Changing dynamics in the US economy and in the new vehicle market will have an impact on residual values. A combination of stronger sales and greater leasing activity will create a greater supply of used vehicles in the market. The increased used vehicle supply, coupled with higher incentives, will lead to a softening of residual values. Used vehicle prices are expected to fall by 8.0% from current levels by 2018.
The lease penetration rate for the first quarter of 2015 was 20.3% of total sales. Lease penetration has not been above 20% since 2000. We expect the growth in leasing to continue over the next several years which will contribute to a growing supply of off-leased vehicles.
We expect the supply of used vehicles in the market to increase throughout our forecast. In addition, we expect an increase in the incentives offered on new vehicles. By 2018, we expect used vehicle prices (real) to drop 8.0% from today’s levels.
The used supply of compact cars will continue to increase through May 2017 before leveling off. This will contribute to a decline in compact car prices. By 2018, used prices in the segment are expected to drop 5.7% below current levels.
Over the next 5 years, RVI expects a softening in used vehicle prices in Canada as the supply of used vehicles is expected to increase through 2019. By 2018, we expect our used vehicle price index to fall by 2.8% from current levels