From Car Loan Wiki

A dealer loan payoff refers to when you have taken out an auto loan on a vehicle, then trade that vehicle in to a dealership; the dealer then pays off the entire balance of the loan. Before this happens the dealer will determine how much your car is worth and what the loan to value is. If you are upside-down or have negative equity on your auto loan, that amount will be transfered towards the total cost of your new car. The dealer will still pay off the entire balance of the auto loan, the borrower will just then owe the difference of the negative equity to the dealer as part of the cost of the new car. For example, if you have a remaining balance on your auto loan of $15,000 and your car is valued at $10,000, this means you're upside-down on your auto loan. The dealer will pay off the entire $15,000 and take the difference of $5,000 and add it to the price of the new car.