The Ford Expedition tows more than five tons, comes with three rows of seats that carry nine people comfortably, and has a 44-gallon gas tank that costs about $100 to fill.
With the price of gas more than 50 cents higher than it was a year ago and over $2 a gallon in many parts of the country, consumers are finally moving away from large and luxury SUVs like the Expedition and Hummer H2. And the evolution away from the "biggest is best" mentality is starting to depress vehicle values, especially on used car lots where inventories are starting to grow and prices are falling.
If you've been in the market for a pre-owned large SUV, especially as a secondary vehicle to use on vacations, help with hauling or moving the kids back and forth to the sports field -- or all the way to college -- this summer will bring some great deals. And by thinking used, the $10,000 you'll save over the price of a new model is more than enough to help offset the high price of fuel on a vehicle you won't be refueling every week anyway.
"Anyone who has liquid net worth knows, you should never buy a new car," said James Walsh, co-author of
Smart Wheels, Hot Deals: Buying, Leasing and Insuring the Best Car for the Least Money.
"Buy a car that's two years old and, as long as you do your due diligence to make sure the car wasn't driven by a maniac, you'll be in good shape."
You'll be in even better shape if you buy a certified pre-owned vehicle, which is examined by an automobile manufacturer who also extends warranty protection to ensure you don't get a lemon. Experts say start shopping now with a plan to buy in the coming months. Gas prices may have been climbing throughout 2004, but the national average price of a gallon of gas has only been above $2 for two weeks.
Consumers are starting to rethink their purchases. A monthly study by Harris Interactive and Kelley Blue Book showed that skyrocketing gas prices caused nearly 40% of car shoppers to change their minds about what car they wanted to buy during the month of April. And an early peek at still-unreleased May data reveals that number could climb past 50%.
But while consumers are growing more concerned about gas prices, they're only trading down, not out of the segment altogether. People are opting for pre-owned versions of gas guzzlers like the Lexus RX 330, which gets 20 to 26 miles per gallon, according to estimates from the Environmental Protection Agency, instead of a gas glutton like the Chevy Suburban, which gets 14 to 18 miles per gallon.
"People looking at large SUVs are going into smaller ones," said Art Spinella, vice president and general manager of CNW Market Research, which tracks automotive data. "That's why we've seen the price of a large used SUV drop 7% in the last month -- more than twice what you'd expect."
Indeed, while prices for the overall used car market rose 2.4% during the month of April, according to CNW's data, fuel-sucking luxury sedans, premium sports cars, full-sized vans and mid-range SUVs all saw their values fall more than 4% from last year. The best performers were slightly more efficient, but still large. Sport wagons, mid-range cars and minivans all saw their values gain more than 4% from last year.
And with demand starting to wane for both new and used versions of the largest SUVs, dealer inventories are growing. According to CNW, used car lots are sitting on an 85-day supply of large SUVs, nearly twice the preferred level.
The Summer Slump
For an industry that struggled mightily to burn off excess inventory with deep discounting in the two years following the World Trade Center attacks, the slumping demand has prompted automakers to push discounts on new cars again, which is having an outsized impact on the price of used cars. In May,
twice boosted discounts on SUVs and now offers a $5,000 rebate on the GMC Yukon, a staple of the large SUV segment. Others have followed suit.
"For every dollar they reduce on the new side, it reduces that used side by $1.05, so it's not helping the used values at all," Spinella said. "We've seen defections from the large SUV class. Defection rates are usually 10% at most, but it's been between 35% and 40% for the last two-and-a-half years."
Many expect the trend to continue as the reality of filling up huge tanks hits home over this summer, a time when gas prices could soar again because of high demand and tight supply. Last year, according to data from the Energy Department, the average price of gas in the U.S. jumped from $1.47 a gallon in the first week of June to $1.75 a gallon in the first week of September -- a nearly 20% increase.
Furthermore, with so many Americans squeezing their budgets over the last three years to get into one of these large SUVs -- a fully loaded 2004 Excursion has a list price of $43,210 -- the uptick in gas prices could be a tipping point that drives the downsizing trend.
"Unquestionably, aggressive financing has been getting people into cars they cannot afford," said Walsh, the author. "If you're pushing limits to get into a car already, those guys are the most sensitive to price increases. It won't show up immediately, but I think you'll see a major flight in leases out of SUVs."
Getting the Best Deal
The takeaway: We're in the early stages of a new cycle that will further depress used car values -- and could create some remarkable deals as the summer goes on. As car shoppers shun large SUVs, inventories will grow and car dealers will get more desperate to offload the glut. To get the best deal, show up with your checkbook in hand and be prepared to walk away if you can't get the price you want.
"The advice we hammer home all the time is don't finance a car, pay cash, especially for a used car," said Walsh. "Go in and negotiate aggressively. These decisions are based on the inventory they have. Try to wait until August. If I didn't just buy a car, I'd be doing that myself."
Even with gas at $2 a gallon, if you can easily afford a large SUV, fuel costs aren't likely to break the bank. While it may cost $100 to fill up that Excursion, which gets about 14 miles per gallon, according to an estimate from Automotive.com, (the vehicle is so large the EPA doesn't keep estimates on it) you'll be able to drive it about 600 miles before you'll need to fill up. That's enough to take the family on an occasional road trip.
"People used to have one car, then they had a car per person, but now cars are for activities," said Charlie Vogelheim, executive editor of the Kelley Blue Book. "If you have a big rig reserved for trips, you're not driving it on 70-mile commutes and you're not changing your lifestyle. If you're going to the lake, you're not going to stay home because of gas prices."
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