Archive for Monday, May 9, 2005

SUV values, sales tanking

May 9, 2005

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— Full-size sport utility vehicles, the one-time high-and-mighty kings of the road, are in a skid.

While used-car prices in general are stronger than they have been in five years, the average trade-in values of full-size SUVs are $700 to $1,500 lower than a year ago -- and it's the weakest segment in the industry.

High fuel prices and a well-earned reputation as gas guzzlers have cut deeply into big SUVs' stature. The segment also has been hurt by the age of many full-size SUV models and the fact that consumers today have more choices of SUV-like vehicles than ever.

Sales of new full-size SUVs nationally, for example, fell 15.1 percent in the first quarter of this year. Some of the segment's former giants suffered huge drops, with sales of the Chevrolet Suburban falling 29.2 percent, the Chevy Tahoe down 22.5 percent and the Ford Expedition plummeting 26.8 percent.

The slowdown in sales comes at an inopportune time for General Motors Corp. and Ford Motor Co., as Standard & Poor's Ratings Services last week cut its corporate credit ratings for both companies to junk status. The move will increase borrowing costs and limit fund-raising options for the nation's two biggest automakers.

Standard & Poor's cited the American automakers' loss of market share to Asian automakers, soft sales for their most profitable models and enormous health care and post-retirement liabilities.

Dealers shift tactics

Dealers are adjusting to the SUV decline.

A line of full-size SUVs, vans and other trucks are reflected in
the tailgate of a Chevrolet Suburban at a General Motors dealership
in Glendale, Calif. Hulking SUVs have lost much of their muscle in
both new- and used-vehicle markets.

A line of full-size SUVs, vans and other trucks are reflected in the tailgate of a Chevrolet Suburban at a General Motors dealership in Glendale, Calif. Hulking SUVs have lost much of their muscle in both new- and used-vehicle markets.

In November, low-mileage Ford Expedition and Chevy Tahoe SUVs commanded front-row spots on Subaru of Dallas' used-vehicle lot.

Today, when the dealership gets one as a trade-in, it often sends it to a wholesale auction -- the destination for cars and trucks a dealer doesn't want.

"Our position is, if it's a good gas-mileage SUV, we keep it," said David Thomas, managing partner of Subaru of Dallas. "If it's a Suburban or an Expedition, we won't. I'm scared of them."

For consumers, the decline means their SUVs are probably worth hundreds less than they were six months ago.

And when a new vehicle's sales start to sputter, that usually causes used values to drop -- especially if manufacturers start offering big incentives to spark sales. According to ADESA Inc., which operates 50 used-vehicle auctions in the U.S., full-size SUV values have dropped 4.1 percent in the last year -- or about $700 on a five-year-old vehicle.

But that number is an average. At times, the value of some newer SUVs has fallen $2,000 or more in monthly auctions.

Compact values grow

On many used-car lots nationally, the Hyundai Elantra, Honda Civic, Ford Focus and Toyota Corolla are the new stars -- though they don't generate the profits that full-size SUVs once did. Over the last year, the average wholesale value of a five- or six-year-old compact sedan has risen 12.8 percent, more than any other segment.

Although full-size SUVs and pickups share similar platforms and get comparable gas mileage, prices of full-size pickups are still strong. That's partly because pickups are viewed as work vehicles and there are few alternatives to them. The prices of full-size pickups increased 3.7 percent last year in the ADESA survey.

The used-car market as a whole is at its highest point, in terms of rising sales prices -- since the late 1990s, said Tom Webb, chief economist for Manheim Auctions of Atlanta, which operates 115 auction facilities worldwide. Overall values are up between 3.8 and 5.3 percent, depending on who is doing the figuring.

"And used-vehicle prices can continue to move up. This has been a rather sustained rise," Webb said.

"I'm calling this (used-car market) a sellers' market, and I haven't used that term in a long time," said Tom Kontos, ADESA's vice president of analytical services at its headquarters in Carmel, Ind.

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