Used-car depreciation to speed up as interest rates rise
Annual losses caused by used-vehicle depreciation plummeted after the recession. Even as they have started to rise in the past three years, depreciation losses have remained incredibly low, says an NADA white paper on vehicle equity.
But NADA expects used vehicles to depreciate more quickly, for three reasons: An expanded pool of used vehicles, an anticipated gradual increase in interest rates, and stepped-up new-vehicle production leading to discounting.
Faster depreciation, in turn, will delay equity gains. Increasingly longer loan terms will only make matters worse. And the longer it takes a car owner to reach positive equity, the longer that owner is out of the market. Even if the car owner rolls part of the loan into a new one, that would just delay the problem further. The risk of default rises as depreciation speeds up and positive equity is delayed.
NADAês solution: Rely on a third party such as the NADA Used Car Guide to provide depreciation forecasts so the dealer can manage loans better. The Used Car Guide will eventually take on the J.D. Power name, now that J.D. Power has acquired the Guide (see below, next article).Download Bulletin PDF