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Jessica Caldwell, AVP of Insights at Edmunds, tells dealers on today’s episode of Inside Automotive that while the percentage of consumers trading in vehicles with negative equity isn’t at record levels, the average amount of negative equity has reached historic highs, surpassing $7,000.
Caldwell warns that this could influence loan approvals and consumer behavior, demanding greater strategic precision from dealerships in 2026.
The increase in negative equity stems from historically high transaction prices during the microchip shortage, when some vehicles were sold above MSRP. Caldwell notes that banks have sometimes financed 110–120% of MSRP, typically for buyers with strong credit. However, she cautions that lenders may eventually set limits on how much negative equity they will finance, which could potentially affect vehicle sales.
According to Caldwell, the rising negative equity trend is pushing some buyers toward used vehicles. Dealers are increasingly retaining trade-ins with higher mileage, sometimes 90,000–100,000 miles, that previously might have been sold off. These vehicles continue to attract buyers seeking affordability.
Meanwhile, near-new and certified pre-owned inventory is expected to expand in 2026 as more lease returns come back to market, providing additional opportunities for dealers. Leasing is rebounding, though it remains below pre-COVID levels, with EVs seeing comparatively higher lease penetration due to federal tax credits and new technology.
“The numbers look quite steady, which we haven’t seen in a long time. It kind of indicates that the market has hit a bit of a natural rhythm."
Overall, transaction prices and days-to-turn metrics are stabilizing, which signals a healthier market rhythm. Caldwell declares, “We’re not necessarily propped up by massive incentive programs like we were during the recession.” With dealer profitability remaining solid, affordability for broader consumer segments, and the rising costs of electrification and autonomous vehicles remain key challenges.
As 2026 unfolds, dealers may need to educate consumers on pricing and incentives, navigate high negative equity, and strategically manage inventory to maintain profitability. Caldwell claims that more new-car shoppers are turning to the used market due to price pressures and uncertainty.
