Record Number Of Consumers Are Upside Down On Trade In Vehicles

The wave of easy credit and longer auto loans has left a record percentage of consumers trading in vehicles that are worth less than what they owe on their loans.

In auto finance parlance, these folks are underwater, or upside down. They already are affecting the market as automakers boost incentives and subprime lenders monitor their delinquency rates more closely.

So far this year, a record 32%, or nearly one-third, of all vehicles offered for trade-ins at U.S. dealerships are in this category, according to research by Edmunds.com. When these people go to buy a new vehicle they must add the difference between their loan balance and the vehicle's value to the price of the one they want to buy.

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TheSteve - 11/28/2016 3:23:38 PM

+3 Boost

From the same people who see only "monthly payment" instead of "total cost of ownership", we bring you "Oh, I forgot I still have to make monthly payments on the old car... oh well, just tack it onto the monthly payments for the new car."

Anyone envision another collapse of financial institutions (i.e., "lenders")?

MDarringer - 11/28/2016 8:18:27 PM

0 Boost

I think it will be on a manufacturer-by-manufacturer basis. An astonishing number of people--in my opinion--use the manufacturer's lending arm rather than their own banks.

The number of 72 and 84 month loans written is troubling. If you can't pay off a car in 5 years, you can't afford the car. If you CAN pay it off in 5, you ought to consider doing without some bells and whistles to be able to pay off in 3.

Past 60 months, people are fiending for a new car and are willing to finance the "negative equity", but once a buyer does that, it's a vicious cycle.

None of our stores will write 72 or 84 month loans. We can, but we refuse to.
What will drive car values down in the used segment is leasing. The lending arm of more than a few manufacturers are willing to write fake depreciation (i.e. higher resale than likely) to create honey leases. Those cars dump in 2-3 years, where the CPO versus non-CPO game is played.

People will pay more for a CPO when the non-CPO--at a precipitous depreciation from original--is the better financial buy.

The non-CPO cars drive resale down.

Leasing a dumping is a valid consumer strategy at the moment.