Jessica Caldwell on Negative Equity and Dealer Strategy in 2026

Negative equity and shifting market dynamics are shaping dealer strategy in 2026, according to Jessica Caldwell, AVP of Insights at Edmunds, on this episode of Inside Automotive. While the share of trade-ins with negative equity isn’t at record highs, the average amount now exceeds $7,000—creating new pressures for lenders, dealers, and consumers.

Caldwell explains how elevated transaction prices during the microchip shortage continue to impact loan structures and affordability. As lenders evaluate how much negative equity they are willing to finance, dealerships may need to adjust inventory, pricing conversations, and customer education strategies.

• Why average negative equity has reached historic highs
• How lender limits could influence approvals and sales volume
• The shift toward used vehicles and higher-mileage trade retention
• Growth in certified pre-owned and lease returns in 2026
• Stabilizing pricing and days-to-turn metrics signaling market balance

As affordability concerns persist, dealers must navigate inventory mix, consumer expectations, and financing realities to sustain profitability.

Inside Automotive with Jim Fitzpatrick is powered by CBT News, your go-to source for the latest news, trends, and insights in retail automotive. Subscribe for more interviews with top industry leaders, dealership innovators, and experts shaping the future of automotive.

For more content, visit CBTNews.com and follow us on your favorite podcast platform.

Transcript

Setting The Stage: Negative Equity

Jim Fitzpatrick 0:06

Thanks for watching Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick. Thanks so much for joining me on another episode of Inside Automotive right here at cbtnews.com. 2026 may demand even more strategic precision from dealers as negative equity is hitting record levels, according to Edmonds. Joining us now to walk us through what's happening is Jessica Caldwell. You've seen her here before on CBT News. She's the AVP of insights at edmonds.com. And uh so thank you so much, Jessica, for taking the time out of your schedule to walk us through this and uh and tell us what is going on with this record high negative equity.

How Negative Equity Got So Large

SPEAKER_01 0:46

Yeah, my pleasure, Jim. Well, so we're not seeing necessarily the percentages of negative equity. So people trading in their cars with negative equity, that's not at a record, but the amount is. And that probably is what is the most alarming because that's what you need to finance to get your next loan. So we're seeing these levels grow higher and higher, which probably isn't so much of a surprise considering where transaction prices were, and especially just a few years ago in the microchip shortage when we knew that transaction prices were quite high, higher than MSRPs in some cases. And so now we're a few years later. People are kind of maybe itching to get a new car. Maybe they bought their wrong car because they thought there's not a lot of selection out here. I'm just gonna buy this. This will be fine for the time being. Um, so we're seeing, you know, some vehicles come in and now they're underwater a lot more in debt than um you know, than what we've seen before. And that's generally not a good sign for consumers. No, I mean, nobody wants to be underwater in a loan, period, right?

Banks Financing Above MSRP

Jim Fitzpatrick 1:41

No, exactly. And um, as we were talking before we got recording here, it's amazing to see that banks are even willing to finance, you know, on a new vehicle and go over that that you know, they typically like to be somewhere around the cost or the invoice of the car, maybe a little bit higher. Um, but if some of the dealers that I'm talking to have said that, man, banks have been buying, you know, 110, 120% of MSRP in some cases. You've got to have some pretty good credit for that, right?

SPEAKER_01 2:08

Yeah. And the interesting thing is that these interest rates that we see that are associated with these negative equity loans, they're not sky high. Yeah. So that tells me that these are people not necessarily with terrible credit. They're people that they want to get into a new vehicle. And, you know, fair enough. This is maybe not the financial decision for everyone, but if this is what you want to do, go ahead. So I think really the question is moving forward, will banks continue to keep lending to these folks, especially if the amount climbs higher? We're at over$7,000. If it goes to eight or nine or 10, sort of like, where is that cutoff point?

Jim Fitzpatrick 2:40

Right.

SPEAKER_01 2:40

Because I think start to limit sales a lot more, especially, you know, those with a trade-in that are thinking, I'm gonna get some money, cash it in, and you know, move on with some.

Jim Fitzpatrick 2:49

Of course, with the demand of used cars right now, uh, every dealer is trying to get more used cars. I would imagine that's at least helping to offset the pain a little bit, right? That be that dealers are able to step up more on these vehicles because they need the car.

Used Inventory And Lease Return Gaps

SPEAKER_01 3:04

Right. And I think used cars, I mean, the good news for for this market is that it should get a little easier. 2025 was going to be the worst for the near-new use, because that's when we saw three years ago the lease percentage just drop off the cliff. No one was leasing vehicles back in 2022. Right. Um, there weren't a lot of daily rental sales in that time period because there just weren't a lot of vehicles to be had. So all that near used inventory just didn't happen. So I think the further we move away from that year, uh, the used inventory, particularly on the near new use side, is going to get a little bit better. We would see 2026. Oh, you know, we should at least see more lease returns come back this year, which kind of helps like the certified pre-own programs, which help with financing as well. And just those that are kind of hearing, oh, tariffs are out there, I have to buy a used car, not really doing the math, but just directly going to the used market.

Jim Fitzpatrick 3:49

Right.

SPEAKER_01 3:49

They're generally that's on the newer side, not a five, seven, 10-year-old vehicle. And the three-year-old kind of lease returns sort of fit that bill perfectly.

High-Mileage Trades Become Frontline Cars

Jim Fitzpatrick 3:57

Yeah. What's interesting to me is some of the dealers that I'm I'm talking to around the country that they are putting uh numbers on trade-ins that have got 90,000, 95,000, in some cases 100,000 miles, on a four-year-old vehicle. And they're keeping that car to sell it from the front line of the dealership. And that that used to be, you know, a huge uh, you know, uh deal breaker for dealers out there. As you know, they didn't keep vehicles that are over maybe 60,000 miles, uh, maybe even 50,000 miles. But today they need that car. They feel as though it's still a great car, it's got a lot of life left in it, and consumers are buying that vehicle.

SPEAKER_01 4:35

Yeah, and I mean a lot of dealers they don't have a choice out there. There's not a lot of options for those newer used vehicles. So they're taking, and I can see that being definitely a mindset. But then also we're seeing consumers make the trade-off for higher mic miles because of lower prices. Uh we know affordability, but we know that new vehicles are very expensive. So some people are just they're forced into the used car market and they're willing to swap out the, you know, having a you know a vehicle with higher miles for something that they can actually put in their price range. So yeah, I could see this becoming more standard across dealers that you're not shipping off a vehicle at 60,000 miles any longer, especially with quality improvements that we've seen over the past, you know, decade, I'd say in the auto industry.

Jim Fitzpatrick 5:16

What's the biggest wild card that you uh that that could shift, I should say, the trajectory of the in the industry? Interest rates or incentives or inventory levels, or from your perspective, what what's what's a wild card out there that right?

SPEAKER_01 5:30

So in 2025, there were uh 16.3 new uh vehicles sold. For 2026, we expect about 16. And I think the wild card out there that I just don't know what's gonna happen to is pricing. Because right now we're not seeing a measurable impact on the new vehicle side. It's relatively still minimal when we look at list uh dealer listings out there last month versus January 2025. The aggregate price increase is only about 2%. So that's not massive. Um, we're still seeing incentives out there, destination charges have increased a little bit, but you know, they're saying in the realm.

Jim Fitzpatrick 6:05

Yeah.

SPEAKER_01 6:05

Um it's kind of hard to say exactly like if tariffs start to materialize and we start to see pricing go down to the consumer and them assuming more costs, then obviously sales will start to slow, but it just hasn't happened in a in a sort of overwhelming way or just a meaningful way yet. And I think that's sort of the wild card. Will it start to um I don't think it would happen all at once, certainly not. But as we look at the balance of 2026, can prices start to creep higher and higher and higher and start to happen in other ways? You know, you gotta think that that's definitely a possibility, and that could kind of change the industry. Sure, you know, obviously.

Jim Fitzpatrick 6:40

And as more consumers are being pushed into used vehicles as a solution, what does that mean for used car pricing? You know, it it's gotta just, I mean, it's gonna be driving used car prices of late model used vehicles as well, right?

Is Leasing Really Back

SPEAKER_01 6:54

I mean, yeah, I mean, that's the the law of supply and demand essentially. I mean, we're seeing more people, especially even on our side on Edmonds, we're seeing more new car shoppers shop used. And then you look at that trend line, it was directly correlated to when the tariffs were announced till today. I mean, it's gone down slightly, but it's still way higher than it, you know, than it has been historically. So we know that new, you know, just anyone that's out there in the new car market is like, well, what's out there in the used car market? Because I'm just unsure. And I think just the uncertainty, and that probably is a great deal of opportunity to be like, hey, listen, do you want to you're you're trying to buy a car? You're assuming that new vehicles are are too expensive because of the tariffs. But here's the reality of the situation. This is what prices look like. Here is what incentive programs look like right now. This is how I can make this work in your budget. I think that's a great educational piece that consumers may not be understanding because they hear the headline news, and that's just what they assume. They take that as facts. Right.

Jim Fitzpatrick 7:45

Are we seeing leasing coming back to uh levels that we saw before COVID hitting?

SPEAKER_01 7:51

Not necessarily. I mean, leasing is still lower. I mean, oh my gosh, leasing was well over you know 30% of the retail market, and we're not seeing numbers look like that, with the exception of electric vehicles. Electric vehicles, even with the federal tax credits, are still quite high. I mean, I think that probably is assumed that we can do that with the new technology, uh, but not necessarily across the board. They're they're higher than they obviously were back in 2022, um, but still much lower than they they have been historically.

Sales Outlook And Market Stability

Jim Fitzpatrick 8:16

Yeah, yeah, for sure. So you guys are at uh 16 million SAR for 2026.

SPEAKER_01 8:22

Yeah, that's right. So a little bit down from what we saw in 2025. Again, the Xbox what is gonna happen with prices? Will there be another black swan event? Um, with the last five years, it's hard to call. And the interesting thing is right now things look quite steady when we look at metrics like transaction prices or days to turn, like basically how long a vehicle sits on that on a dealer lot inventory, the numbers look quite steady, which we haven't seen in a long time. So it kind of indicates that the market has hit a bit of a natural rhythm. Um and we're not necessarily propped up by massive incentive programs like we were during the recession. Um, you know, it doesn't seem like automakers are just leaning on daily rental fleet just to make numbers. So it feels like a like a healthier place. So even if the number is is not 17 million like we saw pre-COVID, it feels like a more manageable pace.

Jim Fitzpatrick 9:08

Yeah, yeah, yeah. Yeah, and dealers are still reporting good pretty pretty decent profits across the board.

Can Consumers Sustain New-Car Prices

SPEAKER_01 9:13

So that's right, right. Yeah, it seems to be like a you know a bit of a happier median. Um, I think it just the questions out there still are can consumers keep this new car market alive at the price increases that we're seeing? I mean, you know, transaction prices have gone up 30% since pre-COVID. Um, you know, and and is it just is the new car market just too much towards people with higher incomes? And if so, is that limiting? So I think that's uh you know some of the the bigger questions we have coming forward, but with the advent of electrification as well as autonomous driving, that only adds costs, not detracts costs. Um I think those are yeah, interesting.

Jim Fitzpatrick 9:52

Jessica Caldwell, AVP of insights at edmunds.com. Thank you so much for stopping by. Very much appreciate it. It's always great catching up with you. So uh best of luck to you. Um, I'm assuming you're gonna be visiting the uh New York Auto Show.

SPEAKER_01 10:05

I hope to. I hope to. We'll see. Um, it's a bit far from my home, Los Angeles, but uh still never know.

Jim Fitzpatrick 10:12

Hey, you're a West Coast girl, you're like, yeah, I really don't go east of the Mississippi. You know what I mean? It's a little too cold.

SPEAKER_01 10:17

No, New York is always a great trip. It's a great show.

Jim Fitzpatrick 10:20

A lot of great that's right, that's right. All right, thanks so much, and uh best of luck to you.

SPEAKER_01 10:25

Thank you, Jimmy.

Jim Fitzpatrick 10:28

Thanks for watching Inside Automotive with Jim Fitzpatrick.