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Dealers see SUV glut as drivers trade in gas guzzlers
2008-04-26
For used car dealer Ivan Hoyos, accepting a sport utility vehicle as a trade-in is no longer good business. The only SUV he's offering at his Florida Auto Sales and Finance is his mother's red 2004 Mitsubishi Endeavor. With only 21,000 miles on it, he's advertising the six-cylinder vehicle with the online network Craigslist for $13,991 -- about $200 less than Kelley Blue Book's suggested retail value. Hoyos' mom purchased a Mazda 5, a smaller crossover vehicle with plenty of interior room but better gas economy -- up to 28 miles per gallon as opposed to about 20 for the Mitsubishi. "Nobody is buying used SUVs," said Hoyos, 35, who stopped accepting them six months ago. "The truth is more and more dealers are staying away from used SUVs and large trucks ... It doesn't pay. You can't have a unit sitting on the lot forever." As gas prices pass $3.50 a gallon nationally and the economy teeters on recession, independent used car dealers like Hoyos and massive chains like AutoNation Inc. are having trouble selling used SUVs as buyers prefer smaller, more fuel-efficient vehicles likes hybrids and crossovers (CUVs). Crossovers such as the Ford Edge, Honda CR-V, and Toyota RAV4 have more interior room and more rugged styling that the average car, but with a lighter chassis and generally better gas economy than an SUV. Used SUV sales in March were down 14 percent nationally compared to last year, according to data compiled by CNW Marketing Research. That follows drops in used SUV sales of more than 8 percent for the first two months of the year, compared to the same months in 2007. That trend has sent used SUV prices plummeting, giving owners a shock when they try to trade theirs in and find out how little they can get. "Owners find out they don't have the trade equity they thought they had and are forced to keep their vehicles or come up with a large sum of cash to make up the difference," said Chris Denove, a vice president of the auto information firm J.D. Power and Associates. David Tivadar has spent three months trying to get fair trade-in value for his 2005 Lexus SUV, which gets about 17 miles per gallon. He would like to trade it in for a minivan that gets better mileage and can accommodate his baby daughter. He bought the Lexus new for about $33,000, and said the monthly payments of $465 "would be more manageable if gas prices weren't so high." Tivadar would rather trade in his SUV than deal with the hassle of selling it himself, and he plans to visit other dealers to see if he can get better trade-in value. "At first gas mileage was a secondary issue -- we wanted something bigger and safer for the baby," said Tivadar, an operations manager in Murrieta, Calif. "But the gas issue becomes more and more important as the price goes up. It's already $3.79 here." For a decade, many Americans bought big SUVs like the Ford Expedition, the Chevrolet Tahoe and the Toyota Land Cruiser as they benefited from a booming housing market, low fuel costs and a steady economy. The SUV became a status symbol. "What is unusual is that a segment that had grown very quickly in the '90s and the early 2000s has really shrunk dramatically," said Mike Maroone, AutoNation's chief operating officer. "The difficulty is in valuing them, because the market has clearly softened on those vehicles." AutoNation re-examines the value of its used cars, including SUVs, in 15-day periods, Maroone said. After sitting unsold for 60 days, the cars are eventually sold at wholesale auctions to other dealers. "It's a very good way in that it provides you liquidity when you've been unable to retail something, or the vehicle doesn't meet your standards to retail it," Maroone said. "It moves at auction. It's always just a matter of how much." Another option to reduce inventory is to sell the SUVs overseas. At AutoNation's Maroone Nissan of Pembroke Pines, southwest of Fort Lauderdale, used car sales manager Julio Cardoso noted that he has three SUVs headed to Russia this month. Sales manager Al Johnson said the dealership had been exporting about one car a month -- this year they average roughly 10. AutoNation said nationally its overseas shipments were up slightly, but not in double digits. It did not disclose specific figures. Maroone said he has been active in exporting cars to Central and South America since the 1970s, while the weak dollar has seen more luxury used vehicles being shipped to Europe recently. "We're willing to ship anywhere as long as the car is paid for before it leaves the lot," Maroone said. A March 18 report by Wachovia Capital Markets analyst Richard Kwas noted that about 75 percent of about 40 auto dealers and managers surveyed said they are selling more cars and CUVs than expected. "We suspect traditional SUVs are being traded for new CUVs, which likely will drive further declines in wholesale prices for the SUV segment," the report said. As more SUVs are being traded in, dealers have to work hard to manage inventory to prevent a glut. Dealers "always have a decision to make and that is, `Do I lower my price enough to move the vehicle off my lot today, or do I hold on to the vehicle another month and hope that someone comes in willing to pay enough money?" Denove said. ___ Associated Press writers Brian Skoloff in West Palm Beach and Dinesh Ramde in Milwaukee contributed to this story.
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