TREND ALERT – Working With Negative Equity

negative equity car loans

Recent figures provided in Edmunds data reviewing new and used vehicles through the first 3 quarters of the year showed increasing negative equity for both. Among trade-ins for new, a record 32% are under water with an average of $4,832 negative equity at the time of trade; used was also a record — 25% with an average of $3,635 negative equity.

This can certainly make closing a deal more difficult, but it is also obvious this submerged market is not afraid to trade, and is a continual source of traffic.  Edmunds also reported that consumers are making longer term loans more standard with many dealers reporting a rise in 84 month contracts.  Third quarter data shows that just over 30% of new vehicle contracts were between 73 to 84 months.

I recently overheard a conversation of a couple sitting at a closing table in a dealership after the sales associate had gone to talk to a manager. They were whispering about how good it felt to not have a car payment. They were debating the necessity of a new car and the payment it would bring. Clearly this mindset is in the minority as the rise of negative equity and longer term contracts are becoming more prevalent among today’s buyers.

As traffic picks up in the second half of December, it is an excellent practice to inform your sales teams of these trends for both new and used. The good teams with powerful finance units are able to turn negatives into positives, and with anticipated increased traffic ahead the opportunity is there to close more shoppers.

About the author

John Paul Strong: For someone who spends an average of 135 days outside of the office meeting with clients, John Paul Strong remains the driving force behind his Birmingham-based advertising agency, Strong Automotive Merchandising. Strong began his career as an account executive at Martin Advertising. Learning much, but never satisfied, he convinced his father to partner with him in reopening their own advertising agency in 2004, catering exclusively to the automotive industry. The company started strong but humble. The original roster of 10 employees and eight clients has exploded today, growing to 100 full-time employees and more than 220 automotive dealers. And it hasn’t gone without notice. Along the way, Strong Automotive Merchandising has been recognized as a perennial winner in Birmingham’s Best Places to Work contest and as a Top 20 Agency among Google’s National Ad Partners. Yet, Strong still finds time to share what he’s learned along the way. As an avid writer, he has published two books in the Next Day Traffic series, along with more than 1,000 automotive-focused blog posts. He is also a member of the Texas Auto Writers Association, and his success has been recognized in the Birmingham Business Journal’s 2013 “Top 40 Under 40.” In 2018, Strong was named CEO of the Year by the BBJ. The foundation for Strong’s career began at the University of Montevallo where he earned a bachelor’s degree in communication studies and advanced public speaking. Always staying ahead of the competition, Strong later went on to study in Harvard Business School’s Executive Education Program. Amid all of his endeavors, Strong always makes time for what matters most – his family. He is a proud husband to Amy, and father to Lilly Grace, Anne Charlotte, Hudson, and Ford.


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