Throughout the course of 2024, we’ve seen the average transaction pricing of new vehicles decline ever-so-slightly, though not enough to make any sort of significant impact on affordability. Meanwhile, even though the Federal Reserve recently cut interest rates, those remain at high levels as well – all of which means that buying a new vehicle is a pricey proposition at the moment. Negative equity is also on the rise, and even with some improvements as of late, more car owners are underwater than ever before.
According to Edmunds, the percentage of car owners that owe more than their vehicles are currently worth has risen to new highs – in Q3 2024, 24.2 percent of trade-ins toward new vehicle purchases had negative equity, in fact, which is up from 23.9 percent in Q2 and 18.5 percent in Q3 2023. At the same time, those same consumers owe more money than ever before, too – $6,458 on average, versus $6,255 in Q2 2024 and $5,808 in Q3 2023 – the highest number recorded to date. Over 20 percent of consumers with negative equity owe more than $10,000, too.
Interestingly, this phenomenon isn’t just reserved for a particular segment or segments, either. “It’s easy to assume that only specific consumers trading in higher-ticket luxury vehicles are the ones underwater on their car loans, but the reality is that this is a problem across the board,” said Ivan Drury, Edmunds’ director of insights. Edmunds notes that consumers can avoid falling into the negative equity trap by keeping their vehicles for as long as possible, while keeping them maintained along the way as well.
“Consumers owing a grand or two more than their cars are worth isn’t the end of the world, but seeing such a notable share of individuals affected at the $10,000 or even $15,000 level is nothing short of alarming. A combination of uncontrollable market factors and misguided consumer financial decisions are contributing to the rise of this troubling trend,” said Jessica Caldwell, Edmunds’ head of insights. “On the market factor side, many consumers who purchased new vehicles during the inventory crunch of 2021-2022 paid over MSRP, so they didn’t chip away at the principle of their loans in a traditional manner. On top of that, trade-in values for near-new vehicles are taking a hit as automakers reintroduce incentives. On the consumer behavior side, car shoppers have been increasingly opting into longer loan terms to reduce monthly payments, and they’re also trading in their vehicles earlier than is financially prudent.”
Comments
The manufacturers will reap what they sowed when they jacked the msrp’s through the roof and cut incentives. I hope the short term sugar rush was worth it
To what degree does the rapid decline in EV prices play a part? If possible, I’d like to see the numbers broken out by ICE and EV. My suspicion is that rapidly falling EV prices are hitting current EV owners hard when they go to trade in and are skewing the numbers. Previous EV owners bought high and now are being forced to sell/trade in low.
Predicting the future is always fraught with folly. But eliminating those small, inexpensive cars, from one’s lineup is now coming home to roost.
I bet it is EVs causing more negative equity problems. A guy who goes by the name “The Macmaster” in England has owned a Porsche Taycan from new in 2021 that cost him 130K in British Pounds. 3 years later it is worth about 30K, losing 100K in 3 years with him owing more than the car is worth. What a big have from all those trying to force throw away cars on the planet.
It’s called Bidenomics and it’s working.
When you combine corporate greed with dealer mark-ups, this is the result. Consumers need to be more patient, or this trend will continue.