LAWRENCEVILLE, Ga.—Black Book is advising lenders to pay close attention to the values of sub-compact and compact cars as they underwrite new loans, saying that the future does not look bright for the retention values of these two car segments.
That advice comes after sub-compact cars (-2.4%) and compact cars (-1.6%) showed the greatest single-month valuation drop in the latest Black Book report. And when looking at this segment over a longer time period, sub-compact cars have depreciated 26.1% over the last 12 months, the largest 12-month drop of any segment over the last ten years, excluding the 2008 recession year, explained Black Book’s Anil Goyal, senior vice president of automotive valuation and analytics.
Vehicles in this segment include the Toyota Yaris, Toyota Prius C, Nissan Versa, Kia Soul, Honda Fit, Ford Fiesta, Chevrolet Spark. The next closest 12-month drop over last 10 years was the small pickup truck category (-25.3%) during 2006.
“Sub-compact cars saw the largest drop in values last month, and they continue to experience downward pressure as demand is weak and supplies remain abundant,” said Goyal "The sub-compact car segment has experienced a roller-coaster ride of price valuations over the last ten years, feeling the effects of supply and fuel price fluctuations. Dealers should use accurate data to make the right inventory decisions, and lenders should evaluate their term pricing and advance policies when analyzing this segment for their portfolios."
Goyal said it is difficult to predict how much worse it may get for cars in the sub-compact and compact segments, especially because their depreciation has been so drastic over the last 12-18 months.
“However, as gas prices remain low, segment inventory levels continue to rise, and the still-strong economy continues to drive America's thirst for larger vehicles, it's difficult to see vehicles in these segments seeing any noticeable strengthening of retention values any time soon,” said Goyal.
Black Book, noting that sub-compacts showed 34% retention in May of 2014, outlined what is an extremely bleak residual forecast for this segment:
- 24% retention in May 2017
- 26% retention in May 2018
- 26% retention in May 2019