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. 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.
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?”