing new-car production will turn up the heat on vehicle depreciation in 2015.
The jump is significant. In 2014, used cars averaged a 12.1 percent rate of depreciation — which is to say, the average used car was worth 12.1 percent less in 2014 than it was in 2013. Black Book expects the rate of depreciation to climb to 14.5 percent in 2015. But before you run out and sell your car ahead of the decline, Black Book said those depreciation rates are simply reverting toward their pre-recession norms.
If you bought a used car in the immediate years after the recession, you know how pricey they were. That’s because the annual depreciation rate on a 2- to 6-year-old car was just 7.7 percent in 2011. From 2012 to 2014, it hovered between 12 and 13 percent per year. Contrast that to pre-recession depreciation rates, which ranged from 14 to 18 percent per year — a rate we may see again in 2015. As depreciation increases, Fitch notes that residual values for auto leasing will fall. That, in turn, could make the monthly cost of a lease rise.
The most interesting chart in the report comes from Black Book, which analyzed quarterly and annual depreciation rates across a whole mess of vehicle segments:
Note the wide range of differences in annual depreciation between the worst segment (prestige luxury cars, 18.1 percent) and best segment (full-size wagon, or passenger, vans, which appreciated 3.5 percent). Entry-level and compact cars both depreciated a lot in the latter half of the year as gas prices plunged and demand waned. By contrast, full-size vans, small pickups and small SUVs depreciated the least. Still, big luxury cars had the worst depreciation, falling in some cases by more than 15 percent through 2014.
One interesting nugget: Entry-level cars got a small bump in resale value in the spring as tax-refund season swelled demand. That appears to be the norm. Entry-level cars are “among the most reactive to seasonality due to tax refunds,” Black Book reported.
What’s ahead? Black Book expects small cars will keep depreciating as new compact and subcompact models proliferate (particularly due to government fuel-economy requirements), and gas prices remain low. Higher new-car sales, forecasted at nearly 17 million in 2015, will also continue to drive used-car depreciation up. Ultimately it’s good news for used-car shoppers — and less so for anyone looking to trade their car in this year.
Cars.com photo by Kelsey Mays; Black Book chart