The Hidden Car Debt Crisis Growing Beneath a Stable Market
The US car market looks like it's stabilizing. Used prices are declining. New car sales climbed to 16.2M units in 2025. But the underlying math tells a different story, and buyers are still paying for decisions made during a pandemic that ended years ago.
Why supply never bounced back
~8M vehicles that should have been built for US buyers during the pandemic were never made, according to Cox Automotive chief economist Jeremy Robb. Automakers responded by shifting their lineups toward high-margin trucks and SUVs, a strategy they've largely kept in place.
Leasing historically represented ~30% of the new vehicle market, per Cox Automotive. It fell to 18% in 2022. Since leases typically run three years, that collapse took years to fully drain the used car supply that depends on off-lease vehicles.
"Supply is not getting a lot better over the next three to four years," Robb said.
Who's being squeezed out
The new car market has seen ~1M prospective buyers exit the market since the start of the decade, according to The Wall Street Journal. Industry analysts don't expect volumes to return to the pre-pandemic peak of 17M units annually until the end of the decade or later.
An income gap is driving much of this. The average new-car buyer's household earns over $150K per year. The US economy's median is ~$80K, according to JD Power Senior Vice President Tyson Jominy.
Priced out of new cars, more consumers are pushing into older used inventory. Demand for nine- and ten-year-old vehicles is running well above historical norms, per Cox Automotive. The average car on US roads is now ~13 years old, a historic high, according to S&P Global.
What "normalization" actually looks like
A three-year-old used car fetched 66% of its original retail price in Q1 2026, according to Edmunds. That's down from 81% in 2022 at the peak of pandemic distortion. It remains above the pre-pandemic norm of ~60%.
"The likelihood of such a drop remains low," said Ivan Drury, director of insights at Edmunds, referring to any return to pre-pandemic pricing levels.
The debt trap hiding in trade-ins
The most persistent pressure point is what's happening to buyers who overpaid during the pandemic and are now trying to move on. About 30% of borrowers who traded in a vehicle in Q1 2026 owed more than that car was worth, per Edmunds. The average amount underwater was ~$7.2K, a 42% jump from five years prior.
To manage payments, buyers are stretching loan terms. Borrowers rolling negative equity into a new loan financed an average of nearly $56K in Q1 2026.
Default rates on car loans in March climbed to levels last seen in 2010, per Cox Automotive. Buyers who roll over negative equity are more than twice as likely to face repossession within two years, a 2024 Consumer Financial Protection Bureau study found.
"The higher it goes, the chances are that people are never going to get themselves out of the situation," said Jessica Caldwell, head of insights at Edmunds.
