Industry responds as negative equity hits new records

CARY, N.C. – 

EFG Companies chief revenue officer Eric Fifield acknowledged the issue during a phone conversation with SubPrime Auto Finance News last week.

“Negative equity was a problem before, and it’s only going to be exasperated now,” Fifield said as the company again rolled out a program to help vehicle buyers handle negative equity if they encounter a life-changing event like a job loss — something that’s now been experienced by more than 22 million Americans during the past month.

As unemployment soars, the data from Edmunds indicated that negative equity is reaching new records, too.

According to data shared exclusively with SubPrime Auto Finance News, Edmunds executive director of insights Jessica Caldwell reported that three negative-equity records arrived in March. They included:

— Percent of new-vehicle sales with negative equity: 36.3%

— Percent of used-vehicle sales with negative equity: 28.7%

— Share of all new-vehicle sales with negative equity: 16.4%

Edmunds data also showed that the average amount of negative equity for new-vehicle sales in March came in at $5,225. For used-vehicle deliveries, that negative equity figure stood at $3,873, according to Edmunds.

Most mainstream automakers and their captives now offer financing programs that far more substantial than when 2020 began such as zero percent rates for 84 months with no payments for as long as 120 days. With incentives like those programs, Caldwell doesn’t see the negative-equity trend reversing any time soon.

“Generous financing offers from automakers such as zero percent for 84 months make sense for responsible consumers who intend to keep their vehicle until the wheels fall off,” Caldwell said in a message to SubPrime Auto Finance News. “However, many consumers get the itch to trade in and make a new purchase much sooner, so longer loan terms could lead more individuals down a road toward negative equity.

“Vehicle popularity often shifts in the U.S. to meet changing consumer preferences, which could also negatively impact the value of these vehicles,” she added.

What might be shifting faster consumer vehicle preferences is the volume of U.S. workers seeking federal unemployment benefits. On Thursday, the Department of Labor said another 5,245,000 individuals made their initial claim for benefits last week.

The Labor Department also said the largest increases in initial claims for the week ending April 4 were in Georgia (up 256,312), Michigan (up 84,219), Arizona (up 43,488), Texas (up 38,982) and Virginia (up 34,872)

Whether a recent vehicle buyer lives in one of those five states or elsewhere in the U.S., EFG Companies is trying to protect those consumers.

Last week, EFG re-launched the product behind the award-winning Hyundai Assurance Program — WALKAWAY Vehicle Return Protection. This automotive debt-protection product cancels up to $7,500 of negative equity associated with a vehicle purchase, regardless of age, health, or vehicle type, giving consumers the freedom to walk away from negative equity without impacting their credit.

WALKAWAY Vehicle Return Protection allows consumers the option to return their vehicle in the event any of these unforeseen life events occur: 

• Involuntary unemployment

• Physical disability

• Loss of driver’s license due to medical impairment

• Self-employment personal bankruptcy

• Accidental death

• International employment transfer

After launching WALKAWAY as the Hyundai Assurance program during the Great Recession, Hyundai experienced an eight percent increase in unit sales while the rest of the industry declined by 21 percent. Over the next two years, the manufacturer grew market share by 57 percent.

Since bringing the product to market, EFG said it has positively impacted the vehicle purchasing decisions with WALKAWAY for more than 826,750 consumers across the United States and Puerto Rico.

“Successful dealerships are defined by how they support their customers,” EFG Companies president and chief executive officer John Pappanastos said in a news release. “This has never changed. What does change is the manner in which that support is delivered.

“Today, dealers have the opportunity to provide customers with extremely relevant and valuable protection regarding their finances and their ability to live their daily lives. This opportunity can serve dealerships as a true point of differentiation and avenue for revenue growth,” Pappanastos continued.

Fifield pointed out how important F&I solutions like WALKAWAY can be as dealerships are seeking new ways to retail vehicles during the crisis.

“Dealerships are certainly getting creative with how they’re retailing vehicles, whether it’s concierge services or deliveries at home. Just because the showrooms are not having a lot of traffic right now doesn’t mean dealers are not selling vehicles,” Fifield said.

“You see all of these incentives from the manufacturers are pushing the length of terms and deferred payments, it’s only going to drive bigger and deeper negative equity. But getting creative is important. The message to consumers is the vehicle will provide peace of mind in this uncharted territory we’re in,” he continued.

“We have a solution that gives customers peace of mind when they’re buying,” he added.

Fifield also emphasized the financial horsepower EFG has to operate program such as WALKAWAY.

“That’s a question we’re asked often. It’s great to have a great solution but it doesn’t make any difference if it’s short-lived,” Fifield said. “The good news is we’ve had this program available and offered by a variety of our partners since 2005. For 15 years, we’ve seen good times and bad.

“This program is not the product we do,” he continued. “We’re about to celebrate our 42nd year being an administrator. We’re partnered with an A-rated insurance backer that has a contractual liability policy on this. This is well-funded and has as much backing that you can imagine. It’s reserved in a way that makes sure the dealers offering this program that the claims are taken care of for the long haul.”

EFG stressed that WALKAWAY can give dealers an effective defense when it comes to declining consumer confidence by:

• Giving consumers the motivation and confidence to purchase their next vehicle

• Increasing customer satisfaction and driving repeat business

• Preserving their customers’ credit for future purchases

Since the product’s inception, EFG said has paid out a total of $3,890,062 in WALKAWAY claims, helping consumers at a time when they need it most.

“I thought I would never have to use the WALKAWAY program,” WALKAWAY contract holder Monica Lagarin said in the news release. “I lost my job, and I have bills to pay. When the claim was approved and I received payment relief, I was able to manage my other bills without having to worry about my car.”

For more information about the WALKAWAY program, go to this website.

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