Page 22 - BusinessWest April 1, 2024

Change of Direction
Used-car Values Decline, Leaving Some in a Tricky Spot
Agrowing number of consumers across the U.S. are finding themselves upside down on their car loans as the used-vehicle market contin- ues to stabilize and used values dwindle, according to the latest Edmunds Used Vehicle Report. Among the findings:
• Used-car values continue on a downward
trend. The average transaction price (ATP) for all used vehicles in the fourth quarter of 2023 dipped to $28,371, a 4.4% decrease from $29,690 in Q4 2022.
• Trade-ins with negative equity are on the rise,
as 20.4% of new vehicle sales with a trade-in had negative equity in Q4 2023 — the highest in two years — compared to 17.7% in Q4 2022 and 14.9% in Q4 2021.
• Consumers who are upside down on their auto loans owe more than ever before. The aver- age amount owed on upside-down loans climbed to a record high of $6,064 in Q4 2023, compared to $5,347 in Q4 2022 and $4,143 in Q4 2021.
“A storm is brewing in the used market as incen- tives and inventory continue to trickle back into the new-vehicle market,” said Ivan Drury, Edmunds’ direc- tor of insights. “With demand for near-new vehicles on the decline, used-car values are depreciating simi- larly to the way they did before the pandemic, and negative equity is rearing its ugly head.”
Edmunds analysts note that consumers who paid above MSRP for a new vehicle during the pandemic are the most vulnerable to falling underwater on their car loans because their newer tradeins are the most
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susceptible to dramatic decreases in value. According to Edmunds data, one- and two-year-old
vehicles are experiencing the most significant drops in value compared to older used vehicles. Compared to Q3 2022 (when used vehicle values were at their peak), Edmunds data reveals:
• The ATP for one-year-old vehicles in Q4 2023 dropped to $38,720, a $6,763 decrease;
• The ATP for two-year-old vehicles dropped to $32,583, a $3,294 decrease; and
• The ATP for 10-year-old vehicles dropped to $12,447, a $1,304 decrease.
“During the last few years, consumers could jump into new-car loans, and their tradeins were shielded from negative equity because some dealers, desperate for used inventory, were willing to pay near original purchase prices,” Drury said. “These days, consumers need to be more careful — especially if they’re trading in newer vehicles — because near-new cars are being hit the hardest by depreciation.”
Although a downturn in used values is nega-
tively affecting a growing share of new-car owners, Edmunds analysts note that there’s a bright spot for car shoppers with bigger budgets. In an analysis of ATPs of used vehicles up to three years old compared to ATPs for new vehicles, large luxury cars offered an average discount of $48,111 — the greatest dollar sav- ings across all vehicle segments — with new vehicles going for $118,309 compared to $70,198 for used. Large mainstream SUVs also offered a notable aver- age discount of $19,966, with new vehicles going for
$76,131 compared to $56,164 for used.
“If you want to save big on used versus new, you
still have to be willing to spend big,” said Joseph Yoon, Edmunds’ consumer-insights analyst. “Unfortunately, the most price-sensitive consumers seeking affordable transportation will have a much harder time finding discounts because the supply of older used vehicles is still pretty restricted.”
Looking forward, Edmunds analysts caution that a number of factors influencing used-vehicle prices will make trade-in values increasingly difficult to predict heading into 2024.
“As near-new vehicles sit on dealer lots for longer periods of time and automaker incentive programs continue to change dramatically month to month, dealers will likely be hedging their bets against value reductions as they manage their inventory,” Drury said.
Toward the end of 2023, Edmunds experts issued a number of predictions for the vehicle-sales industry, with 15.7 million new cars to be sold in 2024, a 1% increase from the estimate of 15.5 million new vehi- cle sales in 2023. Electric-vehicle (EV) market share is expected to tick slightly higher to 8% of total new vehicle sales in 2024, up from 6.9% in 2023.
Still, hybrids remains the more comfortable choice for the majority of Americans seeking electrified options right now. According to Edmunds data, hybrid market share increased to 9.7% in November 2023 from 4.9% the year prior. BW
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