Edmunds: Soaring prices for trades reduce negative-equity challenges

Dealerships often face the challenge of their potential buyers bringing a sizeable amount of negative equity with them via their trade, creating a hurdle to get a deal bought within their network of finance companies.

Times have changed tremendously, based on the newest information Edmunds shared on Tuesday.

According to Edmunds data, the average value for all used vehicles traded in during the month of March hit an all-time high, climbing to $17,080, compared to $14,160 a year ago.

Edmunds analysts indicated that demand is soaring for used vehicles as chipset shortages continue to severely constrain the supply of new vehicles in the market.

In fact, Edmunds said new-vehicle inventory on sale at dealerships nationwide dropped by 36% in March compared to a year ago.

“If you were upside down on your car loan a few months ago, there’s a decent chance that you could be in the black today,” Edmunds senior manager of insights Ivan Drury said in a news release.

“Consumers who own a vehicle and are thinking of making a new car purchase in the near future should consider pulling the trigger now. The inventory situation isn’t going to get any better any time soon, and you could essentially be wiping away multiple car payments with the added value of your trade-in,” Drury continued.

While it might seem like way longer than just a year ago thanks to the pandemic, Edmunds shared a dramatically different story last spring.

Edmunds previously reported April 2020 data had established an all-time record as 44% of new-vehicle sales with a trade-in had negative equity. That figure was up from 40% in March 2020 and 33% in April 2019.

Furthermore, analysts discovered at that time that the average amount owed on upside-down installment contracts also climbed to an all-time record high of $5,571 in April 2020, compared to $5,405 in March 2020 and $5,036 in April of the previous year.

Fast forward to this year, Edmunds indicated the average amount owed by consumers who were upside down on their installment contract was $4,583 in March, compared to $5,405 a year ago.

Depending on what vehicle your potential customer has, the four-square figures might show quite a different scenario.

According to the newest Edmunds data released on Tuesday, trucks retain the greatest value and command the highest trade-in prices of all consumer vehicles in the market right now.

Edmunds analysts took a look at all 2018 model-year vehicles traded in during March and determined their respective retained values by comparing the average trade-in price of each model against its average original MSRP.

Edmunds discovered Ford F-250 Super Duty, GMC Sierra 2500 Heavy Duty and F-350 Super Duty all tied for the No. 1 spot on the list, retaining 80% of their value on average.

“The chipset shortage is wreaking havoc on new vehicle production, but we’re also seeing surprisingly healthy car shopper demand, which has likely grown stronger in light of vaccines rolling out quicker than anticipated,” Edmunds executive director of insights Jessica Caldwell said in the news release. “These two factors combined are disrupting the market in a way we haven’t ever really seen before.”

Edmunds analysts said that consumers who might have typically been new-car shoppers are increasingly turning to the used market in search of more alternatives and better value. Traffic to the Edmunds website’s used-vehicle inventory pages jumped approximately 300% in March compared to a year ago.

“It seems impossible, with the pandemic still raging in many parts of the country, that new-vehicle sales could be at the highest March level in more than two decades, but here we are,” Caldwell said.

“Until automakers can start cranking out new vehicles again, we’re going to see increased demand and higher trade-in values for used vehicles as well.”

And according to Edmunds data, 30% of all vehicle trade-ins during March had negative equity, compared to 40% last March.

“Many consumers believe the old adage that you lose half the value of your vehicle when you drive off the lot, but that is simply far from the truth today. In fact, we’re seeing many vehicles hold a huge amount of value multiple years into ownership,” Drury said.

“Every car owner out there should take a minute to check how much they can get for their vehicle, no matter the age or mileage or condition that it’s in. You could have extra money sitting in your driveway and not even know it,” he went on to say.

Top 20 Vehicles, Ranked by Greatest Retained Value (2018 Model Year)  

Vehicles With the Greatest Retained Value by Segment (2018 Model Year)

Source: Edmunds