There is a continued strong secondary market for used vehicles, DBRS analysts said today. This has resulted in consumers paying higher prices for older vehicles that have a greater number of miles.
This demand has been boosted by rising subprime loan origination volumes and general economic improvement, the rating agency said.
According to the rating agency, the recessionary reduction in new-vehicle production is still going to feed the population of older vehicles with more mileage being sold at auction.
Analysts cited NADA figures that said that the average mileage has risen for all age groups of vehicles sold at auction. This is specifically true for vehicles up to five years in age that are averaging more miles than pre-2007 sales. This is because of the higher mileage thresholds on rental fleets.
Along with increased mileage, DBRS analysts said that the market has also seen an upward trend in wholesale vehicle values, which started in 2009 and continues today. More recently, the price increases for older vehicles have outpaced younger vehicle segments.
Most of the price rate increase was seen in the six- to seven-year old vehicle category, which has been sustained since 2010. Limited supply and better vehicle quality are viewed as major factors supporting this trend.
DBRS said that historically low used-vehicle depreciation levels and a business model shift for vehicle manufacturers — from always overproducing to building cars as needed — will probably keep the demand for used vehicles strong. A recent NADA study DBRS cited projected a period of used-vehicle price stability that will continue in the near term. Even though some softening is anticipated, the trend of used-vehicle depreciation should stay historically low through next year.
An added consideration benefiting auto loan pool performance is a big number of lenders' increased lending discipline. DBRS cited a recent summary of the auto loan market issued by Experian. In the report, the credit reporting agency discussed the year-over-year reduction in LTV ratios for subprime auto loan originations.
Experian's report theorized that the dip in LTV ratios implied lender discipline within the space. Although there are some issuers that have showed a different pattern, the market's overall trend is positive, the reporting agency said.
