Breaking away from current negative equity news, there’s positive news for a majority of car buyers reentering the market, as the average trade-in on new-vehicle purchases has $13,330 in positive equity right now.
Diving in: Much attention has been focused on the rising amount of negative equity on trade-ins in recent months, but Edmunds just looked at the opposite end and found that two-thirds of consumers heading into the market have positive equity in their current vehicle.
And it’s not just a few thousand dollars; the above-water amounts are into five figures.
The average positive equity has actually grown by nearly $4,000 since the start of 2021.
“The numbers are crazy, borderline unbelievable,” said Ivan Drury, Director of Insights for Edmunds. “You’ve got a large subset, actually a majority of trades are in good shape and will be a benefit to the consumer to trade in.”
Not just luxury models: Edmunds’ research found the positive equity is not exclusive to luxury vehicles or newer models.
As an example, the CR-V with an average model year of 2019 had an average equity of $10,545.
Similarly, the 2018 Ford F-150 had positive equity of $17,876.
Meanwhile, the Toyota Camry (with a model-year average of 2017) had $8,801 in equity.
“When you break it down by who is most frequently benefiting from this, it is just your run-of-the-mill, A to B vehicle,” Drury said. “That’s kind of the beauty of it. You can have a 7- or 8-year-old Honda CR-V and show up at the dealership, and that vehicle might have $10,000, $12,000 or $13,000 in positive equity.”
Lowering payments: Many of these consumers returning to the market for the first time this decade will find a very different car-buying environment, with Edmunds pointing out that the average APR has risen from 3.8% in 2016 to near 6%.
The average payment has al jumped $228 in those 10 years.
Drury points out a trade-in with positive equity is the consumer’s best option to get payments down.
“If someone shows up and their vehicle looks like it’s from the prior generation, there’s much better odds they actually don’t have to cough up money from their own checking account, savings account or move money around to make it happen. They might already have that down payment right there in their driveway,” Drury said.
Mileage impacts: The 100,000-mile mark is not the definitive line on value anymore, as Drury pointed out that vehicles lasting to 150,000 to 200,000 miles is not uncommon.
He added that there’s still positive equity on some vehicles as the miles accumulate.
But there is a balancing act as miles pile up with repair costs and remaining equity.
“While vehicles are more durable, they do also have more features, more things that can go wrong,” Drury said. “So for that consumer that is hitting a certain mileage number, and they've got all this positive equity, but at the same time, they're kinda worried about, ‘Hey, what's gonna happen next? Or what's my next service interval? How much is it going to cost?’”
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For dealers: The trade-in lane remains invaluable to dealers looking to bring in inventory. vAuto data from June showed the retention rate for dealers on trade-ins has trended to 87%. The positive equity story shows dealers will need to be more competitive and flexible to increase look-to-book rates.
“You might have to be more aggressive on how much you pay, because there is so much demand in the market for these vehicles,” Drury said.
Dealers can also use the message of positive equity to bring consumers to the lot by offering better final financing terms.
“...It’s a benefit to the consumer and for the dealer to say, ‘Hey, I can get you in a loan that’s not crazy…because you have so much positive equity,” Drury said.
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