As Auto Remarketing investigated an area where the impact of recalls might be more pronounced for its special National Auto Auction Association Convention issue, both Fitch Ratings and NADA Used Car Guide released analyses on Tuesday stating that the effects from the record-setting year of campaigns might be muted.

First when considering vehicles included in rental fleets, Fitch recapped much of the depreciation analysis produced by Black Book Lender Solutions. As previously reported by SubPrime Auto Finance News, Black Book’s newest white paper dissected four significant recalls, including:

— Toyota Camry (gas pedal/unintended acceleration issue on 2008 and 2009 models)

— Chevrolet Cobalt (key ignition/unintended shut off on 2005-2007 models)

— Ford Escape (engine fire risk on 2013 models)

— Ford Explorer (Bridgestone-Firestone tire recall on the 2000 model)

Fitch mentioned Black Book’s study acknowledged material declines in Toyota's reputation in brand surveys following its recalls, as well as slippage in Toyota's hold of new-vehicle sales between 2009 and 2010.

“Yet, monthly depreciation rates on the Camry never exceeded the blended depreciation rates on similar- model, similar-year cohorts,” Fitch said. “In the Ford and GM cases, the study compared the depreciation rates of both newer and older model years relative to the model years affected by the recalls.

“Data generally showed no acceleration in valuation declines for any of the model years in the six-month period following the recalls,” the firm continued.

Acknowledging that this year’s record amount of recalls has created material disruptions and driven up operating costs for rental companies, Fitch projected the recalls should not be a major threat to the residual values of the affected vehicles within rental fleets.

“Steady residual values could keep the pain of the recent recalls limited to the incremental service costs that have already crimped second-quarter earnings reported by firms such as Hertz Corp. and Avis Budget Group. Consequently, Fitch expects the impact to the rental car firms' overall credit profiles to be modest,” analysts said in light of approximately 37.5 million vehicles being recalled globally, well above the prior record of 30.8 million recorded in all of 2004.

Fitch emphasized that residual values are important factors to consider at the end of the vehicle life, when rental car firms seek to dispose of vehicles that are not returned to manufacturers (risk vehicles).

“Rental car firms currently hold high proportions of risk vehicles in their fleets to provide flexibility in managing fleet levels and to take advantage of the robust used car market in the U.S. through various vehicle disposition channels,” Fitch said.

“Regardless of recall activity, Fitch expects residual values to come under pressure through the end of 2014 as significantly higher vehicle supply is expected to enter the used-car market from vehicles coming off lease and trade-ins,” the firm continued.

Looking at the topic from another angle, Fitch’s auto asset-backed securities residual value index — which tracks the performance of residual values in ABS transactions — recorded a gain of 5.76 percent in July, down from a gain of 8.38 percent the prior month.

The index has recorded gains in each month going back to May 2009, but Fitch expects the index to move lower in the latter part of the year.

“Expectations of used-car market softness are further confirmed by Black Book's used car depreciation rates, which are expected to rise to 13.5 percent in 2014, up from 12.8 percent recorded in 2013, but remain below the historical average rate of approximately 15 percent,” said Fitch analysts, which pointed out that Black Book uses 2- to 6-year-old vehicles in its overall depreciation trend summaries for consistent comparisons.

NADA UCG Recall Impact Analysis

Meanwhile, the analysts at NADA Used Car Guide released their own white paper on Tuesday. The document titled, The Impact of Vehicle Recalls on the Automotive Market, examined many of the same high profile recalls like Black Book’s efforts did. Unlike GM’s high-profile ignition recall that was for older units no longer in production, NADA UCG noted that Toyota’s campaigns of five years ago included prominent vehicles likely in late-model inventory.

Before the recalls, NADA UCG calculated that used Toyota cars and trucks carried prices nearly 40 percent higher than those of direct competitors. This metric meant that for the average $10,000 vehicle, a comparable Toyota carried a premium of $4,000.

“But as the recalls unfolded and media scrutiny intensified, Toyota’s advantage over the competition quickly deteriorated,” NADA UCG analysts said. “By April 2010, five months after initiating the first recall, Toyota’s competitive advantage had shrunk to 20 percent.

“By late 2010, Toyota recovered some of the ground it had lost, but the automaker’s used vehicle prices still have not regained their former position of dominance,” they continued. “When the dust settled, Toyota’s price advantage over its competition stabilized at around 30 percent, an outcome that reduced the spread between its used prices and those of a $10,000 rival by a considerable $1,000.”

Nonetheless, NADA UCG insisted that the effect of recalls on automaker market performance is determined by a variety of factors.

“History has shown that, by and large, brand reputation only tarnishes when recalls are tied to numerous injuries or deaths and media attention is widespread,” analysts said.

“As we saw with Toyota, significant and lasting damage can occur when these conditions are combined with events perceived as decidedly out of character for a manufacturer,” they continued. “Automakers strive for a reputation synonymous with quality, but ironically they suffer more from a recall event if consumers already perceive them in this light. Evidence suggests that model age also influences recall impact, which could be because older models are less associated with a brand’s current product image.

“We can say with confidence that future recalls will have a measurable impact on market performance, but it’s a bit more difficult to pinpoint the exact degree,” NADA UCG went on to say. “GM’s recalls are a perfect example. The manufacturer’s new vehicle sales and used vehicle prices have gone relatively unscathed, even though circumstances surrounding its recalls are somewhat similar to what Toyota experienced a few years ago.

“Above all, this report shows that the same factors cause recall-related brand damage, but individual circumstances determine the severity of the damage,” analysts added.

More Coverage from Auto Remarketing

The latest commentaries from Fitch and NADA UCG are just the latest reports Auto Remarketing has related to recalls and their impact in the used-vehicle market.

Auto Remarketing reached out to several auction leaders to get a sense of how these recalled units are clogging up the remarketing process. Auction Broadcasting Co. president Jason Hockett shared some first-hand experiences as did Lynn Weaver, general manager of Harrisburg Auto Auction.

The stories will be shared in the Sept. 15 edition of Auto Remarketing, which also will be distributed during NAAA’s Convention in Boston beginning on Sept. 23.

If you’re not going to be in Beantown for the event, be sure to claim your free subscription by going here or review the digital edition at digital.autoremarketing.com.