Your Car Loan Is Underwater and Interest Rates Are Soaring. What Now?

Podcast Introduction

Speaker 1 0:00

The In Wheel Time Podcast , a 30-minute mini version of the In Wheel Time Car Show that airs live every Saturday morning 8 to 11 am Central . This is your place for all things automotive the award-winning In Wheel Time Car Talk Show . Just ahead we talk to the CEO of Private Auto about negative equity on used car trade-ins . Uh-oh . Later , jeff has the racing calendar , mars has this week in auto history and I'll get you caught up on the stories making automotive news headlines this week . Howdy , along with Mike out of this world . Mars . We always need more . Jeff Zekin , I'm Don Armstrong , glad you could join us . Chief Engineer David Ainsley will be joining us at Hemi Hideout here in a few weeks . We just scheduled that . That's coming up April .

Speaker 3 0:46

The 5th I believe it is yes a few weeks .

Speaker 1 0:48

So looking forward to going out , as we always do out , to the Hemi Hideout

Negative Equity on Used Car Trade-ins

Speaker 1 0:52

. All right , negative equity on used car trade-ins . Well , if you've spent a decent I mean just say this an average amount of money on a used car , on a new car , and you're going to trade it in for another car , what do you think the chances are of you one even breaking even on that trade ? We're about to find out . So joining us now a fellow by the name of Brad Parker . Brad , good morning to you . Good morning , happy to be here . Thank you , brad . Good morning to you .

Speaker 3 1:24

Good morning Happy to be here , thank you .

Speaker 1 1:25

Well , thanks for joining us . We appreciate it . So Edmunds data revealing a record high average negative equity of $6,838 . That's brutal , my friend . But so in other words , let's just say I'm going to trade my car in and I still have $6,838 I owe on it . That's going to get folded over into the new car loan on top of the price of the new car .

Speaker 4 2:00

Oh my God , that's the interest on that six grand .

Speaker 3 2:03

Yeah , this is not a good thing yeah , so in and even how you just said it , it gets folded over into the new car . So that's the thing that a lot of people don't understand . You have to pay for it somewhere , and so the money doesn't just go away , and so it ends up meaning that either that next car is a lot more expensive or you have to put a significant amount of money down potentially even that $6,000 plus what you would have normally put down to get the loan to value ratio in line with the new car , which ultimately makes it very hard for someone to switch cars . So it puts them in a tricky situation .

Speaker 1 2:48

Yeah , so let's just say and I'm going to lowball it here and say I have found a brand new car for $30,000 . Joke . But let's just say that you know , $30,000 for a new car . Now there are some out there . If you go by the window sticker , there are some out there if you go by the window sticker .

Speaker 1 3:07

There are some out there . Yeah , what are they ? Yeah , there's that . Let's pretend . Okay , thirty thousand dollars I have , I have . I have two thousand dollars saved up , that's it . But I owe six thousand eight hundred dollars on the car that I want to trade in . Why do you want to trade it in ? What would propel me to trade the car in when I've got all of that negative equity in ?

Speaker 3 3:27

it One , because you're still paying the higher rates . So really , for a lot of people the payment has become unaffordable With rising prices in general . People that jumped into a maybe three , four , you know , five years ago they're still they . They they paid for the car at maximum price when there were very little markdowns . Um , there were very little incentives . We're talking about the COVID era , that's right , yeah , so so you kind of bought at the peak , in essence , and so you paid almost the highest price for that car and in some cases , depending on if you bought a luxury car , there may have been basically a premium that you paid on top of it .

Speaker 1 4:20

Yes , exactly yeah , because I think that was about the same time that the new C8 Corvette came out . They were scarce . Oh yeah , exactly yeah , because I think it was that was about the same time that the new C8 Corvette came out . They were scarce . Yeah , yeah , we used to do the drag racing thing over in Baytown . That track doesn't exist anymore , but we always passed by a Honda dealership . For two years they had no inventory on the lot . We thought the place was closed . No , it wasn't closed .

Speaker 3 4:42

They had no inventory period yep , they're selling them off the truck . Yep , so you might . You might have paid an extra 10 percent , you know , for that vehicle . Yes , depending on on what it is . The other interesting uh , you know thing too is um the . The loan terms have slowly gotten uh longer , oh slowly oh well , yeah , I mean yeah , yeah .

Speaker 3 5:06

Oh , slowly . Even though the price of the car was the highest ever , the payment seemed affordable . But now , when you go to trade that car in , it's a rude awakening on the actual value of the car .

Speaker 1 5:38

And so all right . So then you shop around , you shop around , you find out oh my gosh , I'm so upside down in the car . I'm going to have to hang on to this car for a while longer . In the car , I'm going to have to hang on to this car for a while longer . So that means that that car that the industry was looking for as a trade-in to go on somebody's used car lot it ain't there anymore . Or if it is there , the selection that you have to choose from in that price category probably is not going to be there either .

Speaker 3 6:08

Yep . Well , it's an interesting trend as you watch in the industry right now . Over the past two years , you know you look at even the dealer patterns too . So you know , for decades you know the number one source of used car inventory for a dealer is trade-in . Number two for many years has been the auctions . But a lot of these people are holding on to their cars . They're not trading them and they're not ending up at the auction like they used to , and so this is why you've seen all these cash offer portals showing up everywhere . Everyone's trying to buy . You know dealers are trying to buy those cars direct from the , the private street sellers , um to supplement their inventory because the normal flow of inventory is not there . Used car inventory .

Speaker 1 6:55

And now , with the tariffs sitting on our shoulders waiting to happen , we're gearing up for basically catastrophe in new car sales . In turn , will be used car inventory to be able to sell that ? And what bank is going to loan you over the value of a car ? I don't know . I mean , all of these things are all lining up not be good for buying a car um , you're right , and there's a couple things to unpack there .

Speaker 3 7:38

It's a couple kind of uh , two pressures coming at the consumer .

Speaker 3 7:42

On this one , which means now they are mitigating their risk more and they're pulling back on some of their loan portfolios or how much they are lending right now , which makes it harder for the consumer because it's harder to qualify for a loan in order to to get it with with a lot of the banks .

Speaker 3 8:13

Now , as you mentioned the tariffs , it is going to create some short term difficulty for new vehicle sales on two fronts it's going to put more downward pressure on margins for dealers , but it's also going to increase prices for consumers . Now we're all hopeful that interest rates will come down at some point . They are already starting to show some signs of relief and a little bit of downward momentum . However , the same scenario still applies for new cars right now , with higher prices because of potential tariffs depending on the vehicle . Still higher , record high finance rates . Still higher , record high finance rates . And then the other pressure would be less banks taking the same type of deal or the same credit worthy person as they would have before , because their portfolios are more constrained now with the level of default and the level of negative equity .

Speaker 4 9:07

The question I have is do you have any data or see any trends of people actually selling their own cars rather than trading them in ? I mean making that effort to post an ad and do all that , maximize what they can get . Right to get that six grand equity loss back plus a little bit of money on top of that . I mean , do you see any data on that ?

Speaker 3 9:28

Yes , plus a little bit of money on top of that . I mean , do you see any data on that ? Yes , cox Automotive did a study a few years back and there's been some others , but it's actually been one of the most surprising statistics that I don't think most people realize that it's actually almost

Private Auto's Solution for Car Transactions

Speaker 3 9:42

47% of all used car sales are private party . The amount of cars changing hands in grocery store parking lots and meeting up with individuals around the country is a significant amount of the used car market . So you know , taking levels , there's anywhere from , you know , 35 to 40 million used cars that are sold every year . So about 47% of that is private party .

Speaker 1 10:14

Wow , I'm just thinking of the everyday guy that has a good not excellent , not off the charts credit rating and he goes to buy a new car at a dealership , let's just say , because the average price of a new car , I think , is like $45,000 . That's a lot of money . Again , you can find something a lot less than that . But most people say , oh , I want the leather interior , I want the sunroof .

Speaker 2 10:48

Well , all of that .

Speaker 1 10:49

Yeah , I want certain things I want in my car and we all know that manufacturers don't make regularly a cheap car , an entry-level car , because they want the extra money , just like the person wants the extra bling on the car . So now we've got , let's just say , an average price of $45,000 . So now we've got , let's just say , an average price of $45,000 . I used to be able to afford $45,000 in my credit rating , but now , because I'm upside down on my car that I want to trade in , and because of other bills that have happened , high interest rates , all of the other things , the pressures among us that have really kind of twofold , threefold since the COVID crisis , what are we going to do ? We don't have the credit rating . So if you don't have the credit rating , chances are the bank is going to be going . You know , I think we're going to pass on this person . Now what do you do ? You go and find a lender , but the interest rate on that is going to be double the amount .

Speaker 3 11:50

Yeah , well , you know , I just ran the numbers on that one . Just a normal 60-month payment for that car right there , at about 8% interest , is over $900 a month . Wow , and just for that , $45,000 . And that's a pretty conservative number . I mean , man , to use cars under $50,000 are not many of them now yeah .

Speaker 2 12:13

You haven't got the insurance yet either .

Speaker 3 12:15

Well , that's right . Yeah , that's a whole other one too . That's probably double from what it used to be , right ?

Speaker 2 12:21

I mean , now you're talking a house note , or what used to be a house note . That's right .

Speaker 3 12:26

Yeah , and that's why they've had to try to extend these loan terms just to make it affordable . But it ultimately sets a lot of people up for failure and I think it's around 30 percent . Black Book did a study on it it's between 25 and 30 percent of people that are currently experiencing that negative equity and it is that number around that . You know 5,000 , 6,000 that you mentioned . But I think that's where we're starting to find some success with . You know , private auto is . You know it's funny . I'm not anti dealer either . I bought a bunch of cars from dealers I still do but I also buy a bunch of cars from private individuals . But I also buy a bunch of cars from private individuals and it's always been just a very clunky and awkward process .

Speaker 2 13:18

You know , meeting up with them how to transfer the funds , Transfer the titles , what's that ? And then you got to transfer the title , that's right , that's right .

Speaker 3 13:24

And it's kind of like well , okay , well , we need something official , like I'm sure we need like a bill of sale or something or something , especially if the amount is over $5,000 . I mean , if it's under $5,000 , all right , use cash or use a payment app , but all that stuff stops once there's really no payment app to do a secure , in-person , high dollar deal . And so you know , I guess , to your point about private party and these people , it's a way for them to someone else , they have a chance of putting that money back in their pocket by going direct to the private party and ultimately being able to pay off that loan faster , by recouping more of fair market value for the car by going direct to another consumer .

Speaker 4 14:25

Yeah , and then there's the consignment lots where you park your car and you sell your car with a bunch of other cars like a dealership , but you pay a percentage once you sell that car to the person that you had the lot .

Speaker 1 14:37

So let's talk about private auto . What is it that your company does ?

Speaker 3 14:43

Yeah , so think of private auto like Marketplace without scammers and Venmo without limits .

Speaker 1 14:53

That's one way to compare it . I like it and I like your sense of humor .

Speaker 3 15:01

I mean because I've sold tons of cars and bought tons of vehicles and no matter how many times you do it in the private party , that first text message , that first inquiry , it's like , oh , is this guy a scammer ?

Speaker 2 15:14

Right , exactly .

Speaker 4 15:15

That's just . That's exactly what you're thinking . Well , it's the mindset of what we're living through right now .

Speaker 1 15:21

So how do we get that removed from our mind ? And we find that you know Brad Parker , ceo of Private Auto . He's going to handle the deal for us .

Speaker 3 15:30

Yeah , no , and I think that's another thing that makes us different . You know , we're more of a technology layer that enables two people to safely and securely do a deal , really without the middleman . So , unlike other companies that are more of an escrow agency or an online dealership that are kind of physically acting in the middle and assisting with the deal , our technology allows two people to spin up a deal . They verify their identity and we do things that I mean . Honestly , it's been a wild journey because private party is the armpit of all transactions . You don't know if buyer's legit , seller's legit , car's legit or the money is legit . You don't know if anything's legit Exactly , yeah , exactly .

Speaker 3 16:20

And so we've had to adopt technology that allows us to verify that individual with even cell phone detection that it's not a burner , a SIM swap . It actually matches them with the carrier network . It even does driver's license scan , selfie check Once they are connecting and doing if they are going to move funds . It does name matching on the bank accounts to make sure that person is the same one that owns that bank account . But we also have things around the vehicle and title . So it comes with a history report . We can actually do a direct DMV title check through the platform and if the seller says they have the title , it'll scan it , compare it to the person that says they're the owner and it'll do a scorecard based on what the DMV record says for that . Individual Questions on that .

Speaker 2 17:15

Yeah , I got lots of questions . So if I'm buying a 69 Camaro from somebody up in New York City , new York City , new York City , then obviously I mean , uh , I don't have a way to validate all that personally so I could come to you and say I'm fixing them . I'm trying to understand , I'm fixing by the 69 camaro up here . I need some help to get it done yeah it , we've .

Speaker 3 17:43

Actually most people um , that's been most of our customers so far is the long distance private party deal , because you have the ability A just with the verification , you have some peace of mind and some trust and transparency that that person is who they say they are .

Speaker 3 17:59

So just that as a starting point . Number two , on the vehicle and the ability to do the title scan and check , is a whole other layer of transparency , and I think that's what this is about . Today , transparency is pretty low . We're raising the bar of transparency for these deals to allow people to make a more educated decision on purchasing that vehicle , people to make a more educated decision on purchasing that vehicle , and so the title scan is a really important part and something we just and honestly , this hasn't been done ever in private party before , but we just recently added the ability to do lien and title release too . So somebody with a private party , a private party seller , can have a car with a loan , sell it privately and we'll be able to detect that loan , verify it , even structure the deal for the two people and we can accommodate negative equity .

Speaker 1 18:54

So if that person is underwater , the seller would need to deposit that amount of money and then it would allow the deal to close , then it would allow the deal to close , brad , we could spend an hour and a half with you on the phone , but I guess the best way to do it is go to privateautocom and get more information . That's the place You're the man .

Speaker 2 19:14

That's what we need .

Speaker 1 19:14

It's a pleasure to talk to you , Brad Parker . We appreciate the time this morning .

Speaker 3 19:18

You bet Thanks so much , appreciate it . Thanks , thank you .

Speaker 1 19:20

Hey , jeff , has the racing calendar coming up , mars has this week in auto history and we'll have some auto news headlines for you and we'll time car talk show continues after this . The Tex-Mex dining experience is defined by Loopy Tortilla ,

Racing Calendar and Auto History

Speaker 1 19:34

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Speaker 1 20:28

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Speaker 1 20:52

Gulf Coast Auto Shield is where Houston's car people go . Curbed your wheels . Instead of buying new , why not have them repaired ? How about a professionally installed radar detector ? Gulf Coast Auto Shield does that too . Get a peek inside the shop and look at the services offered by getting online and heading to gcautoshieldcom . Better yet , stop by their facility at 11275 South Sam Houston Tollway , just south of the Southwest Freeway , and get a personal tour . Gulf Coast Auto Shield is your place to go for all things exterior . Call them today 832-930-5655 or gcautoshieldcom . Hey , you're going on the hot rod tour of texas . Be sure , and follow the in-wheel time team when we join over 300 other enthusiasts beginning april 24th . We trek across the state . Get the info link at inwheeltimecom and our in-wheel time facebook page . Time now for the racing calendar sponsored by Texas Muscle Car Club Challenge Jeffrey .

Speaker 4 21:45

Yes , nhra last week was the opener . Antron Brown won Top Fuel Dragster . Congratulations to him . Next week they're going to be in the Firebird Motorsports Park in Arizona . Last night we had the Craftsman Truck . A little bit of rain delay or weather delay down there in Vegas . Today is the Xfinity Series in Vegas and then tomorrow is the big boys NASCAR in Las Vegas as well .

Speaker 1 22:12

Good , yep , okay . Now this week in auto history , mars has been chomping at the bit .

Speaker 2 22:19

I'm telling you To do this .

Speaker 1 22:21

You know he spent days putting this together for us , so we're expecting big things here . Mars , don't let us down .

Speaker 2 22:28

You're going to love this . So this week , March the 11th , was the first armored car robbery in America .

Speaker 1 22:34

That's what I was looking for right there .

Speaker 2 22:36

This happened in Pittsburgh . The Flathead Gang actually ambushed a Brinks armored truck . What do you mean ? Did you call it the Flathead Gang ? I could not find out why it was that .

Speaker 1 22:48

I think it's because of their hats , but I could not find out why I was going to say the Flathead Ford V8 was probably big at the time . Well , first , thought .

Speaker 2 22:52

But no , it wasn't it . But typically back then if you were going to rob something , you would take your guns and you would overpower the bank or whatever , whatever .

Speaker 5 23:00

But this is an armored car .

Speaker 2 23:02

So they stole 500 pounds of black powder and dug a hole in the road and buried it and when the truck rolled over it they blowed it up . It's an IED . That's how they got in the armored car , first IED . So March the 14th this week , the Ford Edsel the first Ford Edsel rolled off the production line . Now a lot of people figured that this vehicle failed because of poor marketing and economic downturn .

Speaker 2 23:26

But it was also the design , you know Ford had overhyped the car because you know it was named after a Ford person . But they had some mechanical issues . The horse collar grille really is what really turned everybody off . Nobody just really liked that and of course , there really was a recession going on . So after three years with disappointing sales , they quit building and selling the Ford Edel . Thank God Now in 2019 , the Bugatti Le Vautour New York debuted at the Geneva Motor Show .

Speaker 1 23:58

This is a man from Neiderville , Texas , trying to speak French Theoretically .

Speaker 2 24:02

Now this car is modeled after the Bugatti Type 57 SC Atlantic . Now , this car , this one car , sold for $18.7 million for a . They built it for one particular customer 1,479 horsepower and a quad turbocharged W16 engine Tub it out , yeah , engine , tub it out , yeah . So then , moving on down to march 15th 1990 , mazda's mx5 miata officially hit the us shores . Uh , at the chicago auto show . Auto show is inspired , of course , by the british roadsters lightweight , rear-wheel drive convertible had a 1.6 liter inline , 116 horsepower . It was built to be affordable . It was made to be reliable and fun to drive , making it the best-selling sports car ever built 1968 . The Lovebug movie was released . Now I brought this up because Herbie , the beloved Volkswagen , has become sort of an icon in the automotive world . Everybody knows who Herbie is . Herbie was a 1963 Volkswagen Beetle Deluxe sunroof sedan , which is a model 117 . Had the VW L87 pearl white paint , which I didn't even know VW could do that from the factory .

Speaker 1 25:16

Pearl white paint Yep , that's kind of a not . No , there was no pearl paint on any Volkswagen bug that I knew of the person that painted it their name was Pearl Got it , Mini Pearl .

Speaker 2 25:28

Anyways , red , white and blue striping , along with the number 53 on the hood , the doors and the trunk . Of course , he had several stand-ins for some of the different stunts that he had to do until they , finally , with the remake and some of the TV shows , Herbie finally jumped the shark and that was the end of Herbie .

Speaker 4 25:43

That was this week in automotive history , did he ?

Speaker 1 25:46

say jump the shark .

Speaker 4 25:47

He said jump the shark . What does that mean ? Fonzie did that . Fonzie did that and that's what killed Happy Days show .

Speaker 2 25:53

He took his motorcycle and jumped over the shark at the amusement park . And now that jumping the shark means they've gone too far and they've killed it yeah , that's a you're done .

Speaker 4 26:02

Yeah , we have not jumped the shark .

Speaker 1 26:06

Well , we're going to do that next week well , we've got a few obligations before they do yeah we'll save it up for maybe later in the fall .

Speaker 1 26:14

God

Automotive News Headlines

Speaker 1 26:15

president donald trump doubled his planned tariff on all steel and aluminum products coming into the United States from Canada , bringing the total to 50% , in response to the province of Ontario placing a 25% tariff on electricity coming into the US , trump said in a post on Truth Social that he has instructed his Commerce Secretary to add another 25% tariff on the products that went into effect on Wednesday morning . Key Also , canada must immediately drop their anti-American farmer tariff of 250% to 390% on various US dairy products , which has long been considered outrageous . He said I will shortly be declaring a national emergency on electricity within threatened areas . That was the president speaking . He also threatened to substantially increase tariffs on cars coming into the US on April 2nd if other egregious I like that word , egregious long-time tariffs are not likewise dropped by Canada . The move would essentially permanently shut down the automobile manufacturing business in Canada . Trump said the move to the latest escalation in Trump's trade dispute with Canada and risks further upsetting markets , which have posted steady losses since the president moved forward last week with the initial round of tariffs on Canada and Mexico . Stay tuned there's more to come , much more . And Ford Motor Company this week is stockpiling parts that comply with the US-Mexico-Canada agreement , reassessing cross-border operations and telling suppliers to keep shipping under existing contract terms as it weighs the impact of tariffs . That's the latest word from the automaker to its part producers , as the industry grapples with 25% tariffs on steel and aluminum imports imposed March 12th and another looming 25% tariffs on Canada and Mexico set to hit the auto sector April 2nd after the month-long reprieve . Again , stay tuned for more news . We'd love to hear from you . Shoot us an email . The address here is info at inwheeltimecom . We're back after this .

Speaker 1 28:30

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Speaker 1 29:30

It's time for the 47th Annual Corvette Chevy Expo in Galveston . Saturday and Sunday , march 15th and 16th , at the Galveston Island Convention Center . This premier indoor event features iconic Chevrolets , from classic Camaros to America's sports car . Corvette event features iconic Chevrolets from classic Camaros to America's sports car Corvette . See over 135 displays , automotive vendors and unique finds at the expansive swap meet . You'll also see the all-handmade Galveston craft show featuring over 100 local artisans . Be part of the Chevy celebration March 15th and 16th . For tickets , visit CorvetteChevyExpocom .

Speaker 5 30:01

Mecham Auctions the world's largest collector car auction company returns to Houston . Dot com and enthusiasts of all ages , there's something for everyone . Bring home your dream car . Register to pick and buy spectator tickets now at Mechamcom .

Show Wrap-up

Speaker 1 30:32

That's it for this podcast episode of the In Wheel Time Car Show . I'm Don Armstrong , inviting you to join us for our live show every Saturday morning on Facebook , youtube , twitch and our InWheelTimecom website . Podcasts are available on Apple Podcasts , spotify , stitcher , iheart Podcast , podcast Addict TuneIn , pandora and Amazon Music . Keep listening and we'll see you soon .