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Auto Lenders: Why Small Cars Might Be Deserving

Smaller cars, such as Sub-Compact Cars, have faced much higher depreciation recently compared with Full-Size Pickups. This might make an auto lender prefer the pickup over the small car for their portfolio. However, residual forecast data from Black Book show that the pickups will face a steeper depreciation curve in the coming years. Which one is better for a lender's portfolio going forward?

 

 

Sub-Compact Cars:

2013 retention: 39%

2016 forecasted retention: 36%

 

The 3-year retention rate on sub-compact cars has come down significantly from five years ago when this segment was in strong demand with high and volatile gas prices. As the production volumes increased post-recession, the sub-compact volume share increased till mid-2014 when it started to reverse after a drop in gas prices. The demand in this segment has taken a hit as more and more consumers look to a crossover instead. Furthermore, the supply of used sub-compact cars has continued to increase as a result of increased new sales a few years ago. This trend in the increase in used supply continue for the next couple of years. The residual forecast for this segment is the lowest among all segments. The actual retention values of three-year old sub-compact cars have been 49%, 47% and 39% in 2011 (2008 MY), 2012 (2009 MY) and 2013 (2010 MY), respectively, in the month of November. The three-year residual forecast for a 2016 MY in 2019 on sub-compact cars is at 36% based on the most recent November publish from Black Book.

 

Full-Size Pickups:

2013 retention: 58%

2016 forecasted retention: 52%

 

The retention rate on full-size pickups has continued to climb steadily in the last five years. With the decline in housing construction, sales of full-size pickups were among the hardest hit in the Great Recession. As housing industry picked steam, the demand for full-size pickups continued to improve. At the same time, the supply of used pickups has been very low. Lately, the production levels of full-size pickups have risen sharply to the point where the incentive levels have to be really high to make the sale of these new trucks. Furthermore, the used supplies are stabilizing and forecasted to increase slowly in the coming years. The actual retention values of  three-year old sub-compact cars have been 58%, 62% and 58% in 2011 (2008 MY), 2012 (2009 MY) and 2013 (2010 MY), respectively in the month of November. The three-year residual forecast for a 2016 MY in 2019 on full-size pickups is 52% based on our November publish.

 

About Black Book

Black Book® is best known in the automotive industry for providing timely, independent and accurate vehicle pricing information, and is available to industry-qualified users through online subscription products, mobile applications and licensing agreements. A leading provider since 1955, Black Book has continuously evolved to ensure that it achieves its goal of delivering mission-critical information to its customers, along with the insight necessary to successfully buy, sell, and lend. Black Book data is published daily by National Auto Research, a division of Hearst Business media, and the company maintains offices in Georgia, Florida, and Maryland as well as the Canadian Black Book in Toronto. For more information, please visit BlackBook.com or call 800.554.1026.

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