Edmunds reposted this
Pandemic-era car buys are backfiring on owners: A record number of consumers owe more on their auto loans than what their vehicles are actually worth. Percentage of new car deals with an “upside down” trade-in: Q4 2021: 14.9% Q4 2022: 17.7% Q4 2023: 20.4% (!) How did this happen? Soaring new car supply has been driving down new car prices, leading to rapidly declining prices for comparable used car models that are 1 to 3 years old. And car dealers aren’t immune either… Dealers loaded up with used inventory are focusing on moving those cars faster, as depreciation trends accelerate. Here are my takeaways - 1) The next 12 months will test the American consumer’s resilience as vehicle supply rises and the decline in values accelerates. 2) The “fundamentals” of operating a dealership are back in vogue again after a 3-year hiatus. 3) Dealers that embrace technology to help move/sell their inventory faster will win in an increasingly volatile car market. Data via CDG Partner: Edmunds For more insights and helpful tools to get your inventory in front of more car shoppers: https://edmu.in/3TOn2ek #edmundspartner
We should build a calculator tool for the average consumer to figure out the math on whether to keep their car or not based on whether its underwater / negative equity vs monthly payment to buy a new car or used car. e.g Inputs for the Calculator: Loan Details: Years/Months Left on Loan Monthly Payment Principal Left on Loan Car Valuation Factors: Mileage Condition (Scale 1-5; 5 being excellent) Accident History (Yes/No) Number of Owners Future Use: Years You Plan to Keep the Car Outputs: Current Car Value (Based on Valuation Factors) Total Cost of Keeping the Car (Remaining Loan + Maintenance) Comparison with Buying a New or Used Car (Simplified assumption of monthly payment) Recommendation: Keep or Walk Away Assumptions for Simplification: Car depreciation is simplified to a fixed annual percentage (this varies widely in reality). Maintenance cost is averaged and scales with age/mileage. Example: Monthly Payment: $300 Months Left on Loan: 24 Principal Left on Loan: $7,200 Mileage: 60,000 Condition: 4 out of 5 Accident History: No Number of Owners: 1 Plan to Keep the Car: 5 Years
You don’t say?? Anyone who’s been the auto business for any amount of time knew this was going to happen. Reminds me of an event called “Cash for Clunkers” and like then, the repercussions hit. However the big difference between then and now is higher rates, as well as what happens every 4 years, Presidentual election. So yeah, its looking like a bumpy road ahead. So this whole post is a sales pitch from Edmonds on let me show you how to sell your inventory.. The sametime they’re showing potential customers 1) here’s what the dealers are paying for the cars and 2) this is the price people are paying for them, be educated when you buy your next car. This is how you sell your inventory and its no secret, it’s called going back to the basics. Salespeople - sell yourself, sell the store and then sell the car. 80-20 rule, 80% of the sale before you show the numbers. The desk working with their Finance Dept. is going to be key on structuring deals and making sure they stay on the road. Is it going to be easy, no, why because so many people are upside down in their car and it’s not going to get better overnight. Time to work smart because the family needs to eat and you need to be able to spend time with them.
Crazy how history repeats itself woth predatory lending?! 06-09 they blamed it on that and now we had banks saying yes to selling cars over msrp 5k+ 10k+ over sticker no money down. 150-200% LTV. Crazy people said yes to that deal, but banks could have said no and dealers would be forced to rewrite the deal. Banks said yes, so people said yes. History repeats itself
We all saw this coming with the astronomical profits dealers were holding during the pandemic. Hopefully, they squirreled some of it away. This has taken many buyers out of the market for a long time, and will result in massive repo’s & insurance fraud I’m afraid.
No one to blame here but the dealers. They saw an opportunity to grossly enhance PNVR and took advantage of customers that had no choice or were just plain stupid. Now comes the correction, no gross just to be able to get these customers out of their worthless trades. As a long time dealer, I have no sympathy.
Didn't we all know this was coming the whole time?
The only thing that might help in this scenario is the low supply of used vehicles due to the low "new" car inventory from the last couple of years. However, turning around the new and used inventory will be vital for future success, especially with dealerships paying 8% floor plan interest.
Does this apply for used car loans as much as new car loans? Are the used cars that were purchased so much higher-priced compared to what they are going for now? I guess the interest rates did not immediately go up during the pandemic, so that was a gradual effect that happened later in the pandemic.
Lol, this was the easiest crisis to predict. This will kill 20.4% of buyers 25-48 months down the line.
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3moPeople were doing 100% financing at $2500+ over MSRP, it was obvious what was going to happen.