How Those Insane Dealer Markups From 2021 Wrecked the New Car Market Today

It wasn’t that long ago when car dealers marked up everything from sought-after enthusiast models to base-level Crosstreks during COVID’s peak. Folks familiar with the way auto loans work could tell the writing was on the wall, including dealers—y’know, the ones who got rich off people willing to make poor and uninformed financial decisions. But that wasn’t enough to stop them, and now, many are dealing with the woes of a crashing car market right alongside the buyers who’ve landed upside down on their seven-year bank notes.

At the center of all this is a hard lesson on negative equity. That’s when the amount owed on a vehicle surpasses the car’s value. Just about anyone who has purchased a car on credit in the last few years can tell you what it’s like to live with this, myself included. And while negative equity is nothing new, it’s become a far bigger problem for people who bought a poorly priced car not because they wanted it but because they needed it.

It’s easy to skip sympathy and go straight to snarkiness when you see someone living beyond their means by purchasing a car they can’t afford. But because dealers were jacking up the prices on any and all cars that were available on lots from 2020 to 2022 or so, people who downsized to more economical vehicles still got buried. Normally sensible buyers in the market for basic economy models were essentially forced to pay markups in the range of $1,000 to $5,000 because dealers claimed “that’s where the market is.”

It didn’t help that banks were all too happy to approve loan apps for amounts that far surpassed the worth of the cars being purchased. With interest rates rising to roughly double pre-pandemic levels, it made sense for financial institutions to approve these loans—even the bad ones that were likely to result in the borrower defaulting. What we once knew as up was down during COVID years in the car market, and many of Americans are paying the price now.

Our Editor-In-Chief, Kyle Cheromcha, breaks everything down in the video embedded at the top of this blog. Give it a watch if you’re interested in learning how things are … and how they got here in the first place. Feel free to drop a comment, either on YouTube or on the site here—we want to know how we’re doing. And to give ya a freebie, we know we used the wrong car in the graphic at the ~10:38 mark. Sorry about that. We’re humans!

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