Ward's
For cars, although if truck leasing is on the rise, eventually they too have to hit the lots; and if credit contracts, then I'd think truck prices would have to drop too, if buyers cannot swing the money. [If enough sit, then value has to drop, as supply is above if not demand then above ability to purchase.]
Fleet sales might not hurt value as much as before, if OEM's make less stripper rental models.
Quote:
Goyal: The last five years have been very, very strong. As we came out of the recession, there’s been a lot of strength in the market. The supply has been lower than demand, as the economy has been chugging along. Gas prices have been low, so vehicle miles traveled has gone up. Credit availability has come back all the way, in some cases more. (Now) we are in a situation where we are plateauing. We’re not going to see a lot more of credit expansion; we’re going to see a little contraction, in fact. We’re not going to see gas prices drop any more. We’re entering a situation where supply is going to exceed demand. So naturally we expect the values to be softer.
Quote:
Goyal: Pre-recession we saw 16%-18% (annual depreciation rates). That was kind of the norm. ... One thing we saw last year was a very distinct market between cars and trucks. That pattern where supply is exceeding demand? That’s only happening for cars. Small cars, midsize cars, there’s more supply than demand. We saw a pretty good correction last year in that segment. In small and midsize cars there was 20% depreciation.
Whereas if you look at fullsize crossovers and pickup trucks, there was only 5% depreciation.
Quote:
Goyal: Yes, leasing has gone up across the board. In pickups leasing is 11%-12% of the volume...
Quote:
Kalfus: The rental-car companies are getting smarter also. They (are looking ahead) to remarketing those 12 or 18 months down the road (and don’t want to have to move de-contented models). And their customers are used to those creature comforts, and when they get into a stripped-down rental (they’re not as happy). So it’s a win-win. There’s better customer satisfaction and vehicle value retention.
Then again, Ward's also is indicating that we might be due to a contraction in car sales.
Quote:
U.S. buyers snapped up 14.2 million new cars and trucks at retail (not including fleets and daily rentals) in 2015, up 700,000 units from 2014 and the best result since 2004... This year, that number will be surpassed, King says, with retail volume hitting 14.5 million vehicles and climbing to 14.7 million in 2017.
Perhaps more importantly, consumers will continue to spend more for those cars and trucks. Last year, average transaction prices (after incentive costs) rose $600 to $30,600, with total spending on new vehicles a record $436 billion, up $29 billion from 2014. King expects that trajectory to continue over the next two years.
Quote:
The bad news? Incentives are rising, the growth in leasing could seriously threaten profitability and loan terms are headed in the wrong direction.
Incentives, which King calls the biggest concern, account for 9.6% of suggested retail prices, up 0.7 points. That spending needs to rise only another 1.5 points to hit levels seen just prior to the last recession, he says.
Most of the incentive spending action is focused on cars, which are less in demand than trucks and car-based CUVs, the J.D. Power executive notes. Cars are averaging incentives at 12.3% of the suggested retail price, or $3,660, compared with 8.2% ($3,207) for trucks.
Car-leasing incentives equate to $6,710 per unit, evidence of the 8-point gap between supply and demand in that sector, King says.
Quote:
Overall, the new-vehicle leasing mix has risen 3.6 points to 31.4% of retail. Some 1.8 million units will be returning off-lease this year and next, with 1.9 million due back in 2018. That could mean residual values fall short of plan, particularly if incentives continue to rise. Every one point of residual shortfall will cost the industry $1.8 billion, King says.
Quote:
Loan lengths also are increasing, with 33% at 72 months or longer. Loans of 84 months now make up 5.4% of the industry’s portfolio, a 1.4 point jump from the previous year. Credit scores are falling, with 17.6% now below 650, an rise of 4 percentage points.
“That’s not a record,” King says, “but it’s moving in the wrong direction.”
Quote:
Oversupply is another problem the industry is facing. Some 31% of new vehicles spend more than 90 days in inventory, well above the 30-45 days considered healthy.
For cars, although if truck leasing is on the rise, eventually they too have to hit the lots; and if credit contracts, then I'd think truck prices would have to drop too, if buyers cannot swing the money. [If enough sit, then value has to drop, as supply is above if not demand then above ability to purchase.]
Fleet sales might not hurt value as much as before, if OEM's make less stripper rental models.
Quote:
Goyal: The last five years have been very, very strong. As we came out of the recession, there’s been a lot of strength in the market. The supply has been lower than demand, as the economy has been chugging along. Gas prices have been low, so vehicle miles traveled has gone up. Credit availability has come back all the way, in some cases more. (Now) we are in a situation where we are plateauing. We’re not going to see a lot more of credit expansion; we’re going to see a little contraction, in fact. We’re not going to see gas prices drop any more. We’re entering a situation where supply is going to exceed demand. So naturally we expect the values to be softer.
Quote:
Goyal: Pre-recession we saw 16%-18% (annual depreciation rates). That was kind of the norm. ... One thing we saw last year was a very distinct market between cars and trucks. That pattern where supply is exceeding demand? That’s only happening for cars. Small cars, midsize cars, there’s more supply than demand. We saw a pretty good correction last year in that segment. In small and midsize cars there was 20% depreciation.
Whereas if you look at fullsize crossovers and pickup trucks, there was only 5% depreciation.
Quote:
Goyal: Yes, leasing has gone up across the board. In pickups leasing is 11%-12% of the volume...
Quote:
Kalfus: The rental-car companies are getting smarter also. They (are looking ahead) to remarketing those 12 or 18 months down the road (and don’t want to have to move de-contented models). And their customers are used to those creature comforts, and when they get into a stripped-down rental (they’re not as happy). So it’s a win-win. There’s better customer satisfaction and vehicle value retention.
Then again, Ward's also is indicating that we might be due to a contraction in car sales.
Quote:
U.S. buyers snapped up 14.2 million new cars and trucks at retail (not including fleets and daily rentals) in 2015, up 700,000 units from 2014 and the best result since 2004... This year, that number will be surpassed, King says, with retail volume hitting 14.5 million vehicles and climbing to 14.7 million in 2017.
Perhaps more importantly, consumers will continue to spend more for those cars and trucks. Last year, average transaction prices (after incentive costs) rose $600 to $30,600, with total spending on new vehicles a record $436 billion, up $29 billion from 2014. King expects that trajectory to continue over the next two years.
Quote:
The bad news? Incentives are rising, the growth in leasing could seriously threaten profitability and loan terms are headed in the wrong direction.
Incentives, which King calls the biggest concern, account for 9.6% of suggested retail prices, up 0.7 points. That spending needs to rise only another 1.5 points to hit levels seen just prior to the last recession, he says.
Most of the incentive spending action is focused on cars, which are less in demand than trucks and car-based CUVs, the J.D. Power executive notes. Cars are averaging incentives at 12.3% of the suggested retail price, or $3,660, compared with 8.2% ($3,207) for trucks.
Car-leasing incentives equate to $6,710 per unit, evidence of the 8-point gap between supply and demand in that sector, King says.
Quote:
Overall, the new-vehicle leasing mix has risen 3.6 points to 31.4% of retail. Some 1.8 million units will be returning off-lease this year and next, with 1.9 million due back in 2018. That could mean residual values fall short of plan, particularly if incentives continue to rise. Every one point of residual shortfall will cost the industry $1.8 billion, King says.
Quote:
Loan lengths also are increasing, with 33% at 72 months or longer. Loans of 84 months now make up 5.4% of the industry’s portfolio, a 1.4 point jump from the previous year. Credit scores are falling, with 17.6% now below 650, an rise of 4 percentage points.
“That’s not a record,” King says, “but it’s moving in the wrong direction.”
Quote:
Oversupply is another problem the industry is facing. Some 31% of new vehicles spend more than 90 days in inventory, well above the 30-45 days considered healthy.