Which Vehicle Segment Will Take Biggest Residual Hit?
Industry trackers disagree over which models will depreciate the most.
Which vehicle segments should brace for big residual hits this year?
Trackers of vehicle values disagree on that one. But they agree remarketers face a test of will and skill as waves of about 3.3 million vehicles come off lease in 2016, creating one of the highest used-car supplies in years.
“I’m concerned about high-end vehicles,” Barrett Teague, Black Book’s vice-president-lender solutions, says when asked which models will depreciate the most.
“I wouldn’t worry about those,” Jonathan Banks, a National Automobile Dealers Assn. analyst, tells Teague during a recent American Financial Services Assn. conference panel discussion.
“The structure for selling luxury used cars is strong,” Banks says, referring to automakers’ certified pre-owned vehicle programs at dealerships. “I’m more worried about midsize vehicles. The lease penetration on those has been skyrocketing. Off-lease numbers are huge.”
Exacerbating that high supply is the perfect-storm component of soft demand for cars in general, but particularly midsize ones in a seemingly CUV-crazy market.
“There’s not much demand for those midsize cars coming back off-lease,” says A.J. Schoonover, Kelley Blue Book’s director-vehicle valuation operations. “Not that many people are going to want them.”
Like Banks, he believes off-lease luxury vehicles should do OK on the used-car market in part because premium auto makers and their dealers run well-tuned certified pre-owned operations.
“The luxury brands know the CPO market and they know how to get the dealers engaged,” Schoonover says.
The truck segment “is starting to see the recovery of really expensive vehicles,” Banks says, but with a warning.
In the 2.2-million pickup segment such top-line vehicles include the Chevy Silverado High Country, Ram Laramie Longhorn and Ford F-150 King Ranch sell for $60,000 and up.
“It’s really conspicuous consumption, but what if gas prices go up to $6 a gallon?” Banks says of the premium-truck market. “(Buyers of those vehicles) won’t stay in the segment. It would be like driving a Hummer.”
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