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The death of the SUV

Jeff Tyler Jun 23, 2008

The death of the SUV

Jeff Tyler Jun 23, 2008


Tess Vigeland: You may not be able to hold the phone while you’re driving, but at least for the rest of this year you might get better mileage reimbursement. The Internal Revenue Service says because of the hike in gas prices, it’s raising the reimbursement rate by eight cents a mile for the last six months of this year.

Those high gas prices are a major reason for what some are calling the demise of the SUV. Starting today and for the next nine weeks, Ford is shutting down a factory that makes large SUVs. The company can’t afford to produce more Expeditions and Navigators when it’s already sitting on massive unsold inventories. General Motors is also closing factories that produce pick-ups and SUVs.

Marketplace’s Jeff Tyler has more.

Jeff Tyler: Pickup trucks and SUVs had been cash cows for American car makers. Not any more.

Jack Nerad: The fuel crisis that we’re in is a disaster for the domestic car makers. This is altering their production and profit picture very, very significantly.

That’s Jack Nerad, executive editorial director at Kelley Blue Book. He expects manufacturers will be forced to offer deep discounts or special financing to motivate folks who have begun to look at the gas guzzlers as money pits.

It’s a radical shift in consumer demand. Lee Fishbein is president of Worldwide Auto Brokers. He works with the Range Rover dealership near Aspen, Colorado. A year ago, he says their SUVs were so hot they didn’t last on the lot.

Lee Fishbein: Now they’re, I would say, bursting at the seams with inventory. Their business from last year, same period, is down approximately 70 percent.

Consumers who own SUVs are also finding it hard to unload them. Jack Nerad says the used market is equally depressing.

Nerad: We’ve seen their depreciation virtually double over the course of the last eight to 10 months. It’s been a very rapid decline in these vehicles.

SUV resale prices are starting to sound like fire-sale prices.

Abe Bijaripour: You see them going through the auctions for 30 percent or 40 percent below their market value.

That’s Abe Bijaripour, an auto broker with Trade-In Solutions. We spoke while sitting in the company’s Dodge Caravan. Bijaripour says some dealers have stopped taking such fuel-hungry six-cylinder and eight-cylinder vehicles.

Bijaripour: I’ve actually had people that went into dealers they purchased their car from originally. When they went back to them, they tried anything just to get out of buying it back from them.

Bijaripour sells some second-hand SUVs abroad. Hummers are still popular in Russia, where the weak dollar makes them look like a bargain.

Broker Lee Fishbein has been trying his luck at auto arbitrage.

Fishbein: I bought an ’06 Hummer. You know, that car sold for $60,000 brand-new. It had 8,000 miles on it. And I was the highest bid in the city of Denver at $25,000.

Fishbein managed to sell it for a small profit, but many dealers haven’t been so lucky.

Fishbein: My honest feeling is there’s going to be some sort of attrition as far as dealers go. I think you’re going to see some of them go out of business. You’re going to see some consolidate.

These tough times can work to a consumer’s advantage. Rental car companies, for example, have large fleets of SUVs. Because they’re unpopular, SUVs are being rented at a big discount.

Kelley Blue Book’s Jack Nerad recently shaved $100 off his rental car bill.

Nerad: When I took the discount for taking a minivan, it was a significant savings and more than paid for any amount of gasoline that I would purchase.

It’s a good deal if you’re not driving far. But some consumers complain of never being given an option. At the rental car counter, they find their reservation for an economy-sized car has been “upgraded” to an SUV. Let’s just say it’s not generally a pleasant surprise.

In Los Angeles, I’m Jeff Tyler for Marketplace.

Vigeland: And here’s one more way to get SUVs off the lot: Offer zero percent financing. Reuters reports GM is doing just that.
No interest for six years on all pickup trucks and SUVs starting tomorrow and through the end of the month.

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