Record fuel prices have ended American’s liking for sports utility vehicles (SUV). But the break up is proving to be more hurting the sale than anyone anticipated. Some US dealers have stopped buying used trucks. Lenders are bracing for losses. Automakers have slashed output, and Americans have seen the value of their big rides drop by thousands of dollars in recent weeks.
The decline in sales of the heavy sports utility vehicles and trucks favored by Americans of more than a decade has gathered momentum in the last month, leading to a glut on dealer lots and sharply lower trade in values. But unlike the last recession in 2001, discounting from Detroit is not showing signs of reviving demand.
The auto downturn appears to be entering a problematic second phase. In this phase with gas prices remaining stubbornly high, demand for both new and used large pickups and large SUVs is falling precipitously. For years, North American’s truck market has been an outsized anomaly.
Cars outsell trucks by a 5-to-1 margin in Europe and by 2 to1 in Asia Pacific, But in North America, the popularity of SUVs and trucks made that ratio almost 1 to 1 last year, according to Automotive News. Yet record gasoline prices have driven resale values of big trucks such as the Ford F-150 Chevy Silverado and Toyota Tundra down by 20 percent or more his year.
That decline, in turn is expected to forces lenders including finance companies like GMAC and Ford Motors Credit, to write down the value of vehicle leases. General Motors corp and Ford Motor Co could see write downs of more than $3million on a combined basis of the dressed value of tusk and SUVs coming off leases that are then sold at auctions. The crunch comes at a time of rising concern about liquidity for Detroit automakers. GM shares tumbled to their lowest level since 1955, while privately held rival Chrysler LLC had a deny rumors it was facing a cash crunch.
GM’s decision this week to slash truck production by 170,000 units and offer interest free loans for six years under scored the severe pressure on the automaker. Ford is already offering its market leading F-Series pickup trucks with employee pricing, a discount worth up to $5,000 on some models. In an unusual and costly move, Ford has also opted to delay launching a redesigned F-150 to clear out inventory.
The discounting pressure can remain strong for the rest of the year as US auto sales near decade lows. Even stepped up incentives did not begin to address the shift in the market away from trucks.
It’s very difficult because there are consumers who want a new truck, but they have a truck to trade. Automakers would have to sweeten incentives or extend rebates to clear 2008 model year vehicle inventories. The plunge in the value of large SUVs and trucks has prompted some dealers to stop taking them at trade in.
It has been unlike anything seen during last 2 decades. Noting the large vehicle depreciation had been especially dramatic from the end QI of 2008. People just can’t afford to write a multi-thousand dollar check to get out of their sport utility to get into a car that gets better gas mileage.The math doesn’t work. Used car prices are closely watched barometers for new vehicle sales as a majority of purchases involve a trade in model and better prices tend to spur more trade-ins.
The average wholesale price of used large SUVs fell 24% last month. Prices for used pickup trucks were down 21% in mid ’08. Rising fuel prices will definitely make dents in various sectors not alone in America but all over the world. People may have to face hard times until well developed countries come up with non-conventional cheaper energy resources to counter crude.