Vehicle depreciation rates inching closer to pre-pandemic norms

Used cars are depreciating slower than they were last year, reflecting a return to pre-pandemic trends despite sustained volatility in the electric vehicle market and weakened consumer finances.

Depreciation trends

• Used cars are expected to depreciate at a rate of -18% year-over-year throughout the course of 2024, according to Black Book and Fitch Ratings. This is only slightly higher than the -16.8% observed in 2019.

• Used EVs continue to lose value at a much faster pace than their ICE counterparts, namely due to Tesla’s price cutting strategy. Days’ supply of electric cars also remains in the triple digits (boosted partly by Hertz’s decision to ditch its fleet of 20,000 Teslas), compared to the 45-60 days’ supply seen for gas-powered vehicles.

• One pre-pandemic trend making its return is the strong pricing performance of compact cars. Retention rates for compact cars started to fall below other model types in 2015, further nosediving in 2020. Last year, however, consumers pivoted away from expensive vehicles under the impact of interest rate hikes and began to look for more affordable options. This, combined with an absence of new entries in the segment, has driven retention rates for compact cars back to first place.

While these trends reflect a return to normal within the automotive sector, a variety of external challenges promise to keep things interesting for dealers.

Unemployment is also normalizing: Following several years of declines, jobless numbers are starting to return to their typical range. Fitch projects an unemployment rate of 4.1% by the end of 2024, up from last year’s 3.7%. This will weigh down on consumers’ ability to afford their next car purchase and could cause auto loan delinquencies to rise.

Household incomes: Cost-of-living expenses remain a challenge for consumers. Income growth is expected to slow throughout 2024, likely eroding buyer confidence in the process. 

Interest rates and loan terms: Interest rates also remain high, placing additional strain on car shoppers. Many buyers have counteracted the impact of rate hikes by taking out longer term loans. However, with the weighted average length approaching 84 months, it isn’t clear how sustainable this practice is.

Bottom line: Overall, depreciation in the market is going back to normal but there are still many unknowns dealers will have to face in the months ahead. Cautious remarketing strategies can help retailers navigate the 2024 used car market as the wider economic trends continue to sort themselves out.

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