July 29, 2021

Negative equity dips on Lithia vehicle transactions

The average amount of negative equity customers bring to vehicle transactions dropped at Lithia Motors Inc. during the pandemic, largely because of stimulus checks and stronger used-vehicle values.

Before the pandemic, the average down payment on a Lithia vehicle was $1,800, CEO Bryan DeBoer said during an investor presentation last week. Today, the average down payment has risen 39 percent to $2,500.

The average negative equity rolled into a new-vehicle purchase at Lithia dropped to just more than $4,000, down from $5,000.

Stronger trades and stimulus checks “have put more money into the pockets of consumers and allowed them to have a little more savings to be able to apply for a little bit lower loan to value, which allows them to get better interest rates,” DeBoer said.

After reaching record highs in May 2020, negative equity levels on new-vehicle sales have dropped during the coronavirus outbreak. Higher used-car values are benefiting vehicle trades, experts say, and depressing negative equity on vehicles coming back to the market.

DeBoer also credited Lithia’s 900 F&I experts for helping customers structure deals best suited to their financial needs. Lithia has emphasized that leveraging the dealership group’s finance professionals is essential to the company’s long-term plans for growth in its digital and physical sales channels.

“We all know that financeability is the secret sauce of the industry, as well as inventory procurement,” DeBoer said.