Pandemic-Era Prices Affect Trade-Ins

The vehicle price inflation that built during the pandemic is causing new headaches for many new-vehicle buyers who are trading in the models they bought during the extended seller’s market.

Edmunds second-quarter analysis indicates almost a quarter of those who financed a new-car purchase including a trade-in vehicle were upside down on the previous loan, the average debt hitting a record. Those with a trade-in electric model owed more. And not surprisingly, the age of trade-ins was older.

“Over the last few years, inflated vehicle trade-in values kept consumers somewhat shielded from falling underwater on their car loans,” said Edmunds Head of Insights Jessica Caldwell. “As the market continues to correct and trade-in values normalize, this protection is falling away, with some vehicle types more affected than others.”

New-vehicle sales with trade-ins in negative equity hit 24% in the quarter, Edmunds said, eclipsing the 32% in the first quarter of 2021.

The average debt on the trade-ins reached a record $6,255, well up from $4,487 two years earlier, Edmunds found. Things were significantly worse for EV trade-ins, whose owners’ average debt was $10,326, up from $5,469 two years earlier and far exceeding gas-powered trade-ins’ negative equity of $6,018.

The disparity between gas-powered and electric models doesn’t bode well for mass EV adoption, Edmunds said.

“It’s not surprising that EV owners are feeling the brunt of accelerated levels of depreciation — this is a fairly standard occurrence for vehicles laden with emerging technology, and incentives on new EVs are only adding to the problem by further depressing used EV values,” Caldwell said. “And this is certainly not making a good case for the fledgling EV market, which is already struggling to gain consumer buy-in.”

Overall trade-ins with negative equity are also getting older, their average age in the quarter 3.7 years, up from 3.2 years two years earlier.

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