PIN: Upside-Down Trades Down
WESTLAKE VILLAGE, Calif. — Power Information Network, an affiliate of J.D. Power and Associates, recently reported that upside-down trades are declining.
The company found that the percentage of upside-down trades has dipped from more than 35 percent in 2003 to about 29 percent.
According to PIN executives there are three reasons for this decrease: "First, the length of an average loan or lease has declined, though only slightly. This results in owners having to pay off their vehicles more quickly, which in turn builds owner equity faster.
"Second, owners are holding onto their vehicles longer, currently 5.7 years versus 5.4 years in 2003," officials continued. "The longer owners keep their vehicles before trading them, the greater equity they earn and the lower payoff amount they face when they do make a trade.
"Third, used-vehicle prices are rising faster than prices for new vehicles, meaning that owners' equity in their current vehicles will be rising at a greater rate than either the value or loan on an average new vehicle," they explained. "These trends have caused the average equity amount and equity percentage for used vehicles to rise during the past three years."
Finally, PIN pointed out that the change in trading environment assists both automakers and vehicle owners, as manufacturers don't have to depend as much on cash rebates, while owners have less disposable income tied into loan payoffs or vehicle payments.