Along with explanations for why lease residuals will be under pressure and late-model depreciation will be considered as “volatile,” the latest joint vehicle depreciation report from Black Book and Fitch Ratings indicated vehicle depreciation is expected to accelerate in 2015.

Analysts came to that forecast based on increased used-vehicle supply and larger off-lease volumes placing pressure on retention rates

According to the report, 2014 new-vehicle sales finished the year at 16.5 million units, and Black Book is forecasting new-vehicle sales to finish north of 16.7 million units this year. Analysts pegged the annual depreciation rate on used vehicles in 2014 at 12.1 percent, slightly lower than their initial forecast.

Black Book believes annual depreciation levels on used vehicles will continue to trend toward pre-recession historical rates and climb to 14.5 percent in 2015.

“2014 depreciation was defined by pockets of volatility due to seasonality, harsh weather patterns and falling fuel prices impacting smaller cars and trucks of all sizes,” said Anil Goyal, vice president of analytics and strategic partnerships for Black Book.

Looking ahead, lower consumer demand and CAFE-driven model competition will place higher depreciation pressure on smaller car segments particularly, but trucks should have stable retention in 2015 due to balanced production levels and strong housing and service economies,” Goyal continued.

The Black Book-Fitch vehicle depreciation report is a joint venture by the two companies utilizing Black Book’s used vehicle depreciation data, and Fitch’s U.S. auto ABS indices data.

Black Book tracks used vehicle market depreciation rates providing an understanding of how vehicle prices impact automobile lenders and lessors, auto ABS transactions, consumers and other auto market constituents.

“Leveraging accurate and timely collateral data trends from Black Book are critical to auto lenders especially given the changing landscape for risk potential in 2015,” said Hylton Heard, who is senior director of Fitch Ratings.

Lease Residual Value Commentary

Fitch projected that residual value losses should increase in vehicle lease transactions this year since depreciation is expected to move close to 15 percent.

Fitch’s RV Index declined throughout most of last year as used-vehicle values softened and depreciations inched higher. The firm acknowledged its index level started 2014 at elevated levels, ranging from 6.05 percent to 10.08 percent through the first half of the year before settling at 3.87 percent by December.

“Clearly, softer wholesale values from elevated off-lease volumes and vehicle trade-ins slowed RV performance in the latter half of 2014,” Fitch analysts said in the report.

Fitch pointed out that it rates approximately $25 billion of auto lease ABS outstanding that’s been issued from 10 U.S. platforms. The firm is anticipating that vehicle returns will increase this year, pushing off-lease volume higher by more than 10 percent as compared to 2014.

“Even with this trend, Fitch expects minimal impact on ratings performance in 2015, and the outlook for asset and ratings performance is stable,” the report said.

“Transactions are well enhanced to withstand lower RV in 2015, particularly giving current enhancement levels with RV loss proxies derived utilizing the very weak late 2008-early 2009 period asset performance,” analysts continued.

Late-Model Depreciation Analysis

Report orchestrators explained annual depreciation of late-model vehicles exhibits significantly larger levels of depreciation. They noted this trends happens because of a greater push for differences in new-to-used vehicle prices as new-model sales continue to increase along with increasing actual transaction prices.

“Certain manufacturers are even using higher incentives for particular models with elevated inventory levels to increase sales and reduce stock,” analysts said in the Black Book and Fitch report.

The report continued by mentioning what the firms considered to be “amazing” depreciation patterns exhibited in the compact SUV segment. Analysts said these patterns develop because there is a “limited number of players” in the segment, led by the “almost iconic Jeep Wrangler and the especially popular four-door variants.”

Editor's Note: The entire vehicle depreciation report produced by Black Book and Fitch can be downloaded here.