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No schadenfreude over the death of SUVs

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"No schadenfreude over the death of SUVs"

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You know your product is in trouble when the housing analogies come out:

The market for sport utility vehicles is starting to look a lot like the housing market, spreading pain to consumers, automakers and dealers….

http://www.thatsweird.net/Pictures/marthastewart.jpgI am not sure this post qualifies as schadenfreude — since that has been defined as “largely unanticipated delight in the suffering of another which is cognized as trivial and/or appropriate.” There is nothing unanticipated about high oil prices (see “My 1996 warnings and predictions: “MidEast Oil Forever?” — Part I: Drifting Toward Disaster“).

That is, the death of SUVs isn’t like, say, Martha Stewart going to jail. What has happened to SUVs — “Sales of S.U.V.’s are down 32 percent so far this year, and were off 43 percent for July” — was inevitable.

Well, in July, General Motors dealers had a 174-day supply of the Yukon XL/Suburban on hand, on average, up from a 92-day supply a year earlier. Inventory of the Chevrolet C/K Suburban nearly doubled over the same period, to 116 days from 63 days.

Just like hapless homeowners, countless car owners are now “underwater,” driving vehicles that are worth less than the balance on their car loans. And just like desperate homeowners, the sellers of S.U.V.’s are having to painfully cut asking prices.

How bad is it?

Automakers are offering discounts of $10,000 or more on some S.U.V.’s just to get rid of them, so dealers have space to stock more of the fuel-efficient cars consumers are clamoring for. On average, new sport utility vehicles sold for 20 percent below sticker price in July….

That, in turn, has decimated prices for used S.U.V.’s….

Last month, Automotive Lease Guide … made unprecedented downward adjustments to many sport utility vehicles’ residual values. The company now says a Ford Expedition will retain 32 percent of its value after three years and that a Chevrolet Suburban will be worth just 30 percent of its original price. A few years ago, such vehicles were estimated to keep about half their value after three years.

“These big trucks and S.U.V.’s are really dinosaurs at this point,” said John Blair, chief executive of Automotive Lease Guide.

Note to Blair: They were always dinosaurs.

“Consumers like S.U.V.’s. They haven’t fallen out of love with the things that made them popular, but it’s just become an issue of economics. When you look at paying several hundred dollars a month more in fuel, that becomes a big deal for most households.”

High gas prices have hurt S.U.V.’s more than pickup trucks because a large proportion of the people who have been driving S.U.V.’s were more attracted to their style than their capabilities, whereas pickups are popular among contractors and other workers who haul supplies. Many commuters and couples without young children have abandoned S.U.V.’s for vehicles that are less costly to drive.

Additionally, many shoppers interested in buying S.U.V.’s already own an S.U.V., and end up walking away from dealerships after learning how little their current vehicles are worth.

“Everybody thinks you’re lying to them,” said Mr. Fortman, the Chevrolet sales manager in Illinois. “Nobody wants to take that big of a hit.”

What of the future?

Because the S.U.V.’s decline is largely owing to high gas prices, experts say the only way that the segment could rebound significantly is for gas prices to decline. Edmunds.com said the number of visitors researching S.U.V.’s has increased slightly in recent weeks as gas prices have retreated.

Yes, Americans have a notoriously short memory. But anyone who now thinks oil prices are going to be much lower, rather than higher, in a few years, deserves whatever (little) they get for buying an SUV at this point. We’re going to $5+ a gallon plus over the next several years.

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7 Responses to No schadenfreude over the death of SUVs

  1. Andy Bauer says:

    During World War II, wasn’t the American auto industry able to shift from cars to war vehicles in approximately 12 months?

    Is the concept of guzzles-to-sippers (or EV’s or Plug-in’s) lost on Detroit?

    Hey, Big Three, some really bold moves would be welcome!

  2. Wacky Liberal says:

    If you have a lot of capital, right now is a good time to buy up this glut of SUVs at nice low prices (but a year from now might be a better time), and gut the suckers and convert them to electric … sell them back in a year or two at three times the price you bought them at.

    Or, they might make nice planters in the front yard. Maybe I’ll write a book “101 uses for your stupid old useless SUV”.

  3. charlie says:

    actually the SUVs will make great vehicles for poor people.

    MPG doesn’t matter if you don’t drive a lot. Insurance, parking, and other fees are what is going to hurt you at that income bracket.

    Also feel a lot of the SUVs will be sold to South America.

  4. Rick C says:

    Charlie,

    My wife tells me that in Honduras, her native country, SUV sales are up. In spite of high gas prices because the rich people who drive them regard the gas prices as little more than pocket change.

  5. charlie says:

    Well, I was thinking of more Venuzeula and Mexico, where gas is subsidized.

    The only flaw in my argument is the bulk of late market SUVs made by Detroit are actually TERRIBLE off-road vehicles, and I wouldn’t want one in Central America. However, a Nissan, Toyota, or Honda would make a great used SUV for that market.

  6. copper potts says:

    “Because the S.U.V.’s decline is largely owing to high gas prices, experts say the only way that the segment could rebound significantly is for gas prices to decline.”

    Or for SUVs to have MPG of 40-50.

  7. shop says:

    Automakers are offering discounts of $10,000 or more on some S.U.V.’s just to get rid of them, so dealers have space to stock more of the fuel-efficient cars consumers are clamoring for.