The tsunami of negative car equity is coming

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The auto industry is staring down a grim reality as rising negative equity rates send shockwaves through the market. In the first quarter of 2024, a staggering 23.1% of consumers trading in their used vehicles found themselves upside down on their loans—owing more than their cars were worth. This figure marks a significant jump from previous years, highlighting a growing crisis for many drivers.

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The average negative equity amount has hit a record high of $6,167 in Q1 2024. While new car prices may be declining, affordability remains an uphill battle for consumers grappling with burdensome loan balances. The roots of this issue stretch back to the pandemic’s economic turmoil, where many were forced to buy vehicles at inflated prices, only to watch their values plummet.

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In response to this alarming trend, the Consumer Financial Protection Bureau (CFPB) is stepping up its scrutiny of auto lending practices, signaling a potential shift in regulation aimed at protecting consumers. As this issue continues to escalate, the implications for the auto market and consumer financial health are profound.

Sources:

www.carscoops.com/2024/04/negative-equity-for-auto-trade-ins-reaches-all-time-high/

www.edmunds.com/industry/press/elevated-auto-loan-rates-hinder-new-and-used-car-shoppers-in-q1-2024-according-to-edmunds.html

caredge.com/guides/negative-car-equity

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