It is a dilemma born of a pandemic: Will vehicles purchased during COVID-19 help or harm consumer finances in the long run?
Automotive finance experts agree that longer-term loans at some of the highest monthly payments for new vehicles along with elevated used-vehicle values could result in an increase of underwater customers. That would likely push these consumers out of the market for longer periods and put them in worse shape when they return.
Even as transaction prices climb, however, the roller coaster of used-car values that occurred during the pandemic may have shifted factors in customers' favor, not against. Economists and analysts at J.D. Power, Edmunds and Cox Automotive say lender appetites for a customer's auto debt and long-term vehicle supplies could be key indicators of how new and used vehicles purchased in 2020 will perform in the years to come.
Alan Haig, president of Haig Partners, a buy-sell advisory firm in Fort Lauderdale, Fla., has heard from dealers that customers who purchased vehicles with values that rose considerably this summer naturally paid more than they would have last year. Larger loans for essentially the same vehicle could mean those customers have more to pay off before trading in that vehicle than their contemporaries. Dealers are worried, he said, about what that could mean for customers' financial situations when they return to the market.
"It's basically good to be a seller of a vehicle today. It's not great to be a buyer," Haig said.