Friday, May 23, 2008

SUVs plunge toward 'endangered' list

  • Story Highlights
  • Car dealer says SUVs are tough sells now: "I've never seen it this bad -- ever"
  • AAA says average gas price hit another all-time high Friday
  • Truck owner says he can't get the price he wants for his vehicle

LOS ANGELES, California (CNN) -- Jorge Fernandez strolls across the used-car parking lot littered with dozens upon dozens of sport utility vehicles the size of small tugboats.

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With gas at $4 a gallon, many have sat there since last summer.

"The cars are literally just sitting, and it doesn't matter how much you sell them for," Fernandez says of the SUVs and trucks nobody wants anymore.

"It's amazing. I've never seen it this bad -- ever."

Fernandez, a wholesale auto dealer who has been in the business for more than 20 years, says SUV owners are hit especially hard. The really large ones with V-8 engines that can get as little as 12 miles per gallon in the city -- like the Cadillac Escalade, Ford Expedition and Chevy Suburban -- are dropping in value by the thousands. Video Watch the sinking value of guzzlers »

The No. 1 reason for the sales slump is soaring gas prices, says Peter Brown, the executive director of Automotive News, the trade newspaper for the North American car industry.

For the first four months of this year, truck and SUV sales are down a collective 24.8 percent. SUV sales plummeted 32.8 percent while pickups dipped 19.9 percent, he says.

"If gas prices stay where they are at or continue to rise, the body-on frame SUV is an endangered species and the pickup truck as a personal car is an endangered species," Brown says.

How do owners react when they're told their once-$40,000-plus vehicles are now worth less than half that?

"When they find out what you think their truck is worth, they think you're trying to rip them off or something," says Fernandez. "Small cars are gone within a week; SUVs are sitting here since last summer."

David Lavi, the owner of a Toyota Tacoma pickup, is feeling that pinch. He put his truck on the market several weeks ago in hopes of downsizing. He bought it brand new in 2006 when gas prices were much lower.

"Once I do sell it, I'm going to get a smaller car -- maybe a Nissan Maxima or something smaller," he says.

He's hoping to get $23,000 for the fully loaded truck, which is higher than the estimated Kelley Blue Book value of $15,000 to $19,000 depending on how many amenities it has.

"No one has offered what I want," he says.

Automakers have noticed this trend to downsize.

Ford announced Thursday it was shifting production away from its longtime hallmark of pickups and SUVs in favor of smaller cars.

In making the decision, Ford said it believes gas prices will remain in the range of $3.75 to $4.25 a gallon through the end of 2009.

"We saw a real change in the industry demand in pickups and SUVs in the first two weeks of May," Ford chief executive Alan Mulally said Thursday. "It seems to us we reached a tipping point."

Brown of Automotive News said he wouldn't be surprised if General Motors and other automakers follow suit.

According to AAA, gas prices reached another all-time high Friday, with the national average price for a gallon of regular unleaded gasoline at $3.87. Seven states are now over $4 a gallon, AAA says.

Stories of owners ditching larger vehicles for smaller ones have started to become widespread. Owners say they're tired of spending as much as 80 to 100 bucks to fill up their tanks.

Some CNN.com users recently shared their stories of buying used Geo Metros -- the oft-maligned, snail-sized car from the 1990s that gets gas mileage similar to a hybrid of today for a fraction of the sticker price.

"I used to be a car snob, and I used to be too vain to drive anything that doesn't shine," said Marci Solomon, an electrician who has a 100-mile commute to and from work. "But now it's about, do I want to eat, or do I want to make it to work? I want to do both."

But some auto experts caution owners against trading in their SUVs and trucks to save money at the pump because it may not be the wisest financial decision.

Owners might owe $20,000 or more when the vehicle is now worth $12,000. It's similar to an upside-down mortgage, and it may not make sense to try a trade-in.

"What they might be doing is spending thousands of dollars to save hundreds," says Jack Nerad, the executive director of Kelley Blue Book's kbb.com.

"Because if you make a trade, you're most often going to spend more to make that move than you would just sucking it up and paying the extra gasoline prices."

Back at the Los Angeles lot, Fernandez says he thinks the trend away from SUVs and pickups is here to stay.

"Just when you think that it's going to change any day now, it doesn't. It just continuously gets worse," he said.

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