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Wednesday, May 07, 2008 3:46 AM


Death of the SUV


As energy prices soar, Frustrated owners try to unload their guzzlers.

Americans are turning away from the boxy, four-wheel-drive vehicles that have for years dominated the nation's highways. Sport utility vehicles and pickup trucks - symbols of Americans' obsession with horsepower, size, and status - are falling out of favor as consumers rich and poor encounter sticker shock at the pump, paying upward of $80 to fill gas tanks.

The sale of new SUVs and pickup trucks has dropped precipitously in recent months amid soaring gas prices and a weakening economy: SUV sales for the month of April alone fell 32.3 percent from a year earlier and small car sales rose 18.6 percent. This fundamental shift comes against a backdrop of relentless gas increases, and growing concerns over the environment and US oil consumption, according to auto analysts and car dealers.

"The SUV craze was a bubble and now it is bursting," said George Hoffer, an economics professor at Virginia Commonwealth University whose research focuses on the automotive industry. "It's an irrational vehicle. It'll never come back."

With stocks of unwanted new SUVs and pickups piling up at dealerships across the country, automakers are offering unprecedented promotions. Incentives for large SUVs, including cash rebates, topped $4,000 in March, or more than double those offered in March 2002, according to Edmunds.com, which monitors the motor industry.

Herb Chambers, who owns more than 40 dealerships across Massachusetts and Rhode Island, said the incentives offered on new SUVs are pushing down the value of the used vehicles, and increasingly, he is taking a loss on SUV trade-ins at his various dealerships, which include everything from Chevrolet to Jeep to Mini.

"The incentives have never been higher than they are today for the large SUVs and small pickup trucks," Chambers said. "I don't know how factories can make any money for these cars." "Having SUVs as an everyday commuter car is largely going away," Chambers said.

Jon McHugh, of Swampscott, is celebrating the last payment on his 2003 Acura MDX by putting the SUV up for sale. "I don't need this much space," McHugh said of his SUV. "It just seems ridiculous."
Good Riddance

CNNMoney is reporting Goodbye SUV, hello small cars.
Sales of large SUVs plummeted 28% in the first quarter this year, while subcompact sales rose 32%, according to Autodata Corp. Thriftier four-cylinder engines, once despised by Americans for their perceived lack of power, are selling in record numbers.

April sales results to be released on May 1 are likely to show an even more pronounced shift, predicted Jesse Toprak, chief industry analyst for the auto information site Edmunds.com. "That's simply a function of the dramatic increase in oil prices that we've seen in the last few weeks."

The trend away from SUVs started well before gas prices began climbing in 2005, in part because of the introduction of "crossover" vehicles - those with SUV styling but built on the more nimble and fuel-efficient car chassis. SUV sales peaked at 3 million in 2003; they're expected to fall to half that number this year, and the change caught Detroit unprepared.

"It happened too rapidly for the American automakers to take sufficient action," said Aaron Bragman, an auto analyst for the Waltham, Mass.-based consulting firm Global Insight. For example, 74% of the vehicles Chrysler sold in the U.S. last year were trucks and SUVs, compared to 42% at Toyota Motor Corp.
My Comment: Any change will catch GM or Ford off guard as both companies are always behind the curve and slow to adjust to trend changes even though this was easy to spot years ago.
Now owners of SUVs and other gas guzzlers who've seen the price of a fill-up climb sharply are getting a second shock when they try to trade in their behemoths. Used car dealers don't want the big vehicles on their lots anymore because hardly anyone is buying them. Some won't take them at any price.
My Comment: SUVs are headed for the scrap heap of history and the scrap heap at the junk yard where they belong.

Demographics also play a role. Baby boomers are trading in larger vehicles as their nests empty, and their children are now of car-buying age. Half of the next generation will pick small cars for their first set of wheels, said George Pipas, Ford's top sales analyst.

"Gas prices are important because they've accelerated these shifts, but the shifts were going to happen anyway," Pipas said. "SUVs were not going to roam the Earth in this decade as they did in the 90s."

My Comment: "Shifts were going to happen anyway." Exactly. Nonetheless this was too hard for GM to figure out even one month ago.

Menicocci, a resident of the upscale Miami suburb of Palmetto Bay, recently placed his 2003 Chevrolet Tahoe with leather seats and 39,000 miles for sale on Craigslist for $16,000 -- roughly $2,000 less than what his research determined was the Kelley Blue Book value.

He bought a 2003 Kia Spectra for $5,000 because he was tired of paying so much for gas with his heavy Tahoe. "I was wasting $30 a day compared to $10 a day," he said.

"Everybody is like, `What is that? Is that the maid's car?"' said Menicocci, who sells marble and granite for a living. "But I don't care. At this point, I'm way past looks and appearances."
My Comment: "I'm way past looks and appearances" says it all. Attitudes have changed dramatically.

Flashback April 2, 2008
GM says still expects second-half U.S. recovery

March Auto Roundup And Retail Sales Forecast
General Motors Corp still expects the U.S. economy to recover in the second half of 2008, pulling industry-wide auto sales higher, an executive said on Tuesday.
GM sales analyst Mike DiGiovanni, speaking to reporters and analysts on a conference call, said he saw "early signs" that the U.S. market was steadying.

My Comment: Is this some kind of April Fool's Joke?

Separately, GM North American sales chief Mark LaNeve said GM's inventory of full-size pickup trucks was "more than adequate" despite a five-week-old strike at supplier American Axle & Manufacturing Holdings Inc that has idled 30 GM plants.

My Comment: And it will be more than adequate if the strike lasts another 15 weeks. Who wants full sized pickups? GM ought to be thankful for that strike or they would be ramping up for a nonexistent second half recovery.
Some SUVs, especially the Hummer are so ugly I still cannot fathom anyone buying one. I guess at one point it was some sort of status symbol as in: "Hey look at me... I can drive a huge, ugly expensive car that looks like a big yellow box on wheels and costs a fortune to fill up." That's status alright.

Things have changed, abruptly and for the better. Status symbols are out. Cool to Be Frugal is in. A secular trend in downsizing is underway. Wall Street has still not caught on. Profits are not coming back.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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