Underwater: Negative Equity Is Not Just a Consumer Problem

Panelists

George Ayres, Managing Director at AutoMobility Advisors, moderated the panel. Our special guest was David Thomas, Director of Content Marketing at CDK Global, alongside AutoMobility Advisors' Allen Levenson, Director of Data and Analytics; Anoop Tiwari, Director of Innovation and Digital Strategy; and Kapil Shah, Principal Consultant.

What we covered

An average underwater balance of $7,183, carried by more than 3 in 10 new-vehicle trade-ins, now determines which vehicle a customer can be put into, how long the term has to run to make the payment work, and how much of an incentive budget pays down a customer's old loan before it does anything for the new sale. The panel worked through what that looks like for all sides of the loan, for each in the underwriting file, and inside OEM incentive planning. A dealer sees a customer who came in for a $40,000 vehicle and can only be structured into a $60,000 one carrying enough incentive to bury the balance. A lender sees loan-to-value ratios that assume a longer holding period than the customer has any intention of honoring. An OEM sees demand shaped by which vehicles carry the deepest incentives rather than by what buyers came looking for. Each of those groups has a point where the cycle can be interrupted, and what that intervention costs in the short term against what it saves over the next two trade cycles.

The full recording is available above, or view it directly on YouTube.

Want the numbers behind the discussion? Read our white paper, Underwater: Negative Equity Is Not Just a Consumer Problem.