“We saw some rare (price) appreciation during the time that consumers were purchasing these high-priced cars,” Daniel Ross of Canadian Black Book said of the auto market during the pandemic years.
Global supply chain disruptions stemming from the pandemic left the auto market with low inventory—and coupled with high consumer demand—auto prices surged, Ross said.
Some of those issues have since begun to normalize, allowing prices to ease, but it’s left some consumers owing more on their auto loan than the car is now currently worth. It’s referred to as negative equity, or being underwater.
As with the vast majority of vehicles, they’re a depreciating asset, so for those who purchased their car when prices were high, their “vehicle will continue to lose lots of value because it was probably overpriced at that time,” Ross said.
Should you trade in your car for a cheaper one?
On average, people who were underwater saw the negative equity in their cars climb to a record high of USD$6,255 in the second quarter this year, compared with USD$4,487 in the second quarter of 2022, a July report from auto retail platform Edmunds showed.
Trade-ins with negative equity also jumped, Edmunds said in its report.
“If you’re in a negative equity position, it’s not easy to get out of that,” Ross said.
For drivers who are in this situation, it’s better to drive that car into the ground and just keep paying off the loan, he said.
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