we're seeing something unprecedented in the car market right now and the data is well pretty alarming there are five major signs that are pointing to the auto market heading for a huge price correction and in today's video I wanted to break down these five signals and show you with data where the car market is heading with auto loan debt at $1.7 trillion an all-time high inventory piling up at dealerships and the threat of auto tariffs making already expensive cars more expensive there's a ton to talk about today if you or someone you know is thinking about buying a car in the next 12 to 18 months watching this video could save you literally thousands of dollars now to recap the car market post pandemic for those that are unfamiliar or just new to the situation basically car prices began to skyrocket at the end of 2020 into 2021 prior to the pandemic most people would just not have ever dreamed of a scenario where they would ever have to pay over list price for a car because with normal supply and demand dynamics the buyer would usually have enough leverage to negotiate with dealerships to get a car below MSRP but the supply shortages during the pandemic would change the landscape of car buying for the subsequent 3 to four years auto manufacturers had to cut production of cars back in 2021 that was mainly due to a couple things so number one was the forecast of reduced demand and number two supply chain issues were making it so that manufacturers could not actually get the semiconductor chips fast enough since many of the factories in China and Taiwan were shutting down at the same time stimulus checks went out to Americans and thereby boosted consumer demand for cars because now all of a sudden everyone had more money now what happens when you pair an insatiable amount of demand with a huge production cut that the world has never seen before well you guessed it car prices spiked banks also started to loosen their standards for auto loans so this graph comes from the Fed and you can see that the percentage of domestic banks tightening standards for auto loans they drastically dropped in 2021 that meant that banks could now approve loans to underqualified or even unemployed individuals for the sake of stimulating the economy and uh that's not a good sign it kind of reminds me of this one time banks were allowed to give out subprime loans to I don't know certain buyers of certain assets and we all know how that turned out hey there's a bubble now all these policies led to an increase in overall auto loan debt which we will talk about shortly but a main byproduct of all of this was that the retail prices of cars across the board they started to get over inflated infamously cars were selling for upwards of anywhere from 10 to 50% over MSRP and in some cases upwards of 70% over MSRP in one rare case on Reddit we had a Ford Bronco selling for $83,000 a markup of 45K over the MSRP of $38,000 so the number one warning sign we need to pay attention to are simply dealer markups from 2021 to 2025 and how they affected the entire landscape of the market dealer markups were so common in fact that this article from January 2022 states that 82% of American buyers paid over MSRP for a new car in January of 2022 now looking back on this we now know it was just a phase but for many people living in 2022 and 2023 this new reality was what they had to put up with if they wanted a new car was it normal no did people have a choice also no if you wanted a new car at the time this is just what you had to deal with this caused another problem which was that used car prices started to get over inflated as well in 2022 some used cars were selling for more than their new counterparts and this turned the market basically upside down since when should used cars be selling for more than new cars i don't know but that was actually the case this situation quickly became accepted and the norm in America in 2022 and 2023 and even as of August 2023 used cars were still priced more than 30% above normal now in 2024 the car market started to slowly correct back to some semblance of normaly however I think the damage had been done already the increase in the average transaction price for the past 5 years from 2019 to 2024 was more than what inflation was for that same period and that brings me to the next critical warning sign about the car market and that is simply the financing problem millions of people back in 2021 to 2023 still bought and financed new vehicles that were frequently going over their MSRP prices and a lot of these buyers will now find themselves in a world of pain and usually in a situation where they might have negative equity on their car analysts say that nearly one in four vehicle trade-ins toward new car purchases with negative equity are underwater by $10,000 or more and that quote the average amount owed on an upside down loan climbed to an all-time high of $6,838 so all the people who bought their cars in 2021 to 2023 their vehicles are now old enough to be traded in but the owners are finding themselves usually underwater take our extreme Bronco example from Reddit earlier if you were unlucky and you just happen to finance one of these for a purchase price of $80,000 back in 2022 well these days a new one sells for 35 or maybe even 40 grand so you might owe 30 to 40k on a car loan more than what the car is actually worth and it doesn't just have to be these extreme examples you could have just bought a Tesla Model Y in 2022 for $72,000 like this guy on Reddit and when Elon dropped the price of the Model Y substantially just one and a half years later your Tesla could be worth only $38,000 this person in particular he still owed $52,000 on the loan and he was negative 14K in equity just one year ago and you'll see so many similar stories like this one even on non-electric vehicles and more of the budget friendly cars that were marked up during those times still by 1K 2K maybe 5K and to illustrate how unsustainable the market is currently let's take a look at the following statistics the average monthly car payment for new cars is now $742 per month according to Edmmonds with one in six people taking out car loans for a car payment of over $1,000 per month that's not even including car insurance maintenance depreciation fuel and other costs in addition interest rates on car loans have jumped from 1 to 3% preandemic to over 6% for new cars and 11.6% for used cars as of early 2025 and don't get me started on car insurance it's also at all-time highs personally my car insurance went up 50% over the past 3 to four years so let's illustrate this for you guys let's compare a 2021 purchase of a Honda Accord to the exact same car today a 2025 Honda Accord and for the sake of just comparing the effects of interest and insurance on this car let's keep the MSRPs the exact same between both of them so let's say $31,000 assuming you put $5,000 down in 2021 with an interest rate of 2.5% your monthly payment would be $461 add on car insurance of $150 per month and your total payment is $611 per month that means your total cost of car payments and insurance over 5 years would be $36,660 in 2025 though assuming the same down payment and the same MSRP with an interest rate of 6.3% you are now paying 506 a month instead of $461 a month let's also pretend that your car insurance went up 50% to $225 a month that would then bring your total monthly cost to $731 a month which equates to $43,860 over 5 years so you can see with just higher interest rates and increased insurance costs your total 5-year costs have now increased by $7,200 and that's about 23% of the original MSRP so the takeaway here is that the financing environment that we're in in 2025 has already added 1/4 of the vehicle's value of the Honda Accord to your cost of ownership and that's a really tough situation to be in especially if you don't have that much budget to work with and I would say that these situations are pretty typical i mean you can try to save some money on insurance by comparing insurance offers across different providers and that may save you I don't know $100 a month doing that but even then the overall cost for a situation like this is still going to be higher today than they were in 2021 i will leave a link to an insurance comparison tool down below in the description so you can check that out after and see if you're already getting the best deal on insurance now the next stat I want to bring up in this financing section is that auto loan debt sits at $1.7 trillion and quote "Almost half of loan applicants have been denied over the past 12 months that means half of these people have already just been rejected at least once." This suggests that it's getting really tough to get new loans or even credit for a car and there's no doubt that the elevated prices of cars these days has plenty to do with it so what we have now are higher interest rates higher insurance rates increased delinquencies and negative equity for many consumers across the board and therefore you just don't have that many people buying many cars right now and that's pretty evident in the next critical warning sign which is that simply that inventory levels are elevated unsold inventory is piling up and it is up 120% since 2023 and as of November there are 3 million unsold cars just simply sitting on lots these days many car manufacturers are having over 90 days of supply and for context at its lowest in 2022 it was around 18 days of new inventory supply across the board of course at that time there are also some popular Hond's Toyotas and Subarus at less than 10 days of supply okay so we know supply is up and so now dealers are trying to incentivize more people to buy the cars on the lots that already exist incentives have grown to 7.7% of average transaction prices to create a positive momentum for dealers but even with incentives going on we are still seeing inventory levels rising and the day supply of new cars at its highest level in the last couple of years and this brings me to my next sign that we should pay attention to is just simply the industry panic signals that are happening within the car market itself many car manufacturers like Stalantis Ford Nissan and VW have been laying off thousands of auto workers and Nissan which for years until 2020 was Japan's second largest automaker behind Toyota they started to have problems competition from the Chinese auto manufacturers coupled with low sales for their EVs in the United States led to some of the poorest financial results I've seen in a long time so Nissan had profits fall 90% from the year prior according to CNBC this situation became so dire that in late 2024 Nissan announced the elimination of 9,000 jobs globally and a 20% reduction in production capacity as part of an emergency cost cutting measure the CEO even took a 50% pay cut while the company desperately searched for a lifeline in 2024 they began talks to potentially merge with Honda which would have created one of the largest auto groups in the world with a combined market value of over $60 billion but unfortunately those talks collapsed earlier this year leaving Nissan in a really tough spot this pattern of failing companies looking for consolidation is usually a warning sign that the industry is in crisis when major players with decades of history and billions and resources can't survive independently it shows me that there might be some fundamental structural problems throughout the entire sector there is a chance that Nissan struggles are not isolated and they're actually a symptom of a broader market correction across the auto industry that's entirely possible but for now we don't know but what we do know is that there is a tariff situation on the rise president Trump's newlyannounced 25% tariffs on imported vehicles and auto parts that took effect earlier this month and according to Axios could affect up to 45% of light vehicles in the United States quote 3.6 million cars were built in Canada and Mexico in 2024 including popular models like the Chevy Silverado the Ram 1500 and the Ford Mach another 3.7 million vehicles were imported from other countries primarily Japan Korea and the EU the US International Trade Commission in 2024 actually published a study of what would happen if the government imposed sweeping auto tariffs and they found that a 25% tariff on all US auto imports would reduce them by about 74% the imports and they would also increase average auto prices by 5% however the realistic impact could be even higher since psychologically many people just might assume prices will go up by 25% and the automakers might reflect that therefore dealerships with significant amounts of imported inventory are going to be hit particularly hard as they'll have to either absorb the tariff on their own or pass them on to consumers that well they can't even afford those cars anyways that just means in my opinion that demand will be reduced even further many automakers have already warned that they might raise prices and Ferrari already announced price hikes of up to 10% for US market vehicles of course that's Ferrari and a super exotic car brand but if they're doing it it's likely that other car makers will follow suit the automotive industry was already facing all these issues that we talked about earlier in this video but I think adding on tariffs just seems like pouring salt onto an already exposed wound as we've seen throughout this video the car market is facing a perfect storm of interest rates inventory levels mass layoffs and consumers who simply just are tired of paying exorbitant prices for extended loan terms i think this might actually cause a reset in the car market and I also expect car prices to come down if nothing changes in the broader economic environment like for example if interest rates stay the exact same and car insurance continues to rise I think that car prices are just going to remain unsustainably high logically speaking though I would expect car prices to aggressively get discounted and vehicles to come down to fair market value prices but the tariffs could just throw a huge wrench in that just like the past few years in the markets I've come to just realize that any market whether it be stocks cars or homes they're largely unpredictable these days and even though the car market should behave in a certain way it doesn't necessarily mean that it will i think if you're someone who is looking to trade in or sell their car and you're in a place with negative equity or you're underwater on an auto loan already I would just caution you to not dig yourself even a deeper financial hole if you can avoid it that might look like just holding on to a car and making the payments until you can pay it off in full or waiting until you're at positive equity to trade it in personally I'll be keeping an eye on this market correction over the coming months and I may make a follow-up video in the future if there are any new developments or good deals or any strategies on how to navigate the car market so make sure you are subscribed if you want to check out a video on how much car you can afford make sure to check out this video right here it's one of the best that I put out on the channel and I think it can really help you if you're looking to know what you can afford all right I'll see you in that video or a future one on the channel let me know your thoughts in the comments peace [Music]