Zachary Berry
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Used Vehicles Lost 17% of Their Value on Average in the Last Year

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An overabundance of used vehicles in the market has caused their depreciation rates to rise while their value plummets

used car buying guide

Growing depreciation plus an overabundance of vehicles in the market equals a recipe for lost value

In the years following the major recession that occurred during the late 2000s, new car sales have been increasing at an astonishing rate, with many record sales months achieved during the last year alone. However, with 2017 that trend seems to be slowing down, with sales on a decline for most automotive brands.

Still, all of those years of record sales have added a record number of vehicles to the market, and with so many used vehicles out on the road, the value of such vehicles appears to be on a decline. In fact, the average used car lost 17% of its value in the past 12 months.

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A year ago, the average value of a used vehicle was around $18,400. Now, according to data from auto analytics company Black Book, that value is down to $15,300.

Rapidly growing depreciation rates are to blame for this loss of value. Used cars depreciate twice as fast as they did in 2014, when depreciation rates were 9.5% on average.

Not all vehicle classes are depreciating at the same rate. Small and full-size pickup trucks are holding onto their value most effectively, while the depreciation rates for sub-compact cars and full-size cars are the highest across the board.

2013 Ford Fiesta overview

As the popularity of both small and large car models begins to decline, so does their value

New car sales aren’t the only source for the increasing amount of used models on the market. Many of the vehicles adding to the market’s oversupply are repossessed.

The number of motorists applying for loans that they can’t afford is on the rise. Right now, 14% of Americans have a negative net worth, and auto loans make up between 10% and 23% of their financial obligations.

As a result, repossessions are currently growing more common. KAR Auctions Services Inc., a supplier of around 5 million used cars a year, predicts that nearly 2 million vehicles will be repossessed by lenders during this year alone.

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This oversupply is also a source of pain for rental and fleet companies. As a result, many companies like Avis are purchasing fewer 2018 models, while automakers like General Motors are aiming to sell fewer models to fleets.

It seems like the only group that benefits from the growing depreciation of used vehicles are those in the market to buy one. Five years ago, a three-year-old model would sell for 26% off its initial value. This year, a three-year-old vehicle sells for 34% off its initial value.

Of course, if you are looking to trade in or sell a used vehicle, just don’t expect the same amount of cash you would receive five years ago.

News Source: Bloomberg