MCLEAN, Va. - Depreciation of used cars and light trucks is expected to increase modestly over the next few years, but still remain historically low, says the NADA Used Car Guide in its latest report, Volatility in Used Vehicle Depreciation: Historical Trends & Future Outlook .
Used-vehicle depreciation has been extremely volatile over the past few years, with used-vehicle prices rising 26.5% in 2008 only to fall 11.1% in 2009. A used vehicle worth $12,000 declined in value by as much as $3,180 in 2008 or as little as $1,332 in 2009, according to the report. Looking ahead, however, NADA is expecting a period of used-price stability that hasn't been seen in over a decade.
"The expected low annual rate of depreciation can be attributed in part to the continued decline in the supply of late-model used vehicles, which was caused by a substantial reduction in new-vehicle sales during the economic recession," said Jonathan Banks, senior analyst with the NADA Used Car Guide.
Another factor that will keep used-vehicle depreciation low over the next few years is the shift by auto manufacturers from overproducing new vehicles to building to demand, NADA predicts.
"In an environment where supply exceeds demand, high consumer incentives are necessary to move excess inventory," Banks added. "This lowers new-vehicle prices which in turn places downward pressure on used-vehicle prices and increases the rate of depreciation. Although we expect to see mild growth in incentive spending as manufacturers seek to balance production and market share goals with actual demand, current signs don't point to a return to pre-recession levels."
In addition, used vehicles are holding their value longer because of advancements in product quality and reliability, design and fuel efficiency, which increases demand for today's late-model used vehicles, he added.
In 2012, NADA predicts a $12,000 used vehicle will depreciate in value on average by $1,884 or 15.7%, an increase of just 0.6% or $72 from last year. By 2014, used-vehicle depreciation is projected to grow to $1,992 or $108 more than 2012's estimate.
NADA noted that these estimates are a substantial improvement from the 21.4% average annual rate of depreciation which occurred from 1996 – 2008.
