Vehicle depreciation will reach 17.8 percent this year, up from 17.3 percent in 2016 and toward the high end of pre-recession annual depreciation. That's according to Black Book's annual joint depreciation report with Fitch Ratings.
Average annual depreciation on vehicles between two and six years old has jumped from a post-recession low of 8.3 percent in 2011 to 17.3 percent last year. Depreciation averaged between 16 and 18 percent in the years before the recession.
"The low depreciation rate and the strength that we have experienced in the market, we've turned a corner on that," said Anil Goyal, senior vice president of operations at Black Book. "The bottom is not falling out this year, but we are marginally going to expect an increase in the depreciation rate this year. Moving forward, we expect the depreciation rate to be sustained at a higher level."
The report comes as most experts foresee U.S. new-vehicle sales plateauing or declining in 2017, and as a glut of used and off-lease vehicles return to market, putting downward pressure on pricing.
The Black Book-Fitch Ratings report said many of the trends propping up the used-vehicle market since the recession have "reached a plateau and have started to turn."
"Credit availability has been strong, driven by low delinquency rates. In 2016, we started to see an increase in sub-prime delinquencies and losses," the report said. "Demand for both new and used vehicles has been driven by pent-up demand after the recession, but that pent-up demand has been spent."
The report found that depreciation rates were higher for car segments than they were for pickups, crossovers and SUVs. Each car segment except for full-size cars depreciated at a faster rate than average in 2016, while most light-truck segments came in below average.
"Given the spread and volatility across various segments, it becomes important for a lender to have a diversified portfolio," the report said.
The gap in depreciation between cars and light trucks shrank in 2016 compared with 2015, according to the report. Light-truck depreciation rates stood 4.5 percentage points lower than cars in 2016, down from a 12-point difference in 2015.
"Truck segments are expected to continue to perform better in 2017 as well," the report said. Demand for "SUVs and trucks is stronger due to changing consumer preferences and low gas prices. However, the number of models and competition has been heating up among manufacturers to shift production to SUVs, which will reduce the valuation strength that light trucks have seen recently."