Low Cost gas hits hybrid, EV remains

Beware!  Falling gasoline prices are hitting the residual values of used hybrids and  electrics -- hard. The influx of used small cars set to return to the market over  the next few years is going to make matters worse.

Kelley Blue Book projects the collective residual value of 2016 hybrid and electric  vehicles sold in January and February to be 29.5 percent after 36 months.  That is 4.1 percentage points lower than the 36-month residual projection  it set for similar vehicles sold a year earlier.

Low gasoline  prices played a big role in trimming those values, said Eric Ibara, director  of residual values at Kelley Blue Book. In 2012 -- when the average price of  gasoline nationwide was $3.60 a gallon, according to AAA's website -- KBB  projected that gasoline prices five years out would be in the range of $3.50-$4  a gallon, Ibara said.

KBB's current  prediction puts gasoline in the $2-$3 a gallon range in five years, he  added.

Struggle  continues

"Nobody  really knows, but there are few signals to lead us to believe that gas prices will spike  up over the next few years," Ibara said. "Because of that, we think hybrids  are going to continue to struggle and as a result our residual value for that  segment is  also soft."

Consider the 2013  Toyota Prius Two.

In December, that  midsize vehicle -- Two is a trim level -- retained about 46 percent of its original sticker price,  down from 57 percent for the 2012 Prius Two a year earlier, Ibara said.

"That's a huge drop in just a year's time," he said. He also  noted that because the Prius was redesigned for the 2016 model year, its projected 36-month residual value was set at 52 percent but  would have  been higher had it not been for slumping gasoline  prices.

Jonathan Banks, a NADA Used  Car Guide analyst, said depreciation rates for hybrid and electric vehicles  ranged between 25 and 35 percent in 2015, about twice the 16.5 percent average  of gasoline-powered cars and trucks.

But the Nissan Leaf EV has  really taken it on the chin, Ibara and Banks agreed.

Ibara said he had no residual  value data on the Leaf that he could share but added that at one point his  data indicated that "these vehicles were headed to zero value, which of course   would never occur."

Over the last six months to  a year, though, there has been an uptick in the Leaf's value, Ibara said. "It  may have reached a place that was so low people decided, 'Hey, this is a good  bargain,' and dealers were buying it and finding they could sell it. This uptick  we're seeing with Leaf perhaps is a return to sanity."

The NADA guide data show  that in the fourth quarter of 2015, a 2012 Nissan Leaf retained just 16.7 percent  of its "typically equipped" sticker price; a 2013 Leaf retained 25.1 percent,  and a 2015 retained 29.8 percent.

Many EVs came with high  sticker prices and the chance at high tax credits for the first, but not the second,  buyer.

Larry Dixon, another analyst at NADA Used Car Guide, said the  company does not adjust its residual forecasts for those tax credits. He said tax  credits effectively take on the role of an incentive. "Few, if any, consumers  would buy a used EV for more than a new EV, less any applicable tax credit,"  Dixon said. "Don't forget, new EVs also come with high incentives on top of  applicable tax credits."

Some More compacts

Also hurting prices  of used hybrid and electric vehicles is that the number of used, fuel-efficient,  compact cars is set to increase substantially, Banks said.

The NADA guide  predicts that about 521,000 off-lease compact cars will return to the market this  year, up from "roughly" 380,000 in 2015.

Banks said the  compact car segment, which includes vehicles such as the Honda Civic, Ford  Focus, Toyota Corolla and Chevy Cruise, depreciated 20 percent in 2015.  Depreciation for smaller cars, such at the Toyota Yaris and Honda Fit, has been  even higher, Banks said.

"The used supply  for those compact cars in the next couple of years is going to be reaching  volumes that are much higher than what we've seen in the last few years," Banks  said.

"I would expect  depreciation [for the segment] this year to be much worse than last year --  and last year was not a good year."

Kelley predicts  the 36-month residual value for 2016 Chevrolet Volts sold in January and  February at 29.5 percent, down from 32.0 percent predicted for the 2015 Volt  in the same period last year. But after tracking the actual transaction  prices of the 2015 Volt, Ibara said, Kelley now forecasts that vehicle's  residual value at "under 30" percent 24 months from now.

The 2016  Volt is redesigned and has a longer range so "we think the 2016 Volt will  hold its value better than the 2015," Ibara said. "Our forecast was too high last  year."