We have frequently written about the unsustainable trends in new car sales in the United States created by the combination of lower rates, easing underwriting standards and voracious demand for new securitizations by wall street and pension funds that will do just about anything for an extra 20bps of yield.
This week we find that according to the latest Edmunds' data, many of the same problems also afflict the used auto market. The most startling takeaway from the report is that the percentage of used cars being traded in with negative equity values - which means that dealers lenders are willing to accept an immediate loss for new transactions - continues to rise and currently stands at an all-time high 32.4%, up from under 20% in 2009. Moreover, the average balance of the negative equity also continues to rise and stood at a record $5,130 last year, up over a quarter from $4,075 a decade earlier.
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How can these people trade in a car for which they owe more money than it is worth?
ReplyDeletePay down the loan on the car you already have, then buy a new car.
And the fix is???
ReplyDeleteQuit buying used cars.
ReplyDeleteIf this reporter finds out that 32% of car trade ins were once under water then why can't the consumer or the Department of Justice?
Reread, 1:54. You do not understand.
DeleteEveryone knows a car dealer can make as much, if not more, on the financing of a car sale than they do on the sale itself. The more they finance, the more they make. They make money on the sale just one time, when they sell the car. But they make money on the financing every time you make a payment, for the life of the loan, typically 72 months nowadays. They have no problem adding the unpaid balance on your used car trade in to the new car financing. There is NO loss to the dealers, and in actuality, they make even more money when there is an underwater trade in, because the amount of the loan is higher than the sale price. Don't feel sorry for the dealers. They NEVER lose.
ReplyDeleteI thought mine seemed a little damp.
ReplyDeleteThis is GM bending the market again to sell their junk
ReplyDelete345 is right, the front end money is nothing compared to the back end money (financing)
ReplyDelete