A couple of thoughts:
1. Would you actually "lose" money selling the car and buying a cheaper one - or would you just have to sell it for less than you currently owe? Even if you have to bring money to the table to sell, you may still come out ahead in the long run driving something cheaper - especially if it is cheap enough not to require full coverage insurance.
2. Do you have PMI on the mortgage? If so, it is probably worth it to pay down the loan enough to remove that. But if not, IMO, there is no real reason to throw more money at an already accelerated and low-interest loan unless it really bothers you to be in debt.