Get access to the same vehicle valuation tool that dealers rely on. With Black Book, you’ll have insider data to accurately assess trade-in and purchase values—empowering you to negotiate the best possible deal.
Diving into the world of car ownership can lead you into murky waters, especially when grappling with negative car equity. Imagine owing more on your car loan than the vehicle is worth – a situation many Americans face today. This comprehensive guide illuminates the shadowy depths of negative equity: exploring its causes, the impact of recent economic trends, and, most importantly, effective strategies to steer clear of or manage it if you’re already caught in its grip.
Understanding Negative Equity: How It Happens
Negative equity, often described as being “upside-down” on a car loan, occurs when the loan balance surpasses the vehicle’s current market value. This financial quagmire can ensnare car owners due to:
Depreciation: Cars depreciate the moment they’re driven off the lot. If the loan repayment lags behind this depreciation rate, negative equity can develop.
Long-term Loans: Extending loan periods results in slower principal repayment, risking negative equity as cars depreciate faster than the loan diminishes.
Small Down Payments: Minimal initial down payments increase the financed amount, heightening negative equity risks if the car’s value rapidly decreases.
Rolling Over Loans: Incorporating remaining debt from a previous car into a new loan can immediately create negative equity.
Understanding these factors is key to avoiding or mitigating negative equity and ensuring a financially stable ownership experience.
The Rise of Negative Equity in Car Loans
The phenomenon of negative car equity has been escalating, with recent Edmunds data revealing that 1 in 5 trade-ins have negative equity. The situation has become particularly pronounced in the new car market, where 20.4% of trade-ins are underwater, marking a significant jump from 14.9% in Q4 of 2021.
The average negative equity on car loans has surged to $6,054, setting a new record. This increase is partly attributed to the economic fluctuations during the pandemic when many consumers purchased vehicles at higher prices, leading to loans that exceeded the depreciating value of their cars. Consequently, drivers who bought cars during the pandemic are now facing the brunt of this financial imbalance.
What Negative Equity Means For You
Having negative equity on a car loan is more than just a numerical imbalance. It’s a predicament that can have lasting financial repercussions. Negative equity limits the owner’s flexibility, complicating efforts to sell or trade in the car without incurring losses.
For those looking to buy a new vehicle, negative equity means that the debt from the current car can roll over into the new loan. This leads to a cycle of increased debt that never seems to go away. Moreover, negative equity can affect credit scores and future loan conditions.
To combat these implications, car buyers should prioritize loan repayment strategies that target the principal amount. Also, consider shorter loan terms to align with the depreciation of the vehicle, and stay informed about the car’s current market value to make timely financial decisions. If you’d rather avoid the risk altogether, leasing is also an option.
Tackling Negative Equity
Navigating out of negative equity requires a proactive and strategic approach. Here are comprehensive steps and solutions to help you manage or eliminate negative car equity:
Accelerate Loan Repayment: One of the most straightforward methods to reduce negative equity is to make additional payments towards the loan’s principal. This will decrease the loan balance faster than the standard amortization schedule.
Refinancing the Loan: If you have good credit and interest rates have dropped since you took out your original loan, refinancing can be a smart option.
Consider a Shorter Loan Term: When refinancing, opting for a shorter loan term can result in higher monthly payments but will significantly reduce the interest cost and speed up equity building.
Lease a New Car: If you’re frequently facing negative equity with purchased vehicles, leasing might be a better option. Leasing a car can provide predictable monthly payments and eliminate the risk of negative equity, as you return the vehicle at the end of the lease term.
Cash-Injection on Trade-In: When looking to trade in a vehicle with negative equity, consider making a cash payment to cover the gap between the vehicle’s value and the loan balance. This can prevent the negative equity from rolling into the new loan.
Stay Informed About Your Car’s Value: Regularly check your vehicle’s current market value using tools like Sell With CarEdge, where you can receive multiple online offers at once. This awareness can help you make informed decisions about when to sell or trade-in the vehicle before the negative equity grows too large.
By employing these strategies, you can tackle negative equity head-on and work towards a more stable financial situation with your vehicle. Each approach has its considerations, so it’s important to evaluate your financial circumstances and car value carefully before deciding on the best course of action.
GAP (Guaranteed Asset Protection) insurance is indeed related to the topic of negative equity in car loans. Thus kind of insurance is designed to cover the difference between the actual cash value of a vehicle and the balance still owed on the financing (loan or lease) in the event that the car is totaled or stolen. Here’s how it connects to negative equity:
Protection Against Negative Equity: If a car is totaled or stolen, standard auto insurance policies usually cover only the current market value of the vehicle. If you owe more on your loan than the car is worth (negative equity), you would have to pay the difference out of pocket. GAP insurance covers this “gap,” preventing the financial strain of paying off a loan for a car you no longer possess.
Financial Safety Net: For car owners who are in negative equity, GAP insurance acts as a safety net, ensuring that they are not financially burdened by the remaining loan balance in case of total loss or theft of the vehicle.
Recommended for Long-Term Loans and Small Down Payments: For those who finance with long-term loans or small down payments, it’s smart to consider GAP insurance. It’s especially wise for leases and loans where the term extends beyond the standard three to four years.
In the context of managing negative equity, GAP insurance doesn’t reduce the loan balance or directly help in getting out of negative equity. However, it provides financial protection against the consequences of having negative equity in the event of an accident or theft.
Negative car equity, while daunting, is manageable with smart decisions and strategic actions. Understanding its roots and applying tailored strategies can lead car owners from the depths of financial strain to the clearer waters of financial stability and equity.
Want to learn more about how your particular situation may impact your ability to buy or sell? Chat with a CarEdge expert today. We’re here to help!
Electric vehicles are in the news for all the wrong reasons these days. Automakers are losing money as the clock ticks towards electrification goals set by the US government. Ford, who has struggled selling EVs to its core following, has gone so far as to cut two-thirds of the workforce at the Rouge Electric Vehicle Center in Dearborn, Michigan. But there’s good news, if you look beyond the headlines. Price cuts have come in waves, sending Ford’s EV prices falling. Ford’s EVs now have access to the Tesla Supercharger network, essentially fixing previous charging woes overnight. New numbers from CarEdge Data reveal that something is working, and Ford is selling EVs in higher numbers than ever before.
Here’s a closer look at Ford’s EV sales turnaround.
Ford’s EV Sales Are Up 114%
Over the course of March, Ford’s electric vehicle sales rates jumped 114%, as measured by running 45-day sales totals. For Ford, this is an unprecedented spike in EV sales.
For Ford’s first flagship EV, the Mustang Mach-E, sales rates are up 179% in just 30 days. In the 45 days leading up to March 1, 2024, 2,096 Mustang Mach-Es were sold in America. By March 30, the running total had climbed to 5,868 sold. This uptick in sales brough the Mustang Mach-Es market day supply down from 510 days at the start of March, to 137 days by the end of the month.
The best-selling electric truck in America, the F-150 Lightning, also saw sales rise last month. The Lightning’s 45-day running sales total climbed from 2,193 sales leading up to March 1, all the way to 3,334 sales by the end of the month. Ford’s electric truck sales jumped 52% in just three weeks.
For both models, nearly all sales were for the remaining 2023 models. 2024 models are just now arriving on dealer lots, making up just 19% of Ford’s EV lot inventory on April 1.
Who to Thank: Lower Prices, Or Tesla Superchargers?
Who is Ford to thank for their accelerating EV sales, their pricing strategy, or Tesla? Perhaps it’s a little bit of both.
On February 29, Ford announced that all of its EV owners have access to Tesla’s Supercharger network. To the uninitiated, this may not sound like much news at all. But for any non-Tesla EV driver (like myself), it’s a big deal. Tesla may have its faults, but one of its many strengths is its charging network. Frankly, most other charging networks are horrible. Until now, the Tesla Supercharger network has been reserved for Tesla drivers only. Now, first with Ford and then with Rivian, Tesla is opening up access to other automakers.
Here’s a look at the current extent of the Tesla Supercharger network in 2024:
At last, reliable EV charging has arrived for Ford’s customers (as long as they have an adaptor, provided free of charge by Ford). But there’s more to this story than easy charging.
Just how far have Ford’s EV prices fallen recently?
As of April 1, the average selling price for a new Ford Mustang Mach-E is $52,927. At the start of 2024, the Mustang Mach-E’s average transaction price was $56,546. That’s a 6.4% price drop, all within a few months.
For the F-150 Lightning, average transaction prices fell from $71,118 at the beginning of 2024 to $66,391 by the end of the first quarter. That is also a 6.4% drop over three months.
Ford’s used EV prices have taken quite the tumble, too. Used F-150 Lightning prices are down 13.8%, and the Mustang Mach-E’s average used sale prices are down 10.5% in the first quarter of 2024.
Taking EVs Seriously Pays Off For Ford
EV skeptics repeat two major obstacles that keep them hesitant to make the switch: access to reliable charging, and high prices. In the span of a month, Ford has addressed both of these pain points. This is great news for EV buyers, and also something that Ford is surely happy to see.
Will the good news continue for Ford? It’s far too soon to tell. The remainder of 2024 will prove to be a make-or-break time for not only Ford, but all electric vehicle makers. But it’s safe to say that lower prices and better charging are two big steps in the right direction.
Want to do your own local market research? CarEdge Data is for you.
Welcome to your go-to guide for March’s end-of-month car specials. Learn the art of deal hunting with free resources like cheat sheets and strategy cards, and deepen your knowledge with our free Deal School course. We’ll also share the top 5 car deals right now. With the quarter ending and market dynamics in play, now is a prime time to find your perfect car and save A LOT of money. Let us help you navigate the deals and drive home happy.
The Best Tools For Deal Hunters
At CarEdge, we want to help ALL car buyers save money and avoid the hassle that usually comes with car buying. Core to that goal is providing both free and premium resources for all. As you head out to find the best car deals, we want to equip you with these tools.
You won’t find these anywhere else!
CarEdge Free Resources
Car Buying Cheat Sheets: Download 7 PDFs to help you level the playing field. Topics include a general car buying cheat sheet, negotiation guides, leasing guides, and our guide for first-time car buyers. Get your 100% free downloads here.
The Best Car Deals, All in One Spot: We’re deal hunters ourselves, so we’re always tracking the latest new car deals. These are your go-to pages, save them to your bookmarks! All of these are updated monthly:
Free Data: For any new or used car, see cost of ownership data, maintenance cost data, insurance costs, and more. Here’s your jumping off point.
Deal School: Want to learn from Ray and Zach? Master negotiation and learn the difference between a good deal and a bad one with our 100% free course, Deal School. Sign up and track your progress today.
Powerful Premium Resources
If you’re interested in taking your car buying skills AND savings to the next level, we have options for every budget…
Looking for advanced behind-the-scenes insights?Try CarEdge Data. See local price and inventory metrics that typically only the dealers have. It’s empowered car buying for all!
Not sure if you’re getting a good deal? Chat with a CarEdge Coach! We have options to fit every budget. Learn more about how we can help.
The Best Car Deals This Month
Remaining 2023 Ford F-150s
The Best Offer: Salem Ford in New Hampshire has remaining 2023 F-150s discounted between $2,450 and $4,900 off of MSRP. This is BEFORE any rebates or incentives. Free shipping is available within 700 miles.
Better yet, Ford is offering 1.9% APR for 72 months, plus NO payments for 90 days.
The Best Offer: Key Hyundai is discounting their 4 remaining 2023 Santa Fe’s by $3,400 to $4,500 off of MSRP. Free shipping is available within 700 miles.
On top of the MSRP discount, Hyundai is offering 0% APR for remaining 2023 Santa Fe Hybrids.
The Best Offer: Ford is offering huge discounts and incentives on the Mustang Mach-E electric crossover. Reviewers love it, but the previously high price kept many customers away. Now, it’s more affordable than ever.
Cash Discount: 0% APR for 72 months + $3,000 off MSRP + No payments for 90 days
The Best Offers: Right Now, Mazda is offering 0% APR for 36 months for the 2024 CX-50 and 2024 CX-30. Also, the 2024 CX-5 is available for 0.9% APR. With the average new car loan rate near 10% APR right now, these deals could save you thousands of dollars over the life of your loan. We have pre-negotiated prices secured to take the hassle out of buying your Mazda.
See these listings (with FREE home delivery available in select regions)
2024 Toyota RAV4
The Best Offer: $1,000 below MSRP for 2024 Toyota RAV4s. This is one of the best deals we’ve negotiated through our CarEdge Network of dealers. After all, the RAV4 is the best-selling crossover in America!
FREE home delivery is available in select regions.
The end of March is also the end of the quarter for automakers and car dealers. That means they’re particularly eager to sell cars at a discount to boost their numbers. Plus, with the Baltimore Bridge collapse threatening the auto industry, now is the time to buy for drivers who are in need of a car.
However, if you’re in no rush to drive home a new set of wheels, the end of the year is almost always the all-around best time of the year to buy. Waiting for year-end deals is always a good idea for those who can.
In the early hours of March 26, 2024, the Francis Scott Key Bridge in Baltimore met a catastrophic fate as the Dali, a vessel with a capacity of 10,000 containers, collided with one of its pillars. This incident led to the immediate closure of the Port of Baltimore, a critical node in global logistics and trade. According to Maryland Governor Wes Moore, over 52 million tons of foreign cargo valued at around $80 billion were managed through this port last year, marking it as the 11th largest port in the United States.
Much of the Port’s trade involves the automotive industry, both domestic and international. This has car buyers wary of the tragic event’s possible impacts on car prices, just as new car prices are finally dropping.
Will the Baltimore bridge collapse impact car prices? If so, will the impact be immediate and broad, or more nuanced in nature? Let’s take a look at the knowns and unknowns as the situation stands today.
The Impacts on the Automotive Industry
The Port of Baltimore is not just any port; it stands as the premier gateway for the import and export of automobiles and light trucks in the United States. In 2023, the port processed 847,158 cars and light trucks. Major automakers like Nissan, Toyota, General Motors, and Volkswagen as well as luxury brands such as Audi. Jaguar Land Rover, and Lamborghini heavily rely on this port for their operations.
Auto imports from Germany, Mexico, Japan and the United Kingdom heavily use the Port of Baltimore, but will have to find immediate alternatives.
The collapse of the Baltimore Bridge casts a shadow of uncertainty over the automotive industry. The immediate impact will be felt in exports, particularly for American manufacturers like General Motors. However, imports will surely be impacted as well. With $23 billion of the port’s imports in 2023 being autos and light trucks, the disruption is bound to send ripples through the market.
The effects won’t be confined to Baltimore alone. The East Coast boasts eight major ports, with Baltimore ranking fourth in size. Ports like New York, Norfolk, and Savannah are already gearing up to absorb the diverted cargo. The shift could temporarily relieve some pressure, but the long-term ramifications remain uncertain, especially for European automakers who depend heavily on Baltimore’s roll-on/roll-off vehicle facilities.
Will the Baltimore Bridge Collapse Raise Car Prices?
Just as new car prices are finally beginning to fall, this disaster has the ability to reverse course for at least some of the auto market. To grasp where the new car market stands today, take a look at price trends over the past four months:
Despite the logistical nightmares, the current oversupply of new cars in the market might cushion the immediate economic impacts. New car prices have been falling for months. With a 90-day supply of new cars in the U.S., exceeding the usual 60 days, the overall automotive industry has a buffer against short-term disruptions. Some new cars now take over one year to sell on average.
That’s not to say that relatively minor impacts are already being felt. Car Dealership Guy on X shared the first direct impacts known, with Jaguar Land Rover’s shipment of 800 vehicles being forced to detour.
The Clock Starts Now
Ultimately, impacts will be determined by how long it takes to rebuild. The original bridge took 5 years to construct. The US Coast Guard has said it may take ‘years’ to rebuild. If the Port of Baltimore is reopened sooner, impacts on the industry could be minimized. But if we’re talking 5 years without a fully operational port, new car prices could see a more pronounced impact.
We’ll update this page with the latest news on rebuilding and reopening as it becomes available.
Will Gas Prices Rise?
The bridge collapse could also tighten the screws on the region’s gasoline supply, particularly ethanol. With the Baltimore area relying on a blend of gasoline and ethanol delivered by train and barge, alternate routes must be found swiftly before East Coast gas prices tick upwards. Some industry analysts already predicted oil prices to approach $100/barrel before the bridge disaster.
Following the Baltimore bridge collapse on March 26, repercussions on the automotive industry are still unfolding. As logistical networks strain under the sudden disruption, the resilience of the global trade and supply chain faces a significant test. For now, it appears that the following car brands are most likely to be affected in the near-term, according to Car Dealership Guy:
Nissan
Toyota
General Motors
Volvo Car
Jaguar Land Rover
Volkswagen including Audi, Lamborghini and Bentley
While supply chain constraints may be more immediate for these brands, the effects will be primarily on exports for OEMs like General Motors. Stay tuned to this page for the latest car market updates as more information becomes available.
In 2024’s car market, we’ll take good news where we can get it. Since 2018, new car prices have soared 32% on average. However, we’re seeing a different trend this spring: falling new car prices. Market-wide, the average transaction price for a new car sold in the U.S. has fallen by 5% since the start of the year. Yet, a closer look depicts a more nuanced picture, with certain brands experiencing significant price drops. Let’s delve into these changes and what they signify for consumers and the industry alike.
New Car Prices Are Falling, For Some More Than Others
Without further ado, take a look at the fresh data below. Then, we’ll dive into the details! I think it’s safe to say that new car prices are falling, regardless of whether or not MSRPs are. (Actually, MSRPs are falling too!)
Our latest analysis, leveraging CarEdge Data, offers a fresh perspective on the pricing strategies of major car manufacturers. Or perhaps this isn’t the result of strategies, but rather the result of months of oversupply combined with high interest rates.
Remarkably, brands like Dodge, Chevrolet, Cadillac, and Ford have seen substantial price reductions. Just how big are we talking? Average selling prices for these brands are down nearly 10% in just three months.
Here’s a look at the data from top-selling makes in America:
Make
12-2023 Avg Price
3-2024 Avg Price
% Price Drop
Dodge leads with a price drop of over 12%, followed closely by others such as Chevrolet and Ford, which have dropped by more than 7% in a few months. Even Honda, Hyundai, Kia, and Mazda have seen falling prices too. Luxury car prices are down across the board.
The only car brands with rising car prices in 2024? For that, we look to two popular Japanese brands: Toyota and Subaru. With less inventory than most of the overall market (44 days of supply for Toyota, and 86 days of supply for Subaru), it’s not unexpected. At least both of these brands sell cars for well under today’s ridiculously high average price of roughly $47,000.
The Bigger Picture: The Bubble Has Burst!
Zooming out, overall new car price trends indicate a market that is correcting itself after years of steady increases. It’s about time. This change in direction is crucial for consumers seeking an affordable new car, especially as interest rates look to remain high for most if not all of 2024.
How do we know that the new car market’s bubble is bursting?
Consider the following:
In March 2024, there’s an 80-day supply of new cars on dealer lots. Normally, this figure is closer to 60 days. The oversupply continues to grow.
Incentive spending is growing: Discounts and incentives in January averaged 5.7% of the selling price, up from 5.5% in December and nearly 100% higher than a year ago.
As the data here shows, only two mainstream OEMS have rising selling prices in 2024. On average, transaction prices have fallen 5% this year.
In Conclusion: Prices Will Continue to Fall
Late March is the end of the quarter, and that means dealers and automakers alike are going all-out to sell cars. Come April, some of the best deals will vanish, but not for long. With new car inventory remaining high, there will still be deals in April, just not quite as many zero percent APR offers or great lease deals.
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CarEdge Insights
