Posted: Tue Jun 10, 2008 8:06 am Post subject: Demand for large SUV's has collapsed; owners can't sell
*(moderators, I posted most of the article here because WSJ switches articles to subscription-only rather quickly.)*
Collapse in Demand For Large SUVs Leaves Owners in a Bind
Quote:
Most people who buy a new car or truck don't think they are making a risky bet on the commodity futures market. But they are. Just ask someone who's trying to unload a large sport-utility vehicle purchased in the last two or three years.
The market for large, second-hand SUVs is going through its own version of the mortgage market's meltdown -- and for some of the same reasons. GM's Hummer H2s and Chevy Tahoes and Toyota's Sequoias were adjuncts to a lifestyle built on cheap energy. Because gas was cheap, living farther from work in order to buy a larger home in a former corn field (or desert) was a reasonable economic decision. Shuttling 100 miles a day from school to work to mall to Costco was a trivial expense -- $10 or so when gas was $1.50 a gallon. You could spend more supplying all your passengers with 20-ounce bottles of Coca-Cola.
Gasoline at $4 a gallon has burst the super-sized American lifestyle. The proof: The fizz has gone out of sales of those 20-ounce sodas, in part because after the shock of filling up at the pump, people aren't in a mood to buy anything else at the quickie mart.
More seriously, lots of big homes far from town suddenly aren't worth what's owed on them, and the SUVs that ferried people around the sprawl are also "underwater" on their loans.
Quote:
About 36% of the people who tried to trade in a large SUV in May owed more on the truck than it was worth, according to data from the Power Information Network. That's up from just under 33% a year ago. (It's worse for large pickups. Recent PIN data suggests 40% of large pickups traded during May fetched less than the loan balance.)
A three-year-old large SUV today is worth about $2,000 to $3,000 less at trade-in than a three-year-old large SUV would have been in 2007, before gas prices began to soar, according to Marc Cannon of AutoNation Inc., the largest U.S. auto retailer. A three-year-old Chevy Tahoe that might have fetched $19,700 in September 2007, he says. Today, a three-year-old Tahoe might be worth $16,400 at trade-in.
In other words, folks who bought a big SUV in 2005 are discovering that they were making a bet that oil prices would remain stable. They were wagering $30,000 to $40,000, not the billions certain U.S. auto makers stand to lose from making a similar wager. But the pain of losing that bet is still real. There hasn't been such a significant collapse in demand for a class of vehicles since the oil embargoes and inflation of the 1970s slaughtered muscle cars.
For the past several weeks, I have passed an increasingly common sign of the times: a Hummer H2 parked at the front of the owner's driveway with a "For Sale" sign in the window. I don't know the seller's motives, but it's doubtful they'll get what they want for the truck, given that Hummer dealers have a glut of unsold new vehicles that will probably leave their lots at fire-sale prices.
Within the past few days, a number of experts in the used-car market have recommended that owners of large SUVs should probably just hang on to their rigs rather than sell into the current collapse.
"If you've got one two- to three-years-old and you're working on a five-year loan, you will be upside down," says Jack Nerad of Kelley Blue Book/KBB.Com. "That's exacerbated by the fact the dealer doesn't want that vehicle right now. It's going to be an ugly scene."
Mr. Nerad's reasoning is that right now could be a trough for large SUV demand. Winter usually brings an uptick in demand for four-wheel-drive vehicles, which would make late model used SUVs more desirable for people who want them.
It's true, as Mr. Nerad points out, that the incremental expense of driving a large SUV for another year -- as opposed to buying a Ford Focus -- is almost certainly less than the financial hit a consumer will take trading in a big SUV right now.
A Toyota Sequoia costs about $1,700 more to drive for a year than a Ford Focus, based on the government's mileage calculations and average gasoline prices of $3.79 per gallon. Even adjusting the calculation to $4 a gallon, you'd likely lose less in a year by keeping the big rig.
The bind of what large SUV owners should do with their rides illustrates the bigger problem confronting the U.S. car business. Vehicle strategies -- the mix of small and large, cars and trucks -- take years to develop. Consumers, likewise, buy vehicles they intend to keep for several years -- as evidenced by the fact that so many people choose to take five- or six-year car loans. The economic environment that makes a vehicle choice look rational can change far more quickly.
What remains to be seen is how consumers will choose to cope with the fallout.
Some big SUV owners may decide that their big truck is worth keeping, provided it is used for tasks only a big truck can do -- such as hauling a trailer. A big SUV that is driven only about 8,000 miles a year costs no more to fuel than a Ford Focus driven 15,000 miles a year. Daily commuting in a big SUV never really made a lot of sense. But now, high gas prices make it economical to get the right tool for that job.
The collapse of the SUV market presents a huge challenge for auto makers. The financial problem is well documented. But this goes beyond red ink. Auto makers will have to reorient their marketing. To sell SUVs, car makers convinced consumers that they needed one vehicle capable of performing every conceivable task from climbing a cliff to negotiating left turns across traffic to get to Nordstroms.
Now, auto makers will have to tell consumers they need a number of vehicles designed for specialized tasks – the SUV for the family vacation, the Mini or the Honda Fit for the slog to work, the luxury sedan for the night out with business associates.
It will be a tough sell. But they may find that many customers are already ahead of them.
Can't say I'm really surprised. Did most SUV and truck owners actually think gasoline would always be 99 cents per gallon in the US? You snooze, you lose.
Posted: Tue Jun 10, 2008 8:15 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
Drifter wrote:
Now, auto makers will have to tell consumers they need a number of vehicles designed for specialized tasks – the SUV for the family vacation, the Mini or the Honda Fit for the slog to work, the luxury sedan for the night out with business associates.
Hilarious. Auto makers think the solution is to build MORE cars, one for every task that a driver might conceive of, in fact, so each American can wind up owning a fleet of cars, rather than just one or two. The solution will always be LESS cars, not more. _________________ "It's called the American Dream because you'd have to be asleep to believe it."
Posted: Tue Jun 10, 2008 8:40 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
This is just starting, everywhere. I was watching last night a special program of Spanish Television and the cost of truckers to fill up their tanks is just crazy.
I would like to see the faces of this three stooges by the end of the year
Joined: May 18, 2006 Posts: 3962 Location: Minneapolis, MN
Posted: Tue Jun 10, 2008 8:45 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
Quote:
A three-year-old Chevy Tahoe that might have fetched $19,700 in September 2007, he says. Today, a three-year-old Tahoe might be worth $16,400 at trade-in.
ha, ha try about $8,000. $16,400, no fricken way Ray.
Posted: Tue Jun 10, 2008 8:51 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
vision-master wrote:
Quote:
A three-year-old Chevy Tahoe that might have fetched $19,700 in September 2007, he says. Today, a three-year-old Tahoe might be worth $16,400 at trade-in.
ha, ha try about $8,000. $16,400, no fricken way Ray.
I agree. I think he is overstating current SUV market values.
*honk honk* 'Hey a$$hole, get that underpowered pos #$&% scooter out of my way!'
Posted: Tue Jun 10, 2008 9:08 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
I dont feel sorry for anyone who bought them. THey sure flaunted them around when I was driving my small car and made fun of me for not having one. I can HAVE whatever I want to buy. I chose to NOT spend that much on a vehicle.
Joined: Oct 12, 2004 Posts: 997 Location: In the suburban sea of strangers
Posted: Tue Jun 10, 2008 9:13 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
Lots of bug-out vehicle bargains await at the used car lots. _________________ The battle to preserve our lifestyle has already been lost. The battle to preserve our lives is just beginning.
Posted: Tue Jun 10, 2008 9:20 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
My truck ('93 V6 Dakota) only gets about 2,500 miles a year. Moving friends (pulling a trailer), hauling my rototiller (sideline biz), and occasional "car is in the shop" days. For the first two, a rear-wheel drive ladder-frame vehicle is a near-necessity.
At 2,500 miles a year, it is going to last a *very* long time.
The "commute in an F-150" era is over, but the trucks/SUVs we have will be around for a long while. Demand for new ones, though? Oughta be damn near zero. There's more than enough to go around.
I also expect there are going to be a lot fewer people pulling around travel trailers, boats, and show horses. So, a lot of demand destruction for "truck needs". _________________ At 1% annual growth, human bodies will incorporate every gram in the observable universe in approximately 10,170 years.
Posted: Tue Jun 10, 2008 9:20 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
Its only a bargain if you can afford to fill the tank. HAH..
I think that the scrap yards will be overflowing with Trucks and SUV's that no one wants.
My friends all bought 4x4 , 4 door trucks with huge engines for just them and the wife. Plus have other SUV's etc. I dont have any sympathy for them. Who NEEDS that kind of car for two ppl. JUST IN CASE someone goes along? That is selfish and stupid.
I am laughing each time I fill up my little car.
jk
Joined: Aug 19, 2004 Posts: 1682 Location: Republic of Texas
Posted: Tue Jun 10, 2008 9:27 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
There is still way too much price resistance. I've been waiting a long time for this situation. I want my next truck. People are still asking too much for them.
Joined: Sep 19, 2007 Posts: 1091 Location: Land of the Tongva tribe
Posted: Tue Jun 10, 2008 9:38 am Post subject: Re: Demand for large SUV's has collapsed; owners can't sell
As a SUV owner myself and my wife also owns a SUV I feel the love....or lack thereof.
If you guys are this excited about SUV extinction, I can't even imagine when peak oil takes place and you can "laugh" at everyone around you because you were ready. Most of you will be gleaming with excitement.
Not everyone is selling SUVs. My wifes drives a mid-size SUV but here next car will be a full-size SUV since we will probably have kids by then. My next vehicle either be another SUV or a pick-up. I am excited because dealer SUV prices might be cheaper. So I say bring on the SUV extinction as long as they save a couple for me and my wife.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
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*honk honk* 'Hey a$$hole, get that underpowered pos #$&% scooter out of my way!' 
Old habits die hard, especially in the southern US.
