Americans Increasingly Upside Down on Auto Loans as Used Car Values Fall

[ice-capades]

Americans Increasingly Upside Down on Auto Loans as Used Car Values Fall

Edmunds warns a 'storm is brewing' in the used car market as prices fall, pushing negative-equity to an all-time high.

https://www.foxbusiness.com/economy/americans-increasingly-upside-down-on-auto-loans-as-used-car-values-fall

 

 

Used car prices are starting to edge down after soaring for years after the pandemic hit, and while the trend is a much-welcomed relief for buyers, it is also causing trouble for some consumers who purchased their vehicles at higher prices.

 

Edmunds' latest used vehicle report found a growing number of Americans are upside down on their auto loans as used prices decline, and the average amount consumers are underwater is at an all-time high.

 

The report found the average transaction price (ATP) for all used vehicles declined to $28,371 in the fourth quarter of 2023, a 4.4% decrease from the same quarter the year before, when the ATP sat at $29,690.

 

At the same time, the percentage of new vehicle sales that had a trade-in with negative equity jumped to 20.4%, up from 17.7% in 2022 and 14.9% in 2021.

 

Now, the average amount consumers owe on upside down loans is at a record high of $6,064, up from $5,347 in fourth-quarter 2023 and $4,143 in 2021, the data found.

 

"A storm is brewing in the used market as incentives and inventory continue to trickle back into the new vehicle market," said Ivan Drury, Edmunds' director of insights.

 

"With demand for near-new vehicles on the decline, used car values are depreciating similarly to the way they did before the pandemic, and negative equity is rearing its ugly head," he added.

 

Edmunds analysts found the consumers most vulnerable to falling underwater on their auto loans are those who purchased new vehicles for above sticker price, because those newer trade-ins are seeing the steepest decreases in value.

 

The data shows that compared to the third quarter of 2022, when used vehicle values were at their peak, the ATP for 1-year-old vehicles last quarter was down $6,763 to $38,720. Two-year-old trade-ins fell to $32,583, a $3,294 decline.

 

For comparison, the ATP for a decade-old trade-in fell to $12,477, a $1,304 decrease.

 

"During the last few years, consumers could jump into new car loans and their trade-ins were shielded from negative equity because some dealers, desperate for used inventory, were willing to pay near original purchase prices," Drury said.

 

He added, "These days, consumers need to be more careful — especially if they're trading in newer vehicles — because near-new cars are being hit the hardest by depreciation."

Edited March 19 by ice-capades
Additional Content

[Chrisgb]

Not good. Folks that bought a new vehicle in 2019-21 and paid a "Market Adjusted Price" or hundreds/thousands in dealer installed accessories, and rolled a leftover loan balance into an 84 month loan are stuck with the vehicle for a few more years. Or they will need significant cash to get out of the deal. This is also affecting their ability to get home improvement loans or refinance balloon loans. Meanwhile, inventories of many vehicles are increasing, and rebates & low interest financing are coming back, further reducing used car loan values, thus keeping more folks out of the new market, which results in bigger incentives to move the iron, etc until somewhere a balance is finally struck and new & used ATPs stabilize.

[akirby]

1 hour ago, Chrisgb said:

Not good. Folks that bought a new vehicle in 2019-21 and paid a "Market Adjusted Price" or hundreds/thousands in dealer installed accessories, and rolled a leftover loan balance into an 84 month loan are stuck with the vehicle for a few more years. Or they will need significant cash to get out of the deal. This is also affecting their ability to get home improvement loans or refinance balloon loans. Meanwhile, inventories of many vehicles are increasing, and rebates & low interest financing are coming back, further reducing used car loan values, thus keeping more folks out of the new market, which results in bigger incentives to move the iron, etc until somewhere a balance is finally struck and new & used ATPs stabilize.

Seems to me most folks looking to replace 3-4 yr old vehicles would have leased them anyway.

 

What I don’t understand is people who are upside down either on cars or homes just walking away.  You only lose money if you sell.  Just keep the vehicle or house and you’ll eventually catch up without trashing your credit score.

[silvrsvt]

11 minutes ago, akirby said:

What I don’t understand is people who are upside down either on cars or homes just walking away.  You only lose money if you sell.  Just keep the vehicle or house and you’ll eventually catch up without trashing your credit score.

 

People are irrational and want the newest thing. 

[ice-capades]

23 minutes ago, akirby said:

Seems to me most folks looking to replace 3-4 yr old vehicles would have leased them anyway.

 

What I don’t understand is people who are upside down either on cars or homes just walking away.  You only lose money if you sell.  Just keep the vehicle or house and you’ll eventually catch up without trashing your credit score.

 

Agreed. Those with 3-4 year old vehicles most likely were lease customers, although the best lease deals are usually for 24, 36 or 39-month terms. 

 

The market situation over the past 4 years with the substantial price increases, reduced inventory, finance rates, dealership ADM's and the elimination of anything considered an entry level model can only increase the average length of ownership which will have its own impact over the years. Customers shopping for vehicles at around $25K or less are now priced out of the market for new vehicles, unless they buy can buy a new vehicle from one of the imports and forced to buy a used vehicle. The OEM's and their dealerships have made short term decisions that will cost them future business. It'll be interesting to see the market share numbers in the future as there's more competition and a decline in overall industry sales in the US.   

[Captainp4]

I've seen a few people warning this was the next bubble to burst over the last couple years, over here trying to figure out how I can get rich off of the car market crashing.. seemed simpler with the housing one 🤣

[Andrew L]

I've seen other articles where people are taking out insanely long loans too which doesn't help as well.

 

Used car prices were insane for a while.  I posted about it before but when I was shopping for my beater (04 Aviator) I saw a early 90s Camry Wagon that they wanted 7k for because "ThEy LaSt FoReVeR".

[silvrsvt]

1 minute ago, Andrew L said:

Used car prices were insane for a while.  I posted about it before but when I was shopping for my beater (04 Aviator) I saw a early 90s Camry Wagon that they wanted 7k for because "ThEy LaSt FoReVeR".

 

I got $3K for a 2010 Fusion Hybrid with 214K miles on it!

[Flying68]

7 minutes ago, Andrew L said:

I've seen other articles where people are taking out insanely long loans too which doesn't help as well.

 

Used car prices were insane for a while.  I posted about it before but when I was shopping for my beater (04 Aviator) I saw a early 90s Camry Wagon that they wanted 7k for because "ThEy LaSt FoReVeR".

Prices on Facebook marketplace are still insane.  Everyone is pricing their 12 year old vehicle with 200k+ miles and a rebuilt title for $5k or more.  Add another thousand if the interior doesn't look like someone died in there and another thousand if the title is clean.  Yet my relatively low mile MkC is only worth $11k on trade.

[Andrew L]

8 minutes ago, Flying68 said:

Prices on Facebook marketplace are still insane.  Everyone is pricing their 12 year old vehicle with 200k+ miles and a rebuilt title for $5k or more.  Add another thousand if the interior doesn't look like someone died in there and another thousand if the title is clean.  Yet my relatively low mile MkC is only worth $11k on trade.

 

So true on the interior.  Not sure if its the same in your area but it seemed to me like almost every car I was looking at regardless of make or model a ton of them had their sets torn up like someone took a box cutter to them and I don't understand why.