When Black Book Lender Solutions analyzed historical vehicle segment data and developed projected retention levels for the next 12 to 24 months, three specific kinds of units distinguished themselves from the 24 individual categories.

Those three segments included compact cars, midsize cars and full-size pickups. These three model categories pushed the overall retention readings to be 80.25 percent after 12 months and 67.19 percent after 24 months.

Jeff Bunch, vice president of Black Book Lender Solutions, explained to Auto Remarketing's sister publication SubPrime Auto Finance News earlier this week why full-size pickups and midsize cars especially stood out in the analysis and projections.

After 12 months, Black Book projected full-size pickups would still retain 80.47 percent of its original value and 68.85 percent after 24 months.

"The service industry is starting to rebound," Bunch said. "You're seeing construction pick back up again. The inventory, especially on full-size pickups, is still very low. And it being a work vehicle, we think the value of those units is going to continue to maintain and be very strong."

For midsize cars, Black Book determined the 12-month and 24-month retentions would be similar to what full-size pickups should be demonstrating.

"The midsize segment, which has a lot of new entries into it, has done very well mainly because the fuel economy and the size and styling of the car," Bunch said. "It used to be somewhat of a bland segment but it's now a little bit more appealing.

"We see those values holding pretty well because when can get extra room and comfort and not compromise a lot of gas mileage, especially when gas is staying fairly consistent, that's a big win for that segment," he continued.

As far as compact cars, Black Book put the 12-month retention at 80.62 percent and the 24-month retention at 67.62 percent.

Beyond those three segments, Bunch mentioned a couple of other segments that jumped out at Black Book analysts when they made their retention report.

Bunch believes retention for premium sporty cars should be a positive segment for finance companies to draw originations because "the supply is so low and the demand will keep those prices at a pretty high level, or at least above the average."

Bunch also is upbeat about full-size crossovers — a segment Black Book thinks will have a retention level at 82.60 percent at 12 months and 69.47 percent at 24 months. Models in this category include vehicles such as the GMC Acadia, Buick Enclave, Ford Flex and Cadillac SRX.

"What's been great about this segment is these vehicles are being built larger and larger and getting better gas mileage," Bunch said. "A lot of the people who are replacing full-size SUVs are looking to these particular units so we see the value of these vehicles holding pretty consistently."

According to Black Book, the improvements for segments such as midsize cars and full-size crossovers are coming at the expense of segments such as minivans and entry-level cars, models such as the Chevrolet Aveo, Honda Fit, Toyota Yaris and Hyundai Accent.

"It's pulling more of the customer demand to the midsize cars so we see these entry-level cars dropping a little bit as well as the minivans because of crossovers, again how large they are and getting better gas mileage," Bunch said.

Report Methodology

Bunch explained that Black Book considers a number of factors when analysts calculate residuals values, including:

— Historical data
— What's going on in the economy
— Gas prices
— Which automakers are putting out new models

"What we were trying to emphasize here as we looked at this data is obviously over the last couple of years it's been from a collateral standpoint a very positive time for the values and the remarketing of most of these segments," Bunch said. "We wanted to take a look at the breakdown of these segments and look at our residual values to use them as a gauge to see where we were seeing the market heading in the next 12 to 24 months.

"We realize that supply is starting to come back into play," he continued. "There are certain segments that will still maintain a fairly strong retention value, at least above average. And then there are some that might suffer a little bit because of the supply coming back into play or other variables such as gas prices or consumer demand.

Bunch insisted lenders are becoming "thirsty" for data, leveraging a solution Black Book offers that allows finance companies to refresh their portfolio standing on an annual, quarterly or even monthly basis to get a better assessment of risk.

"It's important to know where the opportunities are for them," Bunch said. "As they look for this, we've really had a nice few years. The last 12 months, the depreciation rate on all the segments has been hovering around 14 percent. In the past, it's always been in the area somewhere between 17 to 18 percent.

"The days of the under-the-norm deprecation are going away," he added.

Lender Activity Discussions

Bunch has been meeting with finance companies often recently and shared his overall assessment of those discussions and whether any slowdown in credit availability is imminent in a market where he described 72-month contracts as "the norm."

Bunch said, "Everyone that I've talked to is still very optimistic. It's not really a matter of turning faucet off. It's a matter of making sure that you monitor what you're putting in. They're really thirsty and anxious for data to help them make the right decisions. There's been no indication from anyone I've heard that they're looking to lend less money. But they're looking to lend money as efficiently as possible.

"To know what you're loaning your money on and what your positioning is during the next five to six years is critical," he went on to say. "It's not a matter of that they're not averse to taking the risk. It's a matter of them making sure they're taking the right risk."
 

Black Book Lender Solutions Retention Projections