Today's rising vehicle values aren't destined to lead to underwater customers and a stalled market for car-buying and lending.
But some dealers, finance-and-insurance managers and accounting experts worry that the soaring prices of the last year will collapse and create more vehicle owners who owe more on their loans than their vehicles are worth, thus prolonging the length of time until they can trade up for a new model. Those concerns are just one reason dealers are watching the trajectory of used-vehicle values closely.
"The prices of used cars are just through the roof," said Justin Ciccarelli, finance manager of White River Subaru in White River Junction, Vt. He described the price surges that have resulted from pandemic-related production disruptions and supply shortages as "the 'Twilight Zone' of the car industry."
Even so, numerous lenders and industry experts express confidence about what's ahead. Robust financial underwriting standards are helping lenders manage the negative-equity risk, they say, and vehicle prices also are more likely to ebb gradually vs. suddenly. Auto loans bundled for investors don't show customers borrowing significantly more than their vehicles are worth, experts said, and today's market dynamics mean borrowers with a vehicle to trade in are able to make bigger down payments.
"No one, dealers nor consumers, needs to worry about a crash in used-vehicle values," Cox Automotive Chief Economist Jonathan Smoke wrote in a commentary last month.