How is the U.S. economy doing? It’s a complicated picture.
We’ve written before about the K-shaped economyso named because the letter’s shape evokes the divergent fortunes of those at the top and the bottom of the income spectrum. Where you stand on this question very much depends on where you sit.
It’s a question we track for several reasons. If you’re deciding whether to buy a home, you’ll want to know which direction mortgage rates are going. If you’re pricing a major appliance, you’ll want to know which way prices are trending. And, of course, for political reporters, the state of the economy is always a major issue – and even more so barely six months before the midterm elections.
What does “the economy” mean? An illuminating July 2023 poll from the Economist/YouGov helpfully asked Americans what they thought. Stocks? Just 6% pointed to Wall Street. Jobs? Fifteen percent. The top answer, at 57%? The price of goods and services.
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What Car Debt Tells Us
At The Wall Street Journal, Ryan Felton flagged another interesting data point over the weekend: growing car debt. Americans looking to trade in their vehicles are discovering that their car or truck isn’t worth what they still owe on their loan.
Felton got an example from Doug Horner, who owns a Mercedes-Benz dealership in northeast Ohio.
“A prospective buyer recently sought to trade in a Ford F-150 Lightning for a Mercedes GLE Coupe, but that potential customer owed about $87,000 on the pickup truck. Horner estimates the Ford pickup truck was worth about $47,000 – leaving the buyer well underwater.”
That’s an anecdote. But the Journal found the data shares the same story.
- 30% of borrowers in the first quarter of 2026 who traded in a car to buy a new one owed more on their loan than the vehicle they were trading in was worth, according to car-shopping website Edmunds.
- They owed about $7,200 on average before getting a new loan, “a 42% jump compared with the same period five years prior.”
- While the proportion of Americans with negative equity sits at a relatively typical level, the average amount they owe “has skyrocketed as buyers try to unload cars bought during the pandemic at high prices,” Edmunds says.
Ah, yes, the pandemic. Supply-chain disruptions brought on a shortage of new cars. That sent prices soaring. Buyers who felt they had the cash – or lacked alternatives, like public transportation – bought anyway.
Even now, “the average consumer is in a good position when buying a vehicle,” Tyson Jominy, J.D. Power’s senior vice president of data and analytics, said in the Journal piece.
But those who are aren’t … really aren’t.
Consumers who rolled negative equity into a new loan “were more than twice as likely to wind up having their car repossessed within two years, compared with those who netted money on a trade-in, a 2024 study from the Consumer Financial Protection Bureau found,” the Journal reported.
And “default rates on car loans in March rose to the highest levels seen since 2010, according to Cox Automotive, an industry-research firm,” the daily said.
Car debt may seem like a niche issue. But it reflects the economic reality faced by millions of Americans. And it could have a ripple effect on the automotive industry, which is already struggling. That means it’s worth watching.