Used SUV Prices Dropping, Hurting GM and Ford
Wednesday, May 24th, 2006
High gas prices and aggressive new-vehicle incentives are depressing the value of used large sport utility vehicles, potentially hurting the bottom line of General Motors Corp. and Ford Motor Co. according to analysts.The price of used large SUVs has been declining for the last several months and the spike in gas prices has accelerated the trend, analysts said.
That could be a concern for Detroit-based automakers given the disproportionate role that SUVs play in their sales numbers. Declining used-car prices could turn away consumers from new-car dealerships, Tom Kontos, chief economist at Adesa Inc, one of the larger used-car auction houses, said.
“Residual values of SUVs are very important for the automakers,” Kontos said. “They do what they can to make sure that their vehicles have high resale values because that basically puts money in the consumers hands in the form of equity when they trade a vehicle in.”
Used-car prices are a closely watched barometer for new-vehicle sales as a majority of new purchases involve a trade-in model and better prices spur more trade-ins.
The wholesale value of used large SUVs was down 4.1 percent to an average of $14,465 in April compared with a year ago and was 4.7 percent lower compared to the previous month, according to Kontos.
The trade-in prices for large SUVs, or those brought in to dealerships by consumers, have also followed the trend in the wholesale market and were down $743, or 4.2 percent, at $16,985 in April, said Alex Rosten, an analyst with Edmunds.com.
BAROMETER FOR NEW CAR SALES
The rise in gas prices is the main cause of the softness in the full-size used SUV category, Rosten said. “The used-car buyer is much more sensitive to gas prices than the new-car buyer,” he said.
The quick depreciation could create a situation where consumers find themselves owing more than their trade-in vehicles are actually worth, analysts said.
Used SUV prices hit a low in the latter half of 2005 following the employee pricing discounts offered by GM, Ford and Chrysler.
“A large portion of those went to SUVs and therefore that tremendously hurt used values,” said Tom Webb, chief economist at Manheim, the used-car auction house.
Another factor hurting demand for new SUVs is that there are a lot of used ones — like GM’s Chevrolet Tahoe or Ford’s Expedition — that are coming to the market, analysts said.
Almost 130,000 large SUVs were leased in model-year 2002, and another 92,000 were leased in the 2003 model year, according to Edmunds.com.
Leases typically run three-to-four years, meaning many of those vehicles are likely to be on the used car market in coming months.
Ford sales analyst George Pipas said recently that the market for large SUVs appeared to be shrinking more rapidly than the company had anticipated and was on track for a double-digit percentage decline in 2006.
“It is pretty eye-popping,” he said when the reviewing automaker’s U.S. sales data for April.
Tags: gm, general motors, ford, suv, gas prices
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