ROFL
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There are lots of vehicles I would pay 5k markup for but a hyundai would never sniff that list.
I hate to be that guy chief but it’s gouging.
100% right, the market dictates pricing, low supply +high demand = ADM, low demand + high supply = incentives and discounts
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I think bmw focused too much on the massive trunk for his 7 series and not enough r&d on those laser headlights.
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Prob one of my best typos 
Happens to the best of us, thought I would point it out before somebody decided to drop a comeback.
Red-hot demand for used cars is turning the auto-lending world upside down.
Prices are so high that some lenders are coming out ahead on defaulted auto debt. And far fewer borrowers are underwater on their car loans, meaning they don’t owe more than the car is worth when they trade it in. It is a tricky time to buy a car, but a pretty good time to owe money on one.
It is a silver lining of the surge in used-car prices. Americans are shopping for cars at near-record numbers, but a computer-chip shortage has starved dealers of inventory. The severe shortage of vehicles to sell, including previously owned ones, has cars acting more like houses—growing in value and delivering meaningful gains to their owners. The average price of a used car was $18,453 in June, up more than 34% from the same time last year, according to Manheim Inc.
About 20% of owners were underwater when trading in their cars in June, down from 32% a year earlier, according to car-shopping site Edmunds. Those who are underwater owe $3,848 on average, 25% less than underwater borrowers at the same time in 2020.
The shift is also welcome news for lenders, who typically don’t make enough selling the cars of defaulted borrowers to cover unpaid loan balances. Four large banks more than covered their losses on defaulted car loans in the second quarter, the first time they have reported such recoveries in at least two decades, according to Piper Sandler Cos.
When lenders repossess the cars of borrowers in default, they typically write off the unpaid loan balance, expecting to sell the vehicle for less than the remaining balance. Lenders report net recoveries when the total they recoup from selling used cars and collecting previously unpaid balances is greater than the total value of charged-off loans.
Ally Financial Inc., ALLY -0.61% one of the country’s largest auto lenders, recouped $5 million on defaulted car loans in the second quarter, a first for the bank and a giant reversal from the $97 million in defaulted auto loans it charged off in the first quarter.
“It is a huge shift from where we’ve seen historic loss levels,” Ally Chief Financial Officer Jenn LaClair said.
JPMorgan Chase JPM -0.19% & Co., PNC Financial Services Group Inc. PNC 0.72% and U.S. Bancorp USB -0.16% also reported net recoveries on defaulted auto loans between April and June. Each of the banks said its policy after selling a repossessed vehicle is to return any surplus funds above the unpaid loan balance to the borrower.
Inflated car prices aren’t entirely positive for lenders. When they issue new loans, they risk larger losses if prices decline to more-normal levels and a borrower defaults.
But borrowers, flush with government stimulus payments, are defaulting on auto loans in low numbers. The average charge-off rate, or the share of outstanding credit in default, at five large lenders was 0.14% in the second quarter, down from 0.5% in the first quarter and 0.7% during the same period in 2020, according to Piper Sandler.
The banks said high used-car prices have helped lower charge-off rates since more struggling borrowers can sell their vehicles for more than their loan balance before a repossession. And the solid financial standing of many consumers means that most have been able to keep up with their payments and pay off balances on previously defaulted loans.
“It’s astounding that you have so many consumers that are going to find themselves in favorable positions, where in the past so many people have fallen into the bucket of not being able to chip away at that debt,” said Ivan Drury, senior manager of insights at Edmunds.
Borrowers with negative equity at the time of trade-in tend to be offered higher interest rates, steeper monthly payments and longer terms, according to Edmunds. The increased costs mean a smaller portion of their monthly payments goes toward the principal balance in the initial years of a loan. For some borrowers, the result is a cycle in which each new trade-in leaves them deeper underwater.
Chad Simmons got $15,400 this summer for his 2018 Hyundai Ioniq—$2,900 more than his unpaid loan balance. He used the difference as a down payment on a 2020 Honda Civic with 4,000 miles. He had racked up about 60,000 miles on his 2018 model while traveling for work from his home in Troy, Ala.
“Every car I’ve ever had I’ve had negative equity,” Mr. Simmons said. “[Trading in] wasn’t even something I was considering.”
His monthly payments are about the same as he paid for his older car, he said.
The share of borrowers with negative equity spiked during the early months of the pandemic alongside falling used-car prices. It fell below pre-pandemic levels in March 2021, shortly after used-car prices began their latest climb.
Lenders don’t expect the upside-down economics to last. Used-car prices will begin to decline over the next few months but at a slow enough pace for borrowers to continue to take advantage of positive equity, Mr. Drury said.
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It makes no sense to buy a used car right now. Cars with over 100K miles selling well over $10K. Three year old cars with 30k miles selling at MSRP of a new one. My 16 year old daughter just fried our '99 accord, cracking the cylinder head to a tune of $2500 worth of repairs. Hard pass on that repair bill. I really don’t want my kid learning to drive and taking her lumps in a new car but what choice is there? I am not buying a used car in this market. So she gets a brand new $40K ioniq ev, loaded with leather, sun roof etc., and I get a $228/month payment, no gas and already “equity” of 2K as vroom offered over payoff on a leased car I have “owned” for 3 days. Strange days indeed.
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Isn’t this the “bubble” they’ve been warning us about for years?
If the math doesn’t make sense, then that’s because it probably really doesn’t.
I wonder when the other shoe is going to fall and how hard…
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@AutoPaint I’m not sure we need a new thread every time WSJ writes about the auto industry. Let’s keep it all in one thread
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My apologies!
Wait until used car prices fall to historical levels. For the same reasons people with positive equity fare better on trade-in, people buying today who trade-in are going to be suffering.
No worries! It’s all good! Feel free to post more content about the auto industry here
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Today’s anecdote: for the first time ever, received an email from Carvana: a car I looked at dropped in price.
Gotta start somewhere, right?
Plus, if the market tanks in 2-3 years, you can give it back to the lender and let them eat the depreciation.
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Yep, I’ve noticed this as well - starting to see price drops on Carvana (including the vehicle we sold to them a month ago). It’s still priced a few thousand over what they paid us, but taking into the various labor costs on their end, I’m sure the margin is rapidly shrinking.
What the heck happens to these operations when the bottom falls out on the used car market and they can’t sell these even for what they paid?
Received a call from the Honda dealer where I purchased new in January 2019. I bought out of state so have never spoken or emailed them since purchase. It wasn’t my salesperson, but I remember the guy. He was solely interested in buying my Accord back. When I said I sold it to ALGO in August, 2020, he then asked if I knew anyone at all that wanted to sell their car. Neighbors, friends or relatives. Anyone. It was weird and desperate and I guess typical of the times. When I asked if he was even going to bother tying to sell me a vehicle, he said he didn’t have anything. Hence the call.
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Shitty middle men will always be trying to make as much as they can. There’s prob gonna be dealer mark up on various SUVs for the forseeable future. But all that to say, I think used car prices are getting back to sanity.
They profit on the subprime lending, as much, if not more then, the profit on the unit.
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Exactly. All they care about is showing revenue. Net profit doesnt matter anymore in the tech world. Endless moronic investors still will buy into their “growth” story.
I got burnt twice shorting it which likely means this is the top!
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Do Dealers Have To Pay More For Cars Due To The Inventory Shortage?