SUV Sales Get Stuck in Mud

Terrible 2008 SUV sales are prompting speculation that the once-popular segment might be permanently stuck in the mud. Overall light-vehicle sales were down 18% last year to 13.19 million units compared with 16.08 million the year before, according to Ward's data. But SUV sales took a 39.3% plunge, going from 1.91 million units in 2007 to 1.16 million in 2008. Middle SUVs was the biggest segment loser,

Terrible 2008 SUV sales are prompting speculation that the once-popular segment might be permanently stuck in the mud.

Overall light-vehicle sales were down 18% last year to 13.19 million units compared with 16.08 million the year before, according to Ward's data.

But SUV sales took a 39.3% plunge, going from 1.91 million units in 2007 to 1.16 million in 2008.

Middle SUVs was the biggest segment loser, with sales sinking 45% in 2008. By comparison, midsize cross/utility vehicle sales were off 6.8%.

“People are moving out of the midsize SUV market completely and going to CUVs,” says Matt Traylen, senior director for Automotive Lease Guide. “What people don't want now is anything with ‘SUV’ in the name.”

Car-based CUVs look like SUVs but offer a smoother ride and nimbler handling than SUVs built on truck platforms.

SUVs had their heyday in the 1990s and into the early years of this decade, when fuel prices were relatively low. What SUVs lacked in fuel economy they made up in bulk and roominess. They also offered off-road capability, even though few owners put them to the test.

When fuel prices spiked in 2008, reaching $4 per gallon, SUVs took a punch, from which they didn't recover. Among the segment's hardest hit were the Hummer H3 (down 50.8%), Dodge Durango (off 52.9%) and Nissan Armada (down 50.4%).

Despite SUVs' touted ruggedness, there is an impractical side in their everyday use by most owners, Traylen says. Eighty percent of people who buy SUVs don't use them as SUVs.

“They don't go up mountains or off-roading. They take their kids to school and go to the grocery store,” he says. “A lot of people are waking up and asking, ‘Why did I buy this vehicle?’”

Ironically, fullsize SUVs, the segment's biggest gas guzzlers, suffered its smallest 2008 sales decline, although still it was substantial at 36.2%.

“There will always be a market for big SUVs, just not as large a market as before,” Traylen says, noting that the few SUV owners who actually take their vehicles offroad and up mountains tend to drive the fullsize models.

Because midsize SUVs are fast becoming unpopular, it is hard to predict what their residuals will be in two to three years, Traylen says. In contrast, “mid-compact and midsize cars are stable.”

His residual forecasting centers on what vehicles will be worth when they come off lease. Leasing took a hit of its own last year, particularly when Chrysler Financial and Wells Fargo bank abandoned leasing.

“Chrysler pulling out was a bit of a body blow,” Traylen says at a recent Auto Finance Summit. “But Chrysler could return to leasing in a few years, if it sorts things out. When banks leave, they're gone.

“Banks are there to make a profit from leasing, captive finance firms are there to help auto makers sell vehicles. Wells Fargo is not likely to return to leasing.”

If leasing penetration gets too high, as it did during the late 1990s, it creates residual problems for auto makers and excess volume for remarketers faced with waves of vehicles coming off lease.

“Leasing at 30% penetration is too crazy; we saw that,” Traylen says. “Twenty percent is pretty healthy. It had been around that until 2008. It will probably drop to the low teens.”

Smaller regional banks that know their markets may fill the leasing void created by the likes of Chrysler Financial and Wells Fargo, he says. “If any leasing growth occurs, it will be local and small.”

Other predictions from Traylen:

  • This year, like 2008, will be difficult, while “2010 and beyond look better.”
  • Resale values for luxury models will continue to decline.
  • Repossessions will “continue to be problematic for high-priced segments,” hurting resale performances.
  • If new-car incentives increase, it will hurt used-car sales and create a false impression of consumer interest. “If people are paying thousands of dollars less, it's not really a demand.” But, he adds, “U.S. consumers will not pay high prices for cars right now.”
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