Automotive Fleet, February 2016

depreciation trendsnual rate for October more than 18 million up 14 percent year to date The wholesale resale market remains stable year over year with the volume of used vehicle transactions keeping up with the increase in new vehicle sales Wholesale market sale volume through October is up 4 percent year over year at 352 million sales The OEMs are beginning to increase incentives to help move inventory although not yet to unhealthy levels seen historically said Crocker of Merchants Fleet Management The positive resale market is also currently slowing some depreciation rates The strength of the retail used vehicle market driven by favorable labor market and credit conditions has been the primary supporter of strong wholesale values and thus slower depreciation in 2015 said Webb of Cox Automotive But this isnt the case for all vehicle segments The pickup and van segments remain dominant in the resale market while outperforming all other segments resale values are up year over year in both segments Slowed demand in the car markets have meant lower resale values for both the mid size and compact segments the latter in particular said Wuich of Donlen But overall the stability in vehicle depreciation has allowed for some fleets budget more strategically As a whole EMKAYs remarketing trends show that significant gains losses on sales have become less prevalent from 2013 to 2015 This has allowed for fleets to more strategically budget their monthly operating costs We also have some fleets that prefer to implement a higher depreciation rate to capitalize on market conditions which in turn will render a higher gain on resale This positive equity position is then essentially reinvested back into the fleet to offset new vehicle operating costs said Donahue of EMKAY In the end the resale market remains steady but robust according to Graham of ARI While fleets are becoming increasingly comfortable returning to more normal and shorter replacement cycles the continued growth in the U S economy especially in construction combined with low when replacement cycles decrease the depreciation costs per mile usually increase however due to the strong demand for light trucks the shorter cycles did not affect depreciation costs which remained unchanged year over year for this segment said Langmandel of LeasePlan USA The opposite has held true for compact and mid size cars A slight shift in cycling upward to the next largest segment has worked to weaken demand for compact and mid size cars In addition replacement cycling of vans was slower than expected allowing older vans to better retain value said Wuich of Donlen Understanding depreciation and its effect on fleet and balancing it with corporate culture is one best practice Fleets are now taking into consideration their effective depreciation rates when determining a strategic depreciation rate for a new or replacement vehicle The monitoring of the wholesale market along with historical remarketing performance have greatly influenced fleets cycling behaviors Furthermore corporate culture practice and business needs are being taken into consideration as well Best practices have always shown that it is ideal to at the very least break even at the end of the lease or to experience a gain on sale which can then be allocated to new vehicle lease payments according to Mark Donahue manager fleet analytics and corporate communications at EMKAY But vehicle cycling is not only impacted by vehicle depreciation additional factors play an important part Early cycling was not driven by depreciation alone versus other business needs such as total costs business use and driver satisfaction Black said The Strength of the Overall Resale Market Overall the resale market can be described currently as stable and in some areas up healthy robust and positive But will it last New vehicle sales continue to exceed expectations with the seasonally adjusted an Minivans are still the No 1 choice as a people mover and the reduced supply during the last few years has caused their costs to remain flat The full size van market has been fairly strong due to the lack of supply of the traditional cargo vans and the transition from the traditional cargo to the more European styled vans Combined with shifts in supply the improved economy has caused prices to increase for this segment Black said Depreciations Impact on Replacement Cycling Parameters Evaluating vehicle cycling and cycling policies continues to be a focus to optimize net depreciation according to Crocker of Merchants Fleet Management Leveraging lifecycle cost models allows fleet managers to model multiple scenarios and find the sweet spot between order volumes affecting CPA monies net depreciation as well as maintenance and fuel costs with fleet managers validating or augmenting cycling policies through a data driven approach he said But 2014 2015 may show signs that the impact of the 2008 2009 economic recession is finally starting to fade The data shows the effects of the recession are truly fading and fleets are again for the most part entering into normal replacement cycling patterns leading to more normalized and predictable depreciation rates There was a period during the recession where fleets were holding onto vehicles for longer periods of time causing the used vehicle market to heat up because of a lack of inventory and resulting in increased depreciation values As the economy has become stronger companies have returned to more normal patterns of buying and selling of vehicles and equipment and this has stabilized depreciation values said Graham of ARI However some vehicle segments are still feeling an impact Replacement cycles have declined for the more in demand and higher resale value segments in 2015 In a normal market AUTOMOTIVE FLEET I FEBRUARY 2016 46 DONAHUE EMKAY GRAHAM ARI