The number of new-vehicle buyers who owe more on their trade-in than it is worth — the classic “upside-down” situation — has gone up substantially within three years.
That's according to retail transaction data from the Power Information Network (PIN), an affiliate of J.D. Power and Associates.
While only 25% of trades were upside-down in 2001, today it's 38%, says PIN.
It stems from intense competition in the U.S. new-vehicle market. To maintain market share, manufacturers are keeping monthly payments of new and refreshed models the same by lengthening loan terms.
The average length of a new-vehicle loan is now 58 months. That's an increase of almost 10% from three years. Consumers who opt for the longer-length loans take longer to build equity in their vehicle.
“If this trend continues, eventually the factory will have to provide a lot of assistance, which is not good news for the auto makers,” says PIN analyst Tom Libby.
