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  • Writer's pictureTodd Vowell

Navigating the Negative Equity Challenge in the Automotive Industry: A Strategic Approach

By Todd Vowell, Founder of Disrupt Marketing Group


The automotive industry is currently grappling with one of its most formidable challenges: negative equity. This issue, though not unexpected, has been exacerbated by the financial aftermath of the COVID-19 pandemic. Efforts to sustain sales during this period have resulted in many customers experiencing negative equity, where the amount owed on a car loan exceeds the vehicle's current value. As we move forward, it’s imperative for dealers to address this head-on with strategic, data-driven solutions.


Understanding the Depth of the Problem


Recent data from Edmunds reveals that borrowers who are underwater on their car loans now have an average negative equity of $6,054. This is the highest amount of negative equity recorded in the past three years. Compounding this issue, car prices have spiked over the past few years, reaching an average transaction price of $48,247 in November—a nearly 23% increase from the average cost just three years ago, according to Kelley Blue Book. The problem is further exacerbated by increasing difficulty among borrowers to afford their auto loans. Delinquency rates for subprime loans that are 60 or more days past due were 6% in September and October. These statistics highlight the urgency for dealers to find effective strategies to manage and mitigate negative equity.


A Targeted Solution: Leveraging Credit File Data


One effective way to mitigate the impact of negative equity is to focus on customers who are most likely in a positive equity position or nearing it. This can be achieved by targeting individuals with 1-6 months remaining on their auto loans. Utilizing true real credit file data allows dealers to pinpoint these customers accurately, creating opportunities for profitable trades and sales.


Benefits of Targeting Positive Equity Customers


1.Higher Probability of Trade-Ins: Customers and conquest with positive equity or nearing the end of their loan terms are more likely to consider trading in their current vehicles. This opens the door for dealers to offer attractive trade-in deals and upsell newer models.


2. Increased Customer Satisfaction: By reaching out to customers and conquest who are in a financially advantageous position, dealers can foster a positive buying experience, leading to increased market share, new customers and higher customer satisfaction and loyalty.


3. Optimized Inventory Management: Focusing on trade-ins from positive equity customers helps dealers maintain a balanced inventory, reducing the risk of overstocking depreciating assets.


4. Enhanced Profit Margins: Vehicles acquired from customers and conquest with positive equity can be resold with better profit margins, as the trade-in value is more likely to align with or exceed the outstanding loan balance.


Implementing the Strategy


To effectively implement this strategy, dealers should:


Invest in Quality Data: Partner with reputable data providers to access accurate and up-to-date credit file information. This investment is crucial for identifying the right customers and making informed decisions.


Train Sales Teams: Ensure that sales teams understand the importance of targeting positive equity customers and are equipped with the tools and knowledge to engage these prospects effectively.


Personalize Outreach Efforts: Develop tailored marketing campaigns that speak directly to the needs and financial situations of positive equity customers. Personalized communication can significantly increase response rates and conversions.


Monitor and Adjust: Continuously track the performance of this strategy and be prepared to adjust as needed. Regularly reviewing data and outcomes will help refine the approach and maximize results.




The challenge of negative equity in the automotive industry requires innovative and strategic marketing solutions. With the average negative equity reaching $6,054, car prices spiking to an average of $48,247, and delinquency rates on the rise, it is crucial for dealers to adopt proactive measures. By focusing on customers who are in or nearing positive equity positions, dealers can create win-win scenarios that benefit both the customer and the dealership. Leveraging true real credit file data to identify and target these individuals is a key step in overcoming this challenge. For more information on this and other data-driven options, feel free to reach out to Disrupt Marketing Group at any time. Together, we can navigate this landscape and drive success in the automotive industry.



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