Auto dealers put brakes on SUV and truck trade-ins

Monday, June 23, 2008

Pam Allen - The Business Review

Nick Erondy isn't taking SUVs or pickups as trade-ins anymore.

The deal-breaker came in April when gas prices hit $3.50 a gallon. That's when large-vehicle purchases at Crown Motors in Schenectady came to a standstill.

Customers want cars with better fuel efficiency. But Erondy, a used car dealer, can't afford to take on any more gas-guzzlers.

"I have to just tell them 'no,'" he says. "I'd have to be stupid to sell them a nice little car and accept something I'm going to keep until Christmas."

Erondy isn't alone. As people adjust their driving habits to cut fuel costs, oversized vehicles are overtaking car lots.

Mangino Auto Group discourages pickups or SUVs for trade at its Pontiac-Buick dealership in Ballston Spa. Oddly, truck sales at the family's Chevrolet store in Amsterdam are faring better than expected in a fuel-conscious economy.

"It's a crazy time right now," said Ralph Mangino Jr., sales manager at Mangino Pontiac-Buick. "I've never seen anything like it."

Truck sales began falling months ago with the slowing in residential construction. Nationally, the sale of used SUVs plunged 14 percent in April, according to the most recent data available through CNW Marketing Research. That number compares with an 8 percent drop for the same month last year. Truck sales dropped 8 percent in the same period.

Trade-in values for both SUVs and large pickups have also plummeted.

Mangino advises shoppers to consider the equity in their vehicles and weigh it against the trade-in and potential gas savings before deciding to downsize.

"If we do take the trade-in, the amount is so far behind book [value] or average wholesale, that it's almost not worth it for someone," Mangino said.

SUVs became popular in the late 1990s when gas was cheap, the economy was solid and the housing market was booming. Consumers began moving away from them a few years ago as baby boomers aged and consumers turned to more fuel-efficient crossover vehicles. Gas prices accelerated the trend.

People who owned pickup trucks because they need them occasionally are also rethinking their priorities.

"Guys who are buying trucks now are buying them because they need them to do their work," Mangino said.

According to the U.S. Labor Department's May Consumer Price Index, gasoline prices rose 5.2 percent, up 21 percent compared with a year ago.

Earlier this month, General Motors closed four pickup truck and SUV factories. The company also is considering selling its Hummer brand.

The shift to smaller vehicles indicates people anticipate higher fuel prices, said Donald Metzner, president of Armory Chrysler Jeep in Albany.

Consequently, the value of larger vehicles has declined as gas prices rise.

"In the last couple of months, they've dropped faster than they can publish the [automotive pricing] books," said Metzner, whose dealership had $80 million in sales in 2007, according to the latest Business Review list of automotive dealerships.

Armory still takes trucks and SUVs as trade-ins; the question is whether customers will take the trade-in values they're offered.

Generally, a 3-year-old pickup today is worth $2,000 to $3,000 less than it was a year ago, according to AutoNation Inc., the country's largest new-car retailer.

One of Metzner's customers weighed the reduced trade-in value against the fuel savings of a smaller vehicle. He decided to cut his losses, taking the lower trade in exchange for substantial gas savings.

The customer had been driving a 2006 full-sized Ford F-250 pickup that was getting 12 miles a gallon. He bought a 2008 Jeep Patriot, a small SUV that can average 26 miles per gallon. He calculated he'd save a $100 a week in gas, which covered his monthly car payment.

"Trade-ins don't make sense in some cases. In this case, it did," Metzner said.

It's even more difficult to recover fair value on SUVs, as people tend to buy them for status rather than necessity. With gas prices soaring, the market is softening and buyers are turning to fuel-efficient hybrids and crossovers.

According to Kelley Blue Book, which provides universal vehicle pricing, SUVs depreciated between $3,000 and $5,000, or 6 to 8 percent, in the last six months. Such a depreciation is usually seen over 12 to 18 months, the company reported.

Owners of large SUVs and four-wheel-drive SUVs may want to hold on to them, experts caution, as depreciation is expected to slow. They also expect an uptick in buyer interest in them as winter approaches.

"Hanging on to your current vehicle and riding out the current gas prices could be the most economical answer," said Jack J. Nerad, a market analyst with Kelley Blue Book.

SUV owners should do the math before determining whether to sell or not, Nerad said. They could owe more on their loans than the vehicle is worth, and that difference should be balanced against the new loan payment, acquisition and insurance costs for the new vehicle, and potential monthly gas savings.

The glut of SUVs puts one consumer market in the driver's seat.

"For people who still need the function of an SUV, it's a great time to buy," said William Lia Jr., a partner with Lia Auto Group, the area's largest car dealer.

Lia Auto still takes trucks and SUVs on trade, Lia said, "provided we can make the economics work." The company sells Hyundai, Honda, Kia, Nissan, Toyota and Infiniti from locations in Albany, Latham and Schenectady, and had $302 million in sales in 2007, according to The Business Review list.

Many large SUVs are being shipped overseas, where they are recognized as a novelty.

"Foreign dealers have been very responsive to what's going on here," Lia said.

Today, there are very few outlets in this country for larger vehicles. Pickup trucks and SUVs were hot commodities at U.S. auto auctions, but gas prices turned the tides.

"Those guys don't even want them," Mangino of Mangino Pontiac said. "That never, ever happened before. Truck after truck after truck can go through, and nobody's even raising a hand to bid on them."