By Ray Birch
LAWRENCEVILLE, Ga.—Used car values could end 2021 with an overall whopping 30% appreciation rate, according to Black Book, which is forecasting 2022 will bring some of the same results.
Alex Yurchenko, SVP, data science and analytics at Black Book, emphasized the 2021 used car rollercoaster largely headed uphill only, as used rates surprised many by consistently climbing higher after many in the industry had predicted the greater annual depreciation rate in 2021 would likely fall in the normal 15%-17% range.
But the rise in values in 2021 was driven by supply shortages in the new and even used market, Yurchenko noted, fueled in large part by the microchip shortage extending much deeper and longer than expected.
“It's been a surprising year this year, and it will be a little crazy in ’22,” said Yurchenko. “But it won’t be the same rollercoaster ride.”
Some Segments Hit 40% Appreciation
Alex Yurchenko
Yurchenko said while he doesn’t yet have a final number for 2021, he believes the data will eventually show a minimum 25% annual increase in used car values this year—with some auto segments reaching 30%-40% appreciation, such as full-size vans and even minivans.
“Actually, I think we might end the year closer to 30% appreciation overall,” Yurchenko told CUToday.info, adding that he, along with experts who have been with Black Book for many years, have been surprised to see the Black Book Used Vehicle Retention Index hit new records month after month in 2021.
As Black Book reported, used values continued to march upward in November, as the Black Book Used Vehicle Retention Index reached another record high. Black Book reported the Index increased to 189.9 points, a 9.7 point (or 5.4%) increase from October (180.2). The Index currently stands 45.4% above where it was this same time in 2020.
Yurchenko said that new inventory will still be tight in 2022, which will continue to bring the threat of rising used values. However, he believes the market at some time next year will begin to return to more normal values.
Values to Remain Elevated
Laura Wehunt, vice president of automotive valuation at Black Book, predicted that as the market returns to more normal levels of depreciation, used values will remain elevated.
“We’re simply coming from a place where used values are exceptionally high,” said Wehunt. “We have many 2020, 2019, and even 2018 vehicles that are selling for above what their sticker was when they were new. Even when we start to see some stabilization, the market is still stabilizing from an extremely high level.”
Wehunt said credit unions should expect values to = rise in the Spring as the warm weather and tax refund season always drive up prices.
Shortage to Remain
Laura Wehunt
Yurchenko, meanwhile, reminded there are not strong signs indicating the supply shortage will abate anytime soon.
“Inventory is still tight. Rental companies are still buying on the used market but they are not selling. So, we'll still have limited inventory of both used and new vehicles,” Yurchenko said. “We have a long way to get to any normal market.”
Black Book, however, is seeing some depreciating vehicle segments today.
“It just depends on the segment,” he said. “We're seeing depreciation in sedan segments, as they had been leading increases this year. We’re starting to see sedan prices come down. But if you take all of the segments together we're already close to an overall zero increase for used vehicles. SUVs and trucks are still increasing…I think we're going to start to see small decreases in the overall market.”
One Bright Light
A bright spot is U.S. automakers are increasing production.
“Yet, a big unknown is the demand side—consumer confidence is low, there are concerns with inflation, and then there are the COVID variants…,” Yurchenko noted, saying overall 10% depreciation for 2022, a low annual number, could well happen.
The used market still remains one filled with uncertainty for lenders, reminded Yurchenko, who has been warning credit unions to be wary of long-term loans on used vehicles today.
“Used vehicles, lenders still need to be cautious here,” he said. “Prices will eventually begin to decline, but they are exceptionally high now.”