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SUV Sales Out Of Gas

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Louis Llovio

MEDIA GENERAL NEWS SERVICE

Published: August 14, 2008

Buying a sport utility vehicle seemed like a good idea at the time. It was big, and with all that room, you could take long trips and carry just about anything.

But with gas hovering around $4 per gallon, you want to get out of the SUV and buy something smaller and more economical.

You are not alone.

The problem is the value of your SUV has fallen. The laws of supply and demand have taken over, and SUV owners can't get as much for their vehicles as they could six months ago.

Meantime, prices for small cars are rising and their stocks are slim.

The price of a six-cylinder, two-wheel drive 2006 Ford Explorer, for example, has dropped 28 percent since January, according to The Associated Press. The Black Book, a price guide used by dealers, valued the Explorer at $8,875, losing $3,425 in value since the start of the year.

Meanwhile, a 2006 Honda Civic LX sedan sells at dealer auctions for about $13,250, about the same as it did in January, according to Black Book.

In a normal market, the value of a used Civic would drop at least $1,200 in six months. But it has retained that value as gas prices soared.

Still, trading in an Explorer for a used Honda Civic will save a consumer $1,890 a year in fuel costs for every 15,000 miles, according to an Environmental Protection Agency estimate based on about $4.30 a gallon for gas.

What are car makers doing?

Manufacturers, however, are banking on the trend toward smaller fuel-efficient cars to continue.

GM, as part of a larger cost-cutting measure announced two weeks ago, said it was changing the way its American plants operate. Going forward, plants will build smaller cars, as they do in Europe.

In June, Toyota announced it was doing away with its full-size Tundra pickup and was adjusting capabilities to focus on building smaller cars.

Honda said last week that it was cutting back on production of vans and SUVs.

And Ford announced a program similar to GM's last week, adding that it was bringing two fuel-efficient models from Europe to the U.S.

Ford is seeing some mixed success with its focus on smaller cars.

Lincoln has seen a 10 percent jump in sales since last year in the MKZ, one of its smaller models.

That's a big step for the brand because of its perception of dealing in larger cars, said Mark Schirmer, a spokesman for Ford, Lincoln's parent company.

"We're making a real effort to reach out to spread the word that we have changed and have products that are more fuel-efficient," he said.

Nationally, sales of Ford's most fuel-efficient car, the Focus, are up 28 percent this year through June with more than 123,449 sold. Small-car sales overall are up 12 percent.

While sales of fuel-efficient models are up, industry sales overall are down.

Dealers in the mid-Atlantic region and nationwide reported a continued slide in sales, especially for domestic models, in June and early July, according to a report last week by the Federal Reserve Board.

Some dealers in San Francisco are reluctant to accept trucks and SUVs as trade-ins due to a lack of a wholesale market for these vehicles, according to the report.

The importance of car sales stretches beyond driveways, car lots and corporate suites.

Consumer spending accounts for about two-thirds of the nation's gross domestic product, and the automotive industry traditionally contributes10 percent.

Now it accounts for 6 percent, said George Hoffer, an economics professor who specializes in the automobile industry at Virginia Commonwealth University.

The auto industry is "in a lot of trouble," he said.

While the U.S. auto industry is adjusting to the new market, the changes come too late to make any significant difference in the short term, says Ann Raider, executive vice president of retail partnerships for Affinity Solutions. Affinity is a New York-based marketing company that specializes in the retail industry.

"Detroit got caught flat-footed," she said. U.S. automakers didn't anticipate the changes in the market and adequately prepare for them, she said.

Is it time to buy a truck?

If you're in the market for an SUV, now could be the time to buy.

Dealers and manufactures are offering aggressive incentives to get customers in the door and move SUVs and trucks off their lots.

Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.

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