No schadenfreude over the death of SUVs
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 …
I 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.
That is, the death of SUVs isn’t like, say, Martha Stewart going to jail. What has happened to SUVs — “Sales of SUVs 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 SUVs are having to painfully cut asking prices.
How bad is it?
Automakers are offering discounts of $10,000 or more on some SUVs 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 SUVs …
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 SUVs are really dinosaurs at this point,” said John Blair, chief executive of Automotive Lease Guide.
Note to Blair: They were always dinosaurs.
“Consumers like SUVs. 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 SUVs more than pickup trucks because a large proportion of the people who have been driving SUVs 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 SUVs for vehicles that are less costly to drive.
Additionally, many shoppers interested in buying SUVs already own an SUV, 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 SUVs 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 SUVs 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 over the next several years.