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Lower SUV values clog car sales
| Saturday, Aug 9 2008 12:00 PM
Last Updated: Monday, Aug 11 2008 1:39 PM
Take a look at the repo vehicles for sale outside Kern Central Credit Union’s H Street offices, and a troubling pattern appears.
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June 2008
Total vehicles sold: 1,921
Small SUVs: 149
Compact SUVs: 224
Full-size SUVs: 103
June 2007
Total vehicles sold: 2,281
Small SUVs: 164
Compact SUVs: 324
Full-size SUVs: 299
KERN VEHICLE LEASES
June 2008
Total leases: 402
Small SUVs: 17
Compact SUVs: 40
Full-size SUVs: 13
June 2007
Total leases: 404
Small SUVs: 6
Compact SUVs: 59
Full-size SUVs: 31
Source: The Kentucky-based Cross-Sell Report
Photos:
A row of SUVs for sale at the Kern Central Credit Union at 21st and H streets.
Graphics:
SUV average wholesale auction price. Source: National Automobile Dealers Association and the National Auto Auction Association.
Passenger cars average wholesale auction price. Source: National Automobile Dealers Association and the National Auto Auction Association.
Not only was everything on the lot last week a “gas-guzzler,” in the words of collections supervisor Eloy Rangel. In a lineup that normally tops out at three, five of the seven vehicles up for bid happened to be SUVs.
Clearly sport utility vehicles are not the hot item they were in Kern County as recently as last summer. But worse, their sharply lower resale value has become a big liability to lenders and new car dealers, not to mention SUV owners themselves.
The problem typically surfaces when SUV owners show up at a new car lot hoping to trade in their vehicle and drive off with a more gas efficient passenger car. Suddenly they’re told the SUV isn’t worth what they still owe on it — an increasingly common problem called negative equity.
SUV owners are often shocked to learn their vehicles have depreciated so quickly, said Richard del Rosario, a sales manager at Motor City Auto Center. Often their reaction is to blame the dealership.
“We’ve never had so many people leave our dealership so upset (with) the value of their new vehicle,” he said.
“... We can’t help the fact that the market is what it is right now on new SUVs.”
BIG LOSSES FROM REPOS
Just as many homeowners are walking away from houses they can no longer afford, many SUV owners are letting banks and credit unions repossess the vehicles — which results in a financial loss averaging $10,000 to $20,000 for lenders such as Kern Central, said Rangel at the credit union.
Large numbers of SUVs on the market locally mean lenders often end up shipping some of the vehicles to auctions. There comes the hit: The national average wholesale auction price of an SUV fell to $13,508 in June, down 24 percent from March 2005’s average, according to data from the National Automobile Dealers Association and the National Auto Auction Association.
Over the same period, the average auction price of a passenger car rose 8 percent to $13,244, the associations’ data show.
Industry observers said both auction trends show consumers are coping with higher gas prices by getting out of SUVs and into more fuel-efficient cars.
SUVs’ waning popularity is pronounced even in Kern County, where in June 2007 they comprised 35 percent of all vehicles sold. By June of this year their share of all sales was down to 25 percent, according to local numbers from the Cross-Sell Report.
The shift is more dramatic among full-size SUVs, which over the same 12-month period declined from 299 sales a month to 103, Cross-Sell reported.
HIT FOR DEALERS, BUYERS
Local auto dealers say the prospect of carrying over the old loan balance to payments on a new car is often a deal-breaker.
“Whatever you save on the gas, you’re paying it on payments to the new car,” Haddad Auto Center owner Chuck Haddad said.
Haddad and others working in local vehicle sales urged patience, emphasizing that SUV owners’ fortunes could turn around quickly if gasoline prices continue to moderate.
But coming as it has during a general economic slowdown, negative equity among SUV owners is a double hit for car dealers, who in Kern County face sales about a fifth slower than a year ago.
“If they’re losing value, then (SUV owners) have less purchasing power in the new car market,” said Paul Taylor, chief economist for the National Automobile Dealers Association.
SUV owners aren’t the only ones having a harder time getting a car loan these days. Lending standards are tightening everywhere, largely because of financial losses lenders have suffered in the SUV market, said David King, director of consumer lending at Kern Schools Federal Credit Union.
Car money is still readily available to people with strong credit, King said, but those with lower credit scores face new hurdles such as higher down payments.
In addition, the price of a new car, when added to the amount some buyers still owe on the SUV they want to trade in, often exceeds the caps that some banks and credit unions will lend on new vehicles.
“It’s definitely harder to get a loan than a year ago, year and a half ago. We feel it, too, absolutely,” King said.
Demand for SUVs has not dried up completely. Local car dealers and lenders point out that SUVs remain essential for many large families, as well as people who need to tow a trailer or a boat and workers in industries that require the power and storage area that such vehicles provide.
For them, now’s a great time to purchase, said Dan Hay, general manager of Jim Burke Ford.
“The real buy is some of the stuff that’s been traded in,” he said. “Because it’s a great value.”