The article below is sourced from Bloomberg Wire Service. The views and opinions expressed in this story are those of the Bloomberg Wire Service and do not necessarily reflect the official policy or position of NADA.
After a brief respite from soaring auto debt, Americans are once again falling deeply underwater on their car loans.
Used-car values have tumbled about 16% from the pandemic-driven peaks of early last year, according to the Manheim Used Vehicle Value Index, and negative equity — the amount that debt exceeds a vehicle’s value — has been climbing fast.
Among new car buyers, those carrying negative equity on their trade-ins were underwater by an average of $5,820 in September. That’s compared to a low of less than $4,100 in late 2021, according to automotive information firm Edmunds.
While it’s not unusual for motorists to accrue negative equity, the long-term trend has been exacerbated by low down payments and the emergence of six- and seven-year loan terms. Drivers got a measure of relief when a topsy-turvy auto market sent used-car values soaring during the pandemic, and some motorists discovered their vehicles were worth more than they had paid for them.
Historically, around half of new-vehicle buyers trade in a car, and just shy of a fifth of those trade-ins actually carry negative equity, Edmunds data show.
Even though only a sliver of US car buyers arrive at dealerships with trade-ins that are underwater, the rise is creating headaches for dealers and would-be car buyers alike — rolling negative equity into a new loan can be difficult if the amount owed is too high.
In the Columbus, Ohio, area, dealer Rick Ricart was accustomed to seeing only a couple of shoppers on any given weekend day with $10,000 or more in negative equity. On one Saturday in late August, though, he counted 10 customers facing that scenario.
Getting someone like that into a car “is not impossible,” Ricart said. “But is the customer comfortable with a payment that could go up hundreds of dollars due to interest rates, and the negative equity that has to be rolled into it?”
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