LAWRENCEVILLE, Ga. -

Overall vehicle depreciation for 2- to 6-year old vehicles is expected to reach 15 percent this year, representing an increase from the level of 13.2 percent experienced in 2015. That prediction arrived on Wednesday as Black Book and Fitch Ratings released their latest joint vehicle depreciation report

Analysts indicated the projected level of depreciation will mark the first time in the previous five years that annual depreciation crests above 14 percent. Despite this rate still remaining below average pre-recession levels, Fitch and Black Book believe this increase will be driven by several factors.

Black Book is forecasting new-vehicle sales to grow slightly to 17.6 million units in 2016. Black Book contends this level of sales activity, which brings a high volume of trade activity, coupled with a large amount of lease returns, will contribute to the continued increase in depreciation rates.

Meanwhile, Fitch expects U.S. prime and subprime auto loan and lease ABS performance to be stable and within historical loss levels. Although the firm acknowledges that annualized net losses will creep up in conjunction with marginally higher vehicle depreciation in 2016, as predicted by Black Book.

Analysts recapped that the strength in last year’s performance was largely driven by truck segments. The truck segments as a whole experienced half the depreciation rate of the car segments, with annual depreciation of trucks at 9.2 percent and cars at 18.2 percent.

The report went on to mention the variability in depreciation across the segments increased during 2015.

Among the trucks, the depreciation ranged from 2 percent to 23 percent across the segments, while among the car segments, the depreciation rates ranged from 14 percent to 22 percent.

“Given the spread and volatility across various segments, it becomes important for a lender to have a diversified portfolio,” Black Book and Fitch said. “Portfolios concentrated in smaller segments experienced the steepest decline in equity.

“With longer terms and softening used vehicle values, portfolio equity will experience higher risk as it would take longer for a loan to enter into a positive equity position,” the firms went on to say.

Black Book and Fitch also noted that pressure on residual performance will trend higher in 2016 due to expectations of elevated new vehicle sales, and higher fleet and rental volumes entering the secondary market during the year.

Despite this, Fitch believes auto loan and lease ABS ratings performance will not be impacted by the negative asset performance trends in 2016. The agency has a positive rating outlook for loan ABS in 2016, with the pace of upgrades expected to continue and be consistent with 2015 albeit at a slightly slower pace.

Fitch added that its outlook for auto lease ABS asset performance is stable in 2016 given pressure on residual values, but no impacted is expected on ratings which also have a stable outlook.

“The focus in 2016 will be in the depreciation disparity between car and truck segments, which showed a widening spread toward the end of last year,” said Anil Goyal, senior vice president of automotive valuation and analytics for Black Book. “We expect this spread to remain, however there is growing belief that cars are nearing their floor in terms of depreciation changes.”

The Black Book-Fitch vehicle depreciation report is a joint venture by the two companies utilizing Black Book’s used vehicle depreciation data, and Fitch’s U.S. Auto ABS indices data.

Black Book tracks used vehicle market depreciation rates providing an understanding of how vehicle prices impact automobile lenders and lessors, auto ABS transactions, consumers and other auto market constituents.

“All eyes will remain on the health of the economy and state of the wholesale vehicle market this year,” said Hylton Heard, senior director of Fitch Ratings. “Additionally, rising off-lease returns will result in overall higher used-vehicle volumes hitting the market and will pressure auto lease residual performance in 2016.”

The Black Book-Fitch vehicle depreciation report is available for download by clicking here.