New Car Deals Don't Help Your Old Car's Value

As the industry advances past the supply-chain problems that drove up auto costs during the epidemic, prices for new automobiles are predicted to decline in 2024. This will also progressively lower prices for older cars.

For anyone who have been shopping for a car and have seen record-high costs over the last few years, this is excellent news. But car owners who bought when prices were peaking and now want to trade in their vehicles may have less to celebrate, experts told MarketWatch.

Trends in Car Prices and Dealer Discounts

According to CoPilot, an AI-assisted vehicle-shopping software, the average price of a new car is $49,447 this month, while the average price of a used car is $31,556. These figures are up 29% and 34%, respectively, over March 2020.

However, Pat Ryan, the CEO of CoPilot, anticipates that auto dealers will give greater discounts this spring and summer, partly due to the high interest rates on new car loans, which may range from 5.64% to 14.78%, depending on the specifics of the agreement. He pointed out that two to three months after dealer discounts on new automobiles, used car prices usually drop.

According to Ryan, discounts on local autos are most probable, but they are least likely to be found on well-known import brands like Toyota and Honda, which are still in strong demand compared to supply. Ford's F Explorer and Mustang models, as well as Hyundai's UK:HYUD Santa Fe and Tucson models, have incentives that he has lately observed.

Data from the vehicle-buying and review website Edmunds shows that the average discount on a new car this month was $1,546, down from $2,594 four years earlier. Edmunds consumer insights researcher Joseph Yoon reported that huge mainstream SUVs and premium autos are both marked down significantly.

Impact on Car Owners and Trade-ins

Prospective purchasers who have paid off their cars or who purchased at a discount before the epidemic price surge will profit from this trend.

If a person wants to trade in their car today but spent more than the sticker price when they acquired it, especially in 2021 and 2022, they may discover that they have negative equity, which means they owe more on their car than it is currently worth. This implies that the dealer could add the amount they owe to the purchase price of the car.

According to Yoon, trade-ins usually account for nearly half (between 40% and 60%) of transactions. According to a recent Edmunds analysis, the average amount due on upside-down auto loans increased to a record high of $6,064 in the fourth quarter of 2023, and one in five trade-ins have negative equity.

This undoes an odd trend that occurred during the epidemic, when people were able to trade in their automobiles for more money than they paid for them initially due to a surge in used car values. Currently, auto owners owe the most money on upside-down loans since Edmunds began monitoring negative equity in 2015. The average amount outstanding at the end of 2019 was $5,784.

According to Edmunds, a larger percentage of trade-ins were underwater prior to the pandemic, roughly 30% vs 20% currently. However, Yoon clarified that when automobile prices decline, those who purchased during the peak and now have to sell in their vehicle, for instance, due to a growing family, are losing more money.

According to Edmunds, by the end of 2023, Tesla's TSLA, Land Rovers, and Ram's STLA had the most negative equity. These three brands were attributed to a number of variables, including the vehicle's age, initial price, and current incentives, particularly those that reduced the price of Teslas.

These days, the typical loan term for a car is six years, and some borrowers have significant payment obligations. According to Cox Automotive, the average payment on a new auto loan was $744 in January. Based on Edmunds statistics from February, almost 17% of vehicle owners pay more than $1,000 per month on their loan.