By on November 28, 2016

2013 Ford Fusion

The tsunami of pre-owned vehicles flooding dealer lots is great news for those seeking an affordable, low-wear used car, but the previous owners are taking a hit.

More than ever before, owners returning their vehicle for a trade-in are discovering their old car’s value sank faster than their ability to pay it off. New car buyers, take warning.

A Detroit Free Press report, citing research from Edmunds, claims the number of owners now “underwater” has reached a record high. As of the second quarter of this year, 32 percent of vehicles returned for trade-in are worth less than the remaining balance of the owner’s loan.

The difference is then tacked on to the shiny, alluring new car that owner had his or her eye on. Blame higher transaction prices and long-term loans with tiny monthly payments. Blame the rise in popularity of leasing, too.

According to Experian Automotive, the average car loan covers a term of 68 months, rising to an average of 72 months for subprime borrowers. Rising transaction prices has boosted an average loan by 4.8 percent in the past year, hitting $29,880 at the end of June. However, retained value isn’t keeping up with soaring sticker prices.

The percentage of consumers being soaked on trade-ins tops the previous high of 29.2 percent in 2006, and small cars seem to be the worst offenders. Reduced consumer demand for these vehicles, coupled with rising pre-owned inventories spawned (in part) by a growing crop of leasees, has sent used car values south. Dealers aren’t paying as much for them at auction.

“It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure,” Greg McBride, chief analyst at Bankrate.com, told the Detroit Free Press. “If the car gets stolen, is totaled or you get new car envy while you’re upside down then it’s a big problem.”

[Image: Ford Motor Company]

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119 Comments on “Consumers Take a Bath on Rapidly Depreciating Trade-ins...”


  • avatar
    spookiness

    Yay for us who buy used.

    • 0 avatar
      Stumpaster

      Yup, no depreciation on used cars, not at all.

      • 0 avatar
        gtemnykh

        “Yup, no depreciation on used cars, not at all.”

        Depending on what kind of used car, you’re right, almost none at all. My 4Runner that I bought for $6300 in 2013 would quite easily go for $7k if I were selling it in enthusiast circles right now. My $1600 Lexus as long as I keep it in good running condition has basically bottomed out in value (if I were selling it I might even get cheeky and ask for $2k). Of course I’ve put some money into each of these cars, maintenance and some wear items that a new car would not necessarily deal with (shocks/struts, timing belts).

    • 0 avatar
      Jimal

      Depends on what you buy. We’re looking for a replacement for my wife’s soon-to-be-returned Passat TDI, and while we’re up in the air about new versus CPO, I have to say that with the vehicles we’re looking at at least, there isn’t all that much savings in buying CPO.

      • 0 avatar
        spookiness

        CPO is for wimps. The whole point of buying used is that it is somewhat risky. If a person can’t afford that risk, then they should just buy a new, but cheaper car with a new car warranty. CPO is for people who want to keep up that illusion of conspicuous consumption and “luxury” but in reality that can’t really afford it.

        • 0 avatar
          28-Cars-Later

          I’m reading this and thinking YES while beating my chest like the gorilla I am… but here’s the thing. Certain OEMs build product which is designed to fail after X period, its simply planned obsolesce in action. So if one buys used without that factory CPO from such an outfit, one is truly gambling on regular four figure repairs.

        • 0 avatar
          sportyaccordy

          So someone who buys a $40K CPO 750i is a poser, but someone who buys a $4K 745i isn’t? Lol. What a silly, Dave Ramsey wannabe-esque post.

        • 0 avatar
          heavy handle

          spookiness,

          In my experience, the difference between CPO and non-CPO prices is minimal. You are getting a full service history and extended warranty for free.

          If you feel that makes you a wimp, then don’t take advantage of the warranty. That would make you a fool, but you seem to feel that’s better than being a wimp.

          • 0 avatar
            CoreyDL

            I don’t think the slight difference in price is true for CPO in luxury situations. CPO Lexus vehicles are usually thousands higher than the non-warrantied ones.

          • 0 avatar
            heavy handle

            Corey,

            It might depend on the market. Most low mileage luxury cars are lease returns, so the OEM almost always gets the first shot at them. You may be comparing cars that did not pass CPO with cars that did.

            I had the opposite situation with the last car I purchased. CPO was significantly cheaper than third-party. I guess the OEM has lower costs and better market knowledge, whereas competing dealers that took the same car in on trade slapped-on a big markup and hoped for the best.

          • 0 avatar
            CoreyDL

            That’s a fair point, and I haven’t shopped them in a while. I don’t have enough cash to be shopping CPO vehicles anyway. Usually when I’m looking, it’s for someone else who wants car advices.

      • 0 avatar
        jalop1991

        Buy Japanese cars new, because used ones frequently cost MORE than new ones that have factory incentives attached.

        Buy American cars used, because a 2 year old Ford/Chevy is still virtually new and is a great car regardless–but the market overall thinks otherwise, and used prices reflect that severe and unwarranted depreciation.

        Don’t buy German cars at all. German cars, the make must start with the letter P and you must lease them.

  • avatar
    FormerFF

    I buy new, but keep cars for a minimum of eight years. The last car I kept for 12, depreciation averaged $1000 per year. My wife gets a new car every eight years, don’t want my pootie pie to be riding around in something potentially unreliable.

  • avatar
    relton

    We’re going to buy a Mustang soon. Have used Mustang prices fallen enough to make that a worthwhile choice?

    I don’t care about depreciation on Fusions.

    Bob

    • 0 avatar
      28-Cars-Later

      Yes, the problem is there aren’t nine used Mustangs on the lot that nobody wants and thus you have less leverage.

    • 0 avatar
      Kyree S. Williams

      Seems like they have. EcoBoost and of course rental-spec V6 Mustangs have seen their values fall precipitously; the GTs seem to hold their value much better. A lot of that is down to the fact that the initial appeal of what looked like a road-going concept car has worn off, and the market is flooded. Even new ones seem to be going for a decent discount these days. Our local Ford dealership offered me an EcoBoost Premium convertible with Performance Pack for barely over $30K.

  • avatar
    Land Ark

    “It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure,” says the guy who’s never priced out a Tacoma.

  • avatar
    CoreyDL

    Well, that’s what you get when you care more about having a nice infotainment screen than you do about getting your money’s worth out of your purchase. Every time you change cars, you lose some of your money. Those we’re talking about here get rid of their cars at the worst possible time – when they’re under water and there’s nothing wrong with it.

    But hey, your car is new and shiny, worry about that money stuff later.

    • 0 avatar
      jmo

      People spending their discretionary income on cars – the horror! And I thought this was a car blog…

      • 0 avatar
        CoreyDL

        Eight or nine-year car loans followed by taking a bath upon trade in for an item in which you are under water is not simply discretionary income. These people cannot afford what they’re doing.

        • 0 avatar
          jmo

          “These people cannot afford what they’re doing.”

          How do you know?

          • 0 avatar
            CoreyDL

            I know because consumer debt is at an all-time high? And because loan terms keep getting longer, to make the payments lower so these people with massive debt can still make their payments.

          • 0 avatar
            jmo

            “I know because consumer debt is at an all-time high?”

            Link?

            From what I can see consumers have substantially deleveraged since the financial crisis.

            https://fred.stlouisfed.org/series/HDTGPDUSQ163N

        • 0 avatar
          FreedMike

          True, Corey, and the shame of it is that folks in this boat often don’t have many other choices.

          No car = no job.

          • 0 avatar
            whitworth

            “True, Corey, and the shame of it is that folks in this boat often don’t have many other choices.

            No car = no job.”
            ____________


            Depends on what sort of cars we’re talking about.

            “Rapidly depreciating trade ins” is code for me that we’re talking about trading in the new car they bought a few years ago for another new car.

            Maybe people in lower income groups are making some really stupid financial decisions? Why do they need a new car to simply get to work?

          • 0 avatar
            CoreyDL

            “Why do they need a new car to simply get to work?”

            Because shiny.
            And peer pressure.
            And the woman in the next department over has one.

          • 0 avatar
            FreedMike

            “Because shiny.”

            Also, more reliable…and sometimes better financing options.

            But, yeah…because shiny too.

          • 0 avatar
            Scoutdude

            They are willingly hopping in that sinking boat for what ever reason. The people that are getting burned are doing so because they are trading in their 3 year old car purchased on a 6 year or longer note that they went into with 0 down or a negative equity trade. They can avoid the problem and break the loop they are stuck in by keeping the car until it is payed off. Then they will at least go into their next loan w/o negative equity. There are lots of cars on the road that will make it 6 or 7 years with the largest expense in that time will be a set of tires.

  • avatar
    PrincipalDan

    Wasn’t Bark just telling us that Used Car prices were too high and not coming down anytime soon?

    • 0 avatar
      CoreyDL

      Yeees, but remember those statements are essentially coming from a dealer.

    • 0 avatar
      ToddAtlasF1

      Used car prices haven’t actually fallen much. The difference is that silly people are setting their money afire by financing new Ford Pinto Titaniums that are worth exactly the same used as Pinto Ponys. As a used car buyer, you’re still looking at spending $10K on a lightly used disposable diaper. It’s first owner went from paying $19K for the privilege of going first to paying $28K to have something distracting to look at while soiling himself.

    • 0 avatar
      colin42

      That is exactly what I was thinking? How can residual be lower, dealers paying less at auction but used prices be high and staying high?

    • 0 avatar
      duffman13

      Used car retail prices, trade-in prices and the outstanding loan balances are three different things, and only tangentially related.

  • avatar
    jmo

    ““It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure,” Greg McBride, chief analyst at Bankrate.com, told the Detroit Free Press. “If the car gets stolen, is totaled or you get new car envy while you’re upside down then it’s a big problem.””

    Lease with gap insurance.

    • 0 avatar
      Lou_BC

      Or buy used or learn to use public transit.

      Both our vehicles were paid off and we had “gap” aka replacement cost insurance on them. The added advantage to that insurance is the fact that any collision claims meant new OEM parts were used in the repair not jobber parts or used parts.

    • 0 avatar
      Timothy

      Or put enough money down to ensure that you will never owe more than the car is worth.

      • 0 avatar
        Lou_BC

        Timothy – true. The irony of all this mess is this: those who have the money for a big down payment and avoid long payment plans are the only ones who can afford a vehicle and don’t tend to fall into the “trade in” traps.

        The auto and/or auto loan industry is heading towards their own version of housing collapse.

        I have never had a car loan for long and only once traded in a vehicle but it was paid off. We could have gotten 1,000 more on private sale but it wasn’t worth the hassle.

        • 0 avatar
          Arthur Dailey

          Our 2 ‘newer’ cars were both purchased with zero down and terms of 72 and 84 months respectively. Both with a zero percent rate from the manufacturer.

          Actually took the money they gave me for my trade-in on one and used it to help pay tuition for one of the kids.

          If they are handing out ‘free’ money, I will take it and use mine elsewhere. Inflation ensures that the monthly payments actually are worth less the longer you make them.

          And after about 5 years, you are no longer ‘underwater’ if you are interested in trading the car.

  • avatar
    Hank

    We’ve been keeping ours an average of 9 years, and we’ve just replaced both in the last year. It will likely be 2025 before we’re shopping again. No telling what the landscape will be then.

    • 0 avatar
      Chocolatedeath

      Same here..My wife has had her ES350 for about 10 years now and Me the CX9 for 8. She will get the next new car(IE Certified preowned) at the end of 2018 after we refinance the house and I will get mine in 2019-20 and attempt to get one of the last Flex’s on the market.

  • avatar
    87 Morgan

    The only way to get sideways on a lease is to get out of it early, or over mile it.

    The payoff on a lease is always residual + remaining payments, so unless their is some sort of pull ahead program to turn the car in early why would you? If you drove too many miles that is on you for not doing the math or just bad luck if a job change required more miles that sort of thing mid stream. Either way, if it was a job change hopefully it was for more $$ and you should set aside the appropriate amount to clear up the lease at the end of the term. Getting out early is most often the most expensive way to do it.

    As for the rest; the answer is simple. Stop trading every 3 years when you have a 6 year loan. Either lease, or get comfortable with your car.

  • avatar
    dividebytube

    I’m guilty as charged for being an inveterate car swapper. It’s pretty rare that I own something for more than 2 or 3 years. This route is not a financially sound one but I limit my exposure by buying cheaper cars (used, usually under $10k). It’s an opportunity to try out different brands/models – I’ve had some real duds that I unloaded real quickly – and narrow in on the type of vehicles I love to drive.

    • 0 avatar
      FormerFF

      If that’s what you enjoy spending your money on, you have no need to apologize to anyone.

    • 0 avatar
      87 Morgan

      Hard to get beat too hard on a sub 10k car, unless you drive an exorbitant amount of miles annually. If that is the case, the depreciation is just a cost of doing business.

      I tend to play in the sub 20k market and rarely get hurt too bad on depreciation.

  • avatar
    FreedMike

    This is the quandry I faced with my recent car purchase. Given a budget, you can either:

    1) Keep the car for as long as you finance it for; or,
    2) Lease

  • avatar
    seth1065

    Gotta agree w CoreyDL on this, for well over 90% of these folks it is just keeping up w the jones, if you take out a loan keep the damm car for the loan amount, I would love a new Volvo V90 wagon but I have other needs so no new car for me now, I bought my last car new in 2011 took a 4 year loan and paid it off and drive the car after the loan was paid off w 130 miles on it, now that VW is offering to buy it back I am again new car shopping and there is nothing that I want to take a new loan on so used it will be for me w no out of pocket cash on my end I will end up w a different car but no loan payments. Some folks have to get out of there loan but my guess is they are less than 10% of these trade ins.

  • avatar
    sirwired

    Given that different research has shown that the amount of time a buyer keeps their car has been rising in lock-step with extended loan lengths, perhaps the reason for an increased upside-down percentage is NOT consumers getting farther underwater, but rather a reduced number of consumers unloading the right-side-up cars via the trade-in process.

    If you aren’t upside down, there are more options than ever for getting rid of a used car (for the adventurous, Craigslist, for the less-adventurous, CarMax or similar outlet), but certainly the dealer remains the only option if you ARE upside down and want a new car.

  • avatar
    DougD

    Yup, my FIL the Ford sales associate sees this all the time. People come in for a shiny new vehicle, still owing money on their last one. All they care about is if they can get financing and make the monthly payment. After three rounds of this some owe more than $100k on a pickup.

    For the record FIL’s own vehicle is a 2007 Focus that was paid off years ago.

    • 0 avatar
      brettc

      $100K on a pickup? Wow. The stupid is impressive.

      • 0 avatar
        sco

        This is really baffling. Let me see if I understand this. Buyer wants new maybe $65K pickup but has $40K left to pay on existing vehicle. And dealer offers a loan for $100K? Really? I cant believe any dealer would do this and I cant believe any consumer would go $100K in debt for a car. Maybe i’m just out of touch.

        • 0 avatar
          ToddAtlasF1

          The numbers are bigger than I’ve seen, but the ratio of debt to price is in the ballpark with sales I know of.

        • 0 avatar
          Lou_BC

          I’ve heard of it and it isn’t surprising since that was part of the problem with the housing market collapse in 2008. This is a different kind of stupid since houses were appreciating in value whereas a vehicle never does.

          • 0 avatar
            FreedMike

            “This is a different kind of stupid since houses were appreciating in value whereas a vehicle never does.”

            …and since house valuations are based on comparable sales, which are impacted by foreclosures, the “bubble” buyer not only hosed himself, but all of his neighbors too.

            That kind of stupid was next-level, rotten stupidity.

          • 0 avatar
            Lou_BC

            FreedMike – I’m seeing the housing bubble grow in Canada. My wife’s cousin and her husband have worked in the banking industry and point out that most of the 100k pickups and luxury cars they see are all rolled into someone’s home equity. We’ve seen a drop in housing prices in Vancouver since they put a 15% tax on “foreign” home purchases. I have a hard time mustering up any sympathy for someone who digs that deep of a hole for themselves.

          • 0 avatar
            FreedMike

            @Lou

            But is the bubble just housing prices, or is it speculation? The latter, plus availability of loans that people shouldn’t have had access to (i.e., no-income-doc, negative-equity, etc) is really what did the U.S. in. People were able to qualify for houses they had no business buying because they just wanted to flip them. And banks were willing to lend because the values were staying high. It mitigated their risk.

            The minute values began to level off – around 2007 – the whole thing collapsed in on itself in short order.

          • 0 avatar
            Lou_BC

            FreedMike – I’ve read that speculation by foreign investors has been a huge part of the problem in the Vancouver area.
            Apparently one can still flip homes under the current taxation system. The tax gets paid once you register the home. Some people, especially realtors are buying homes and reselling before they have to be registered.

          • 0 avatar
            Lou_BC

            RobertRyan – correct

        • 0 avatar
          87 Morgan

          Some of the credit unions will advance 130% or retail for a loan. So, you buy a truck for 65k, it has 10k in cash on the hood (assume F350 CC Duallly loaded) and the msrp is 75k.

          Credit union will loan 75k * 130% = $97,500. So yes, the consumer can ‘roll’ 30k in negative equity or a combination of negative equity and taxes.

          Obviously to qualify for this type of a loan the customer will need to have a tall credit score.

          • 0 avatar
            Arthur Dailey

            @Lou, and since that tax has been introduced the housing market in the GTA has overheated. Single home prices are increasing by an average of over $1,500 per week, over the past few months.

          • 0 avatar
            28-Cars-Later

            @arthur

            Your gov’t needs to put such a tax across all provinces. Let the Chinese wash their ill gotten gains elsewhere.

          • 0 avatar
            mikey

            Arthur ….There, something we can agree on. The place down the street just went for $30 K ,over asking price. Wonderful, but is it real money, or just folks stomach for debt.?

          • 0 avatar
            Arthur Dailey

            @Mikey: Somewhere, somehow it has to stop. Houses are becoming unaffordable anywhere near the GTA for any family not making over $160k annually and with at least a $50k down payment.

            My eldest recently lost out on a 820 sq foot condo. List price of $450k, sold for $495k.

            On the other hand, having bought my home 25 years ago, I am now at least on paper worth well over one million Canadian dollars. But if I sold it, I would still have to find and pay for another place to live.

          • 0 avatar
            Lou_BC

            Arthur Dailey – GTA is seeing the unintended consequence of foreign ownership taxation in BC. Asians are just moving on to another large urban Canadian city. Some are now saying that GTA should implement their own tax. That will then shift the burden to other larger centres.

          • 0 avatar
            mikey

            I agree with “FreedMike” …With folks folding a $60 K Truck , into their $400 K mortgage , we’re heading down the same road the Americans did in 2007-2009. I hope not , because the social ramifications , will be ugly. However the warning signs , are real.

          • 0 avatar
            RobertRyan

            @Lou_BC and @Arthur Dailey
            It is mainland Chinese investors, who ” park” their money into an apartment,but do not get tenants. Any income from these investments back to mainland China,would bring the Chinese Govt into their financial affairs back in China.
            They make money on the appreciation of the properties. This practice is widespread by mainland Chinese across Asia

  • avatar
    whitworth

    So much of this though has to be common knowledge to people that decide to make these transactions. (you would hope)

    You’re trading your new car in early for another new car. Right there, that’s like 3 “stupid” financial decisions in a row, even if we were talking about doing it 10, 15 or 20 years ago. It’s always been like that, you’re flushing huge amounts of money down the drain for that lifestyle.

    Just “trading your car in” alone means you’re likely going to take a bath on it, but some people are willing to take a huge hit on the value to avoid dealing with selling a used car,

    For the record, I think people should be “allowed” to make dumb financial decisions like this, as long as they can afford it. I certainly know I’ve made my share of dumb purchases.

    • 0 avatar
      jmo

      “It’s always been like that, you’re flushing huge amounts of money down the drain for that lifestyle.”

      What do you call someone who spends $5k on a cruise, or drinks expensive scotch or craft beer, or owns a boat, etc? Why is it so much more terrible to spend your extra money on a car vs. keeping a boat?

      • 0 avatar
        Lou_BC

        jmo – lifestyle choices are just that, choices. People are free to do what ever they want with their money but unfortunately many are very liberal with someone else’s money.
        It is rather unfortunate that lending institutions and those who borrow look at things rather short term. The “system” cannot continue on under these circumstances. “Too big to fail” doesn’t cut it.

      • 0 avatar
        whitworth

        I never said it’s terrible if you can afford it, but the difference is, most of these luxury purchases you listed don’t consistently burn up the household income like a new vehicle purchase every few years.

        If the average new car is like $30k and the average American salary is like $45k before taxes, getting a new car every few years is an easy way to make someone live hand to mouth.

        • 0 avatar
          jmo

          “most of these luxury purchases you listed don’t consistently burn up the household income like a new vehicle purchase every few years.”

          Sure they will. If you have to bring $10k to close the deal every 3 years that’s $3.3k a year. That can easily be eaten up by a boat, cruise, scotch, etc.

  • avatar
    JMII

    Stupid is what stupid does as the saying goes. This is the problem with people focused on payments. They just roll over the debt into the new vehicle. Honestly such people should be leasing.

    The sure fire way to avoid being underwater on a car loan (depreciating asset) is to put enough down (cash + trade) to ensure you are ahead of the curve from day 1. Combine this with buying slightly used (2 year old for example) and its pretty easy. The used “new” car has taken its biggest hit to its value so with enough down your payments will be very small. And since the amount owned will be less then the car value so you can ditch it at any time. However the longer you keep it the more the scale slides in your favor as your payments get you further ahead. With small payments you can double up on them and pay down the note in the 1/2 the time. I’ve managed this on my last 2 cars and been payment free for years. However it requires you avoid keeping up with Jones by having a new car every 3 years. Seems some people can’t live without that new car smell.

  • avatar

    “It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure,”

    You mean, like, other than buying what you can afford and paying it off before trading it in?

  • avatar
    gtemnykh

    I know I’ll be needing to shake up my fleet within the next 2 years or so (and will no longer have the time to mess around with wrenching on 20 year old cars) so in the mean time I’ve been getting by with some zero-depreciation vehicles. I hate to just lose money like that, but I will have to make my peace with it to drive something new-ish that is safe and worry-free.

    Maybe if we hit another spike in gas prices I can scoop up a lightly used Expedition EL Ecoboost from some sucker.

    • 0 avatar
      yamahog

      If you ‘zero out’ your ES (and it sounds like you’re doing that, performing all the scheduled maintenance and performing prophylactic repairs), I think you’ll be pretty surprised at how little trouble it’ll give you down the road. With your cost basis on the ES, why not just drive it until it lets you down and then get something made within the current millennium/decade?

      It’ll be very interesting to see how the new Prius / TNGA platform work out. The new Prius (vanguard of the platform) is apparently even more reliable than the Prius C (at least in initial quality). But with Priuses depreciating as hard as they are, and 50 mpg, and toyota with a J-vin quality, a Prius / Prius prime could be the superlative econobox with some safety features.

      Where’s your eye wandering though? 4Runner or 200-series crusier?

      • 0 avatar
        gtemnykh

        yamahog I’d love to hang on to my current fleet as it sits, but the rational thing to do would be to keep my fiance’s ’12 Camry as a commuter (modern safety equipment+child seat anchors+ more space than ES), sell the ES to open up driveway space for a newer minivan, and at least hang on to my 4Runner. OR consolidate even more and have the Camry and a fullsize SUV to handle road trip+camping rig duty (1g Sequoia if I’m buying older, Expedition if buying newer). We have two medium/large dogs that we take with us most of the time. I’d much rather trade the Camry in on a van and keep my old yotas, as I have no real attachment to that newer car and it is worth more on trade. But having multiple vehicles with modern safety accouterments for child carrying may or may not end up settling the argument. As much as I aspire to a Land Cruiser, they simply don’t have the interior space that justify their thirst (let alone their purchase price). A few more years and she’ll be hitting her stride as a doctor so maybe we can have our cake and eat it too (Sienna Limited and LC200 or something like that).

        • 0 avatar
          yamahog

          Camry and a sienna with a winch – nice and Сове́тский . Heck, LED light bar and a lift kit on the Sienna (or just taller springs). Then start a blog and deduct the price of the Sienna as a business expense ;) .

  • avatar
    bluegoose

    I don’t know. It is a tough call. People should be allowed to make mistakes…but there also should be guidelines in place to protect less financially savvy people from owing 100K on a pickup they can’t afford. It hurts the economy long term when these people end up bankrupt and can’t buy anything. I am all about Caveat Emptor. However, there is a line between letting the buyer beware and literally mugging the buyer. The tough part is figuring out wear you draw that line.

    • 0 avatar
      CoreyDL

      “there also should be guidelines in place to protect less financially savvy people from owing 100K on a pickup.”

      Unfortunate indeed that it’s impossible to legislate common sense into people.

      • 0 avatar
        Lou_BC

        CoreyDL – you can’t legislate “common sense” but you can legislate “safety measures” into the system to help prevent another bubble burst. The fact that “bubbles” are allowed in the first place amaze me to no end.
        Boom/bust cycles work great for those at the high end of the socioeconomic scale because they help keep us peons running like hamsters on a wheel while wealth gets more concentrated.
        The recent US election shows that the populace has grown tired of rat race but unfortunately the blame has been placed upon the shoulders of those outside the country. It is convenient to blame them and not those who designed and implemented the current industrial-political complex.

  • avatar
    indi500fan

    Currently on mainstream models, it looks like a tough call between highly incentivized lease deals on new stuff and deeply depreciated two/three year old but solid vehicles in the used market.

    But both look attractive right now. I’d only consider buying new on something that was a difficult to find niche model.

  • avatar
    Scoutdude

    It doesn’t sound like people are getting burned because of rapidly depreciating vehicles at all. It sounds like people are setting their money on fire willingly by taking loans with extended terms, trading the car in early, rolling in that negative equity and repeating. Yes those that bought compact and smaller vehicles are getting hit worse because deprecation is usually high on those anyway and getting worse due to relatively low gas prices.

    On the other hand being upside down on your loan isn’t necessarily a bad thing if you actually have money. If the mfg has one of their tax and title down 0% 72 month programs going on you are better off keeping your 20% down that would keep your right side up throughout the loan and investing it. If for what ever reason the vehicle is a write off and the insurance proceeds won’t pay the note in theory you should have the money to cover the difference and that money has been earning you money in the mean time. Then stick with it until you pay it off or at least aren’t upside down which should come at the latest by the end of year 5.

  • avatar
    mfgreen40

    I know I am old fashion, but what about saving up until you can pay cash.. All 4 of my new cars were paid in cash. I never trade in my used cars, and always find a buyer. My new house on an acreage is the only monthly payments I have ever made. Live within your means.

    • 0 avatar
      Jimal

      And if you want to tie up that much cash in a rapidly depreciating asset – which is sort of the topic for discussion here – more power to you. Personally I’d rather take the note if the terms are favorable and keep things a bit more liquid. We took a longer note on my wife’s Passat when we purchased it in 2013, but we intended to run it into the ground. Since Volkswagen is being so kind as to eventually buy the car back for close to what we paid for it, minus what is left on the loan, we’re going to interrupt our plan and start over.

      • 0 avatar
        CoreyDL

        “We took a longer note on my wife’s Passat when we purchased it in 2013, but we intended to run it into the ground.”

        Will they still do a 9.5 month loan these days?

        • 0 avatar
          Jimal

          No idea what you are going on about. I’m sure the car would be good for as long as we wanted to keep it, but with no timetable for a replacement for the Takata airbag, and a couple insurance claims on the car, the opportunity to basically drive a car for three years for just the cost of fuel and tires is too good to pass up.

  • avatar
    turbo_awd

    Wish I could find some of those “rapidly depreciated” WRX STIs.. There are no end of 2-3 year old STIs with 20-30k miles asking 85-90% of new. Before I started looking, I would expected more in the 60-70% range.

    Then again, I guess I’m in the wrong segment: hot hatch or 4-door that can do some track duty, but still be fun as a daily driver for a family of 4, max around $40K. Would love a new Legacy GT wagon to replace my ’05 – maybe the Levorg will finally come here in ’18??

  • avatar
    chiefmonkey

    Buying a new car only to trade it in after 2 or 3 years is financial perversion: lease lease lease!

  • avatar

    So a full third of the customers are negative equity ? I am amazed. I could not fathom rolling note A into note B…it isn’t a mortgage on appreciating property !!!

    Yeesh !

  • avatar
    Kyree S. Williams

    It’s a win for a lot of us who are looking for fuel-efficient cars. Right now, I can get a CPO 2013 Ford Fusion Energi Titanium (originally a $44K car), with its 20 or so miles of all-electric range and extremely low costs-of-ownership, for well under $20K. Best of all, if I bought one now, the market value would probably increase in the next two years once fuel prices inevitably go back up and people flee their gas hogs en masse.

    • 0 avatar
      Chocolatedeath

      Kyree I agree..do only thing I dont like about Fords Hybrids are the size of the fuel tanks. It makes them overall less competitive compared to say an Accord or Camry Hybrid that have about 3- 4 gallon advantage.

      • 0 avatar
        VoGo

        Wait a few years. Once you hit middle aged, the BPH will mean you don’t care about fuel tank size, so long as you can go 300 miles.

        • 0 avatar
          Chocolatedeath

          I am 49 and will be 50 in a couple months. How long do I wait..lol
          I do alot of driving as a traveling Social Worker maybe about 30k miles per year mostly hwy. Also go from FL to NC alot as to see my mom whom is sometimes sick along with other family.
          I love the fact that a Passat TDI will get 51 on the hwy with a fairly large tank..of course my friend is about to get paid for having one but thats the breaks.
          Would like to have something that gets about 45-40 mpg and is large in size, fun to drive but with a 20 gallon tank..lol

          • 0 avatar
            brettc

            With that criteria, you’re looking for a 1996 or 1997 Passat TDI as it had an 18.5 gallon tank. Those things had about a 900 mile range. Too bad they’re now 19-20 years old.

      • 0 avatar
        FormerFF

        I have a Fusion Energi. 12 gallons is plenty when you’re using 2 gallons per hour on the highway. The car can go 450 miles before I need to look for gas, but I like to get out after about four hours.

        Intown, I average two months on a fill up.

        • 0 avatar
          Kyree S. Williams

          My best friend has one as well. I’m jealous of his 30K-mile oil changes. And it’s a very nice car, too. Aside from the undersized trunk, you really don’t give anything up.

          • 0 avatar
            FormerFF

            Mine is a 2014, and it has asked for an oil change at 20K, is on target to ask for another at 40K.

            EVing around town is very pleasant.

        • 0 avatar
          Chocolatedeath

          I would like about 800 per tank. When drive home I can go 8 hrs before stopping for a break..I love to drive on the hwy and just meditate.
          However I am not young anymore and my max is 12-13 hours per day as compared to when I was 25 I could do 18 per day.

          • 0 avatar
            CoreyDL

            You… are not normal. Most people cannot go eight hours without at least a couple of pee breaks.

          • 0 avatar
            dal20402

            You must be dehydrated if you can go 8 hours without a bathroom break.

            I have to stop about every 4 hours on long drives, and that includes deliberately drinking less water than I normally would.

          • 0 avatar
            Chocolatedeath

            Nope no dehydration here..I usually have a 16 oz coffee, a 22 once Vanilla Coke and a 16oz water during my long drives..I normally use the restroom even when I work from home only twice between 6am and 6pm

      • 0 avatar
        Adam Tonge

        My C-Max has a larger fuel tank than the Prius or Prius V. But yes, the Fusion Hybrid has a 14 gallon tank while the Camry and Accord Hybrids have 17 and 15.8 gallon tanks, respectively.

        I am getting 550+ miles per tank with my C-Max right now. Winter will drop it to 500 or so.

    • 0 avatar
      MrKiwi

      Wow, that is a steal! I am seriously tempted, except my 2011 (non-hybrid) Fusion is paid off and only has 95,000 miles on it. (Does the regular Fusion start to get expensive to maintain at the 100k mark?)

      I also have always kept my cars until they become more expensive to repair than is worthwhile. But I do usually buy new; I know my limitations and am definitely not up to fixing anything. (Plus, every time I’ve been in the market to buy, I’ve compared prices for new versus low-mileage used and the cost differential has always been negligible.)

  • avatar
    zoomzoomfan

    I am one of the potential stupid people. Sigh. Oh well.

    Had a 2008 Mazda3 S Touring hatchback, owed nothing on it. Traded it in last October on a 2016 Mazda6 i Touring. Got $5,500 trade-in for the 3 and put $1,000 down. So, my total loan for the 6 was around 20k. I owe just over 16k on it right now and it’s worth 21 or so. I did do a 72 month loan which was silly, but I have learned my lesson at least. The 6 isn’t going anywhere for a long time. I kept the 3 for over six years and I plan to keep the 6 longer than that. At least the 6 has the safety features and ratings I wanted for my son (he’s arriving in February).

    • 0 avatar
      VoGo

      You get a pass, ZoomZoomFan,

      Your trade-in was paid off, you added cash to the down payment, are not underwater, and are paying off your car faster than it is depreciating. AND you are driving your baby around in a nice, safe car. Doesn’t sound stupid at all.

  • avatar
    thunderjet

    The last three cars my wife and I have bought have been brand new, 2011 Focus, 2012 Mustang, and a 2017 Accord. We have one rule when we buy a car brand new: we keep it till it is used up. We buy the car and it’s ours till the engine/transmission blows, the body rots out (thanks road salt) or any repair exceeds the value of the car. Then a new car makes sense. I never worry about being upside down on a car note because we always pay the car off and then keep it.

    As far as the putting down a large down payment or paying for the car in cash I’ve yet to do either. We’ve been able to get virtually free money to finance the cars we’ve purchased (the 0.9% on our just purchased 2017 Accord EX-L V6 is the highest financing we’ve ever had on a new car). I take the money I would have used on a big down payment and invest it for retirement. I see no reason to tie money up in the car when I can use that money to make more money. If I can get virtually free money for 5 years I’m taking it.

    Contrast this with my brother in law. I bought my 2011 Focus brand new in February 2011. My brother in law had a new 2010 Pontiac Vibe at the time. I still have that 2011 Focus today. Since 2011 my brother in law has had a:

    2012 Hyundai Santa Fe
    2014 Hyundai Elantra
    2016 Hyundai Sonata

    All financed, all with loan rolled over into the next car. He’s never paid any of them off. His payments on his 2016 Sonata are higher and the term much longer than the 2017 Accord EX-L V6 my wife and I just bought. We put 0 down and got 0.9% financing for 60 months. Trading in your new car every two years just because is a great way to light piles of money on fire. It’s not like my brother in law can afford to do this either… This is where people run into problems. They don’t really understand how much that loan is actually costing them. We really, really need to do a better job in high school teaching students about personal finance. It might alleviate some of these stupid decisions later in life.

  • avatar
    Frylock350

    I read the title and immediately thought that this meant used car values are down. Actually it means that people have over leveraged myself.

    My rules for a vehicle purchase
    1. Has a full complement of airbags
    2. Has the lastest crash performance
    3. Must have equity day 1
    4. Payment/term must pay the loan down faster than the vehicle depreciates.
    5. If transaction price is $3-5k of new; buy new
    6. Buy the smallest rim available; sidewall FTW

    Typically that means I buy new.

    There’s plenty of practical reasons to buy new:
    – Warranty
    – Safety advances (check the model you’re interested in; the current model year might have a safety improvement you value)
    – Model you want has very high resale (Wrangler, pickup trucks, 4-runner); meaning a used car purchase isn’t justified by the price difference unless you’re going for something 5+ years old.
    – New wear items. The rubber’s new; the fluids are new; etc.
    – Better financing
    – Lots of incentives if you buy at the right time

  • avatar
    dal20402

    I just can’t imagine rolling negative equity into the next loan. I’d feel like I was losing grip on the cliff edge with my fingers.

    I get uncomfortable with the idea of being underwater even though it’s totally rational in some cases (in particular where there is 0% or very-low-rate financing). I mulishly refuse to go underwater even when doing so costs me money. The guy who sold me my 2013 Subaru was just baffled that I wanted to make a down payment on a 0% loan, and I don’t blame him. But that’s my personal Rubicon. (And then that car held its value like crazy and I had about $16k equity in it when I sold it, but that’s another story.)

  • avatar
    rea98d

    If your car gets stolen or totaled…that’s what gap insurance is for.

    If you get new car envy…really, six or seven year old Civics and Corollas will be doing just fine, so if you can’t get over the fact that the new one has LED headlights and a rear view camera…well, your bad financial decisions are your own fault.

    I bought a 2015 Mazda 3 last year, and with depreciation, I’m probably upside down at the moment. I got the gap insurance in case the car gets totaled, and I plan on driving it until the wheels fall off, then duck taping them back on and driving it some more.

    While it’s almost always cheaper to buy used rather than new, short of paying cash for a car (which very few people can afford to do) I figure this is the most affordable way to get a new car.

  • avatar
    zeus01

    Hmmm. I’m currently driving an ’09 Honda Fit Sport that I bought new in Oct of ’08 via the “one-payment plan”. (I have the motorcycle for when I want a fun ride so no worries). The Fit now has around 230,000 nearly bullet-proof kms on it (about 144,000 miles), which means it’s reached about its half-life. Still, after eight years of reliable service I can’t expect the next eight years to be anywhere near as trouble-free as the last, even with a Honda. No point trading it in and getting soaked. Might as well keep it for the duration. No point buying new and shelling out a gob of money best spent elsewhere when this one is still in decent shape. Besides, I don’t have a burning need to keep up with the Joneses or a bad case of “Status Envy”. At my age what I drive will have no bearing on how often I get laid. What to do?…… Here’s an idea: I’ve always wanted a very simple yet inexpensive classic car to use as a daily driver during the late spring, summer and early autumn months. They’re dead-simple to maintain (I’m an aircraft mechanic with several decades of experience maintaining my own vehicles), rock solid, and any maintenance costs are off-set by the fact that they’ve already depreciated as much as they’re ever going to. By inexpensive I mean under 8 or 10K. This means a non-numbers-matching, non-glitzy basic ride, a “twenty-footer” that I don’t have to get all bent out of shape over if some idiot at the Superstore parking lot opens his door into the side of it. Something like say, an early-sixties Ford Falcon, GM something-or-other or pick-up with an in-line six. Or an early-fifties Studebaker Champion sedan – any of which are (to me) available via the “one-payment plan”. This vehicle would suffice on days when it was either too cold or too wet to ride the bike. Or during those times I need to transport more than one passenger or excessive cargo.This would leave the Fit as a second car for much of the year and only require it as a primary vehicle during the winter months. Should get me through to past retirement barring no accidents. I don’t think I need to worry about anyone stealing it…..

  • avatar
    MidLifeCelica

    I don’t buy new cars often, but when I do, I sell my old car privately. I have never had a dealer offer me anything but insulting offers on trade-in value.The last one was by far the worst – three different dealers did an ‘inspection’ of my 10-year old ride and came up with the idea that maybe, if I was a really lucky guy, I might be granted the privilege of receiving $750, $900, or $1000 for it. I listed it online for $9500, and it sold for $8900 – I still see it driving past my house occasionally, three years later. Seems to be running great. So if I had been underwater on it, I would have at least headed up closer to the surface financially speaking than I would have been at the dealership.

  • avatar
    tomLU86

    In my experience, one good reason to buy new is that you know where the car has been.

    My experience has been that used cars can save a lot in depreciation, but they are always more troublesome (after warranty expires)

    Over 40 years, no one in my immediate family has ever bought a new car that we thought was a lemon (knock on wood!)

    During that time, bought two used cars (an 89 Prelude in 92, and a 91 Grand Am in 95) that proved to be “lemons”, and I’ve generally found that used cars tend to need more repairs, and more expensive repairs than new cars.

    Bought two used cars (75 Nova in 77, 91 BMW 3 in 93) that proved to be excellent cars.

    Bought a couple used cars that weren’t lemons, but were more troublesome than cars bought new.

    Perhaps it’s because we take care of our cars that we’ve been lucky–the new cars have been GM (7 or 8) and Ford (4) , 1 VW, no new Asian (unless 2 Ford Probes counts as Mazdas). So, based on what I read, our cars should be less reliable than ‘average’.

    So, ideally, find a car you like and can see keeping, and buy new, IMO

  • avatar
    Jeff S

    Good points TomLU86. I have had few problems with new cars I have bought over the years, but I have had good luck with a 73 Chevelle bought in 75 and a 85 Mitsubishi Mighty Max with only 30k miles bought in 87 for $3,500 which I kept for 14 years. I usually keep my vehicles for an average of 12 years but I have a 99 S-10 bought new which is coming up on 18 years with the only major items being a new clutch, new brakes, tune up, new starter, new alternator, new ac compressor, and 4 sets of replacement tires which is still cheaper than the depreciation or being underwater on a new vehicle. The S-10 has a good body and runs like it has many more years left on it. I bought a new truck in 08 and was only offered 3k as a trade-in for my 99 S-10 which at the time had 82k miles with new tires and all maintenance kept up and records of all maintenance done on it. I have not really spent that much in over 8 years on it and it is worth its value in just the utility it has provided me. If I scrapped it today I would still get more from its use than I ever paid for it including maintenance, repair, and insurance costs. It still has its original paint which looks new and the interior has very little wear. I really could care less what others think of it, but most people think it is newer than it actual is.


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