3 Segments Highlight Black Book’s Projected Retention Forecast

GAINESVILLE, Ga. — When Black Book Lender Solutions analyzed
historical vehicle segment data and developed projected retention levels for
the next 12 to 24 months, three specific kinds of units distinguished
themselves from the 24 individual categories.

Those three segments included compact cars, midsize cars and
full-size pickups. These three model categories pushed the overall retention readings
to be 80.25 percent after 12 months and 67.19 percent after 24 months.

Jeff Bunch, vice president of Black Book Lender Solutions,
explained to SubPrime Auto Finance News this morning why full-size pickups and
midsize cars especially stood out in the analysis and projections.

After 12 months, Black Book projected full-size pickups
would still retain 80.47 percent of its original value and 68.85 percent after
24 months.

"The service industry is starting to rebound," Bunch said. "You're
seeing construction pick back up again. The inventory, especially on full-size
pickups, is still very low. And it being a work vehicle, we think the value of
those units is going to continue to maintain and be very strong."

For midsize cars, Black Book determined the 12-month and
24-month retentions would be similar to what full-size pickups should be demonstrating.

"The midsize segment, which has a lot of new entries into
it, has done very well mainly because the fuel economy and the size and styling
of the car," Bunch said. "It used to be somewhat of a bland segment but it's
now a little bit more appealing.

"We see those values holding pretty well because when can
get extra room and comfort and not compromise a lot of gas mileage, especially
when gas is staying fairly consistent, that's a big win for that segment," he
continued.

As far as compact cars, Black Book put the 12-month
retention at 80.62 percent and the 24-month retention at 67.62 percent.

Beyond those three segments, Bunch mentioned a couple of
other segments that jumped out at Black Book analysts when they made their retention
report.

Bunch believes retention for premium sporty cars should be a
positive segment for finance companies to draw originations because "the supply
is so low and the demand will keep those prices at a pretty high level, or at
least above the average."

Bunch also is upbeat about full-size crossovers – a segment Black
Book thinks will have a retention level at 82.60 percent at 12 months and 69.47
percent at 24 months. Models in this category include vehicles such as the GMC
Acadia, Buick Enclave, Ford Flex and Cadillac SRX.

"What's been great about this segment is these vehicles are
being built larger and larger and getting better gas mileage," Bunch said. "A
lot of the people who are replacing full-size SUVs are looking to these
particular units so we see the value of these vehicles holding pretty
consistently."

According to Black Book, the improvements for segments such
as midsize cars and full-size crossovers are coming at the expense of segments
such as minivans and entry-level cars, models such as the Chevrolet Aveo, Honda
Fit, Toyota Yaris and Hyundai Accent.

"It's pulling more of the customer demand to the midsize
cars so we see these entry-level cars dropping a little bit as well as the
minivans because of crossovers, again how large they are and getting better gas
mileage," Bunch said.

Report Methodology

Bunch explained that Black Book considers a number of
factors when analysts calculate residuals values, including:

—Historical data
—What's going on in the economy
—Gas prices
—Which automakers are putting out new models

"What we were trying to emphasize here as we looked at this
data is obviously over the last couple of years it's been from a collateral
standpoint a very positive time for the values and the remarketing of most of
these segments," Bunch said. "We wanted to take a look at the breakdown of
these segments and look at our residual values to use them as a gauge to see
where we were seeing the market heading in the next 12 to 24 months.

"We realize that supply is starting to come back into play,"
he continued. "There are certain segments that will still maintain a fairly
strong retention value, at least above average. And then there are some that
might suffer a little bit because of the supply coming back into play or other
variables such as gas prices or consumer demand.

Bunch insisted lenders are becoming "thirsty" for data,
leveraging a solution Black Book offers that allows finance companies to
refresh their portfolio standing on an annual, quarterly or even monthly basis
to get a better assessment of risk.

"It's important to know where the opportunities are for
them," Bunch said. "As they look for this, we've really had a nice few years. The
last 12 months, the depreciation rate on all the segments has been hovering
around 14 percent. In the past, it's always been in the area somewhere between
17 to 18 percent.

"The days of the under-the-norm deprecation are going away,"
he added.

Lender Activity Discussions

Bunch has been meeting with finance companies often recently
and shared his overall assessment of those discussions and whether any slowdown
in credit availability is imminent in a market where he described 72-month
contracts as "the norm."

Bunch said, "Everyone that I've talked to is still very
optimistic. It's not really a matter of turning faucet off. It's a matter of
making sure that you monitor what you're putting in. They're really thirsty and
anxious for data to help them make the right decisions. There's been no
indication from anyone I've heard that they're looking to lend less money. But they're
looking to lend money as efficiently as possible.

"To know what you're loaning your money on and what your
positioning is during the next five to six years is critical," he went on to
say. "It's not a matter of that they're not averse to taking the risk. It's a
matter of them making sure they're taking the right risk."

Black Book Lender Solutions Retention Projections

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Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.

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