Anil Goyal, executive vice president of operations at Black Book, said negative equity levels in the second quarter improved slightly due to strengthening used-vehicle values. Customers with negative equity who were trading in subcompact and compact vehicles profited from the unexpected boost in used-car prices, but Goyal anticipates the benefits aren't enough to elevate equity for long.
"Going forward, we expect negative equity to worsen as most factors that build equity are headed in the opposite direction," Goyal wrote in an email to Automotive News.
Most marketplace forces — such as rising gas prices — are difficult for consumers to predict and account for, Drury said. Underwater customers are better off hanging onto the vehicle they have.
"As appealing as whatever that new thing is that you want, the best thing to do is to hold on to what you got," he said.
The average age of vehicles on the road is also at an all-time high, Chesbrough said, as the Internet allows consumers easier access to replacement parts. Spending approximately $3,000 on a new engine several years ago didn't seem cost-effective, but today that represents about six months of car payments.
"In an environment where we're expecting affordability to be more of an issue, it's going to be more difficult for consumers to be approved for loans," Chesbrough said. "Their appetite for these loans is going to go down as well."