As we mentioned previously, the U.S. vehicle market is about to be hit with a tsunami of off-lease SUVs. BusinessFleet is putting numbers to the news, courtesy of CNW Research's latest Retail Automotive Summary. They estimate 800k SUVs will come off lease this year, with a similar number expected next year. What makes those numbers so horrifying: residuals previously figured at 51 percent of original capitalized cost are now closer to 34 percent– assuming no further drop in value. CNW president Art Spinella estimates "that difference translates into more than $6,100 per unit in missed residual values or $4.88 billion." He estimates next year's figure could be as high as $4.74b. That's a lot of money for someone to absorb. SUV buyers note: even without GM zero percent offers on slow-selling trucks and SUVs (i.e. all of them), this is The Mother of All Truck Buyer's markets. And you've got plenty of time to shop.
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At $5/gal gas, a vehicle that gets 18 MPG combined costs $27,778 to drive 100k miles. A midsize car getting 28 MPG combined would cost $17,857.
So… slash $10k off what one of these would have fetched before gas skyrocketed, and you’ve made up for difference in fuel economy over a sensible vehicle.
Something to think about. I betcha lightly used SUVs that used to fetch $20k can now be had for $10k (the $6100 figure in the article notwithstanding).
Sounds like a ripe market for manufacturers of lightweight, V8-powered all-wheel-drive kitcars that get a bit more than 12mpg. Buy a kit for 5k, buy an SUV for 5k, have yourself a monster 2-seater and a big pile of leftover steel. That’s about the only reasonable use I can think of for those things, other than shipping them off to Africa (and collapsing their markets as well)
These cars can probably be sent to South America or the middle east where oil rich countries have cheaper gas prices than us.
How about cheap SUVs for every Iraqi family? I think their gas is still subsidized like most other ME countries, and nothing builds food will like discount blingmobiles, right?
Down here, yeah, gas is waaaaaay cheaper, but… not in every country.
Also, we have restrictions on new cars imports. And used cars are even more restricted.
Maybe middle east countries could be flood with them… then we could see nice crazy arabian SUV drifting videos with massive rollovers in youtube, Cool!!!!
I saw an Expedition on a used car lot the other day for $4899. It’s hard to comprehend that I could buy a giant truck for less than $5000, but a used Civic or a Corolla of the same year would probably be at least double that price. Right now is definitely a good time if you actually need a truck.
I saw an Expedition on a used car lot the other day for $4899. It’s hard to comprehend that I could buy a giant truck for less than $5000, but a used Civic or a Corolla of the same year would probably be at least double that price. Right now is definitely a good time if you actually need a truck.
Holy crap. You could buy that, AND a used camper for it to tow, and STILL have plenty of money to blow on gas, when you compare to what these things went for the good ol’ days.
Supposedly the lenders are so upside down on the residuals that they are not even bothering to repo SUVs. The asset depreciation isn’t booked until they repo the cars, so to keep their bottom lines looking better they are simply not taking back the cars.
If you are buying a cheap SUV now, unless you plan to drive the wheels off of it, you should factor further extreme depreciation into your calculations.
We are looking at a Commander or a GC. V-6. Saw two with under 45K miles, 2006 models, 12,999.
Now is the time to buy, or actually wait a few months, it is going to get worse for a little while before it gets better.
@Axel
Unless said Expedition has a 4.6L V8 under the hood. In which case it barely has enough umph to get out of its own way, let alone be able to actually tow anything.
Actually Alex, when Chrysler goes TU, it might be $1,299.99.
The price erosion seems to be more extreme on the larger vehicles.
The unibody cute’ute Liberty/RAV4/CR-V/Escape end of the market sees to be holding a bit better.
Man I feel bad for the lady who asked for buying advice on those car and SUV’s and ended up buying her college kids a Grand Cherokee for like $14 or 15 grand. It will probably be worth half as much by the end of summer, especially after Chrysler goes bye-bye.
Talk about great timing I wanted to get a nice sporty wagon cause we need the space but the way prices are going I am leaning more and more for a used SUV or crew-cab truck. We will see if they are dirt cheap enough by the end of summer. Any suggestions on a fun to drive AND going for peanuts truck/SUV. Well as fun as that class gets.
Dang! I was a year too early in getting a used Expedition (although we needed it badly at the time, the old van had just about crapped out). At the time $9,000 looked good for a high mile 2000 Eddie Bauer, 5.4 V8, all set up for towing with brake controller and air suspension. Will have to look to see what they are going for now.
I suspect that the captive auto finance units are going to take the bulk of this hit. GMAC, Ford Motor Credit and Cerberus are looking at even more write downs.
Speaking of residuals, I bet they are falling for large luxury cars as well.
Redbarchetta :
July 1st, 2008 at 3:01 pm
Man I feel bad for the lady who asked for buying advice on those car and SUV’s and ended up buying her college kids a Grand Cherokee for like $14 or 15 grand. It will probably be worth half as much by the end of summer, especially after Chrysler goes bye-bye.
Well, at least everybody on this board (myself included) thought she was nuts to get them a SUV instead of a small hatchback. If she didn’t take her advice, that’s her fault. It sounded like she had the “SUVs are more safe” mindset and probably wouldn’t budge, and she was merely asking about which SUV to buy.
Axel :
At $5/gal gas, a vehicle that gets 18 MPG combined costs $27,778 to drive 100k miles. A midsize car getting 28 MPG combined would cost $17,857.
So… slash $10k off what one of these would have fetched before gas skyrocketed, and you’ve made up for difference in fuel economy over a sensible vehicle.
Something to think about. I betcha lightly used SUVs that used to fetch $20k can now be had for $10k (the $6100 figure in the article notwithstanding).
The only disagreement I have here is that you should do your calculation with a different price-per-gallon. I think your SUV will likely cost a LOT more to fuel at the end of your expected ownership period than at the beginning.
My main reason for this is that fuel has gone up over 40% in one year.
All the hot air in DC notwithstanding, I haven’t heard anything about any actual BILLS being written or voted on to authorize new drilling off the intercontinental shelf, the Gulf of Mexico, or on federal lands.
The Saudis are pumping at or near their maximum capacity, as are other major oil producing nations. And demand in China and India continues to grow.
Therefore, I think your calculation should take into account the average expected-ownership of such a vehicle, and an average price per gallon of gas, figuring a 20%-50% (a wide range, I know, but you could begin by splitting it right down the middle at 35%) increase in fuel each year over the course of that time you’d own the vehicle.
Don’t assume that gas today will stay at $5 when you’re doing your cost-benefit analysis on an off-lease SUV. Gas that is $4-$5 today may well increase to $6 by next summer. And $9 a year later. And $13 a year after that. A three-year average price per gallon might be closer to $7 or $8, making your cost to drive 100,000 miles (if you do it in that three years) something between $40,000 and $45,000.
Don’t underestimate a future rise in fuel costs, or you may make the same mistake that everybody else has already made thus far.
“All the hot air in DC notwithstanding, I haven’t heard anything about any actual BILLS being written or voted on to authorize new drilling off the intercontinental shelf, the Gulf of Mexico, or on federal lands.”
And even if such legislation were passed, it would be years (perhaps decades) until any new supplies made it to market. The explosive economic growth of China and India is almost certain to swamp any global oil supply increases, assuming they are even possible. Transitioning away from oil as the US’ primary source of transportation energy is imperative.
If you were to think about real long term investments, then this is a good time to buy a top spec or special edition luxury SUV (H2, Escalade, Cayenne Turbo, Range Rover etc). and just parking it in the garage for say…50 years, then auctioning it off Barret Jackson for a nice profit (Think of the H2 as this century’s Edsel).
One of my share brokers is predicting $80 oil next year, on the back of a global sort-of-recession.
The latter makes it not perhaps the ideal time to buy a car, but I must admit, I’m watching freefalling prices of second hand 4x4s with great interest. Worst case scenario, convert it to LPG.
In the next year or so, the largest gasoline refineries in the world will come on line in India. It’s designed to refine, high sulfer, “sour” crude. Remember, the high spot oil price is for easy to refine sweet crude. Much of what the Saudis and Iranians pump is sour, and hard to refine. Sour crude is significantly cheaper than sweet crude. The new Indian refinery is planned around exporting gasoline to Europe and the US and some analysts say that when it comes on stream the price of gas should drop about $0.60/gal.
And even if such legislation were passed, it would be years (perhaps decades) until any new supplies made it to market.
Not decades, about five years. Drilling in ANWR and on the continental shelf, plus developing shale and tar sands is estimated at meeting 5% of our needs. People like you say this won’t affect the price of oil. Tell me, if it was anticipated that supplies would be dropping by 5%, do you think this would drive the price of oil futures up or down? Of course it would drive them up. I don’t see how increasing the oil supply by the same amount wouldn’t have the opposite effect of driving futures prices down.
Open up drilling, commit to building more nuclear plants (including research funding for the Brussard fusion reactor), and developing shale and tar sand petrochemicals are exactly the kind of long range planning we should be doing and exactly the kind of signals to the commodities markets that will put downward pressure on oil prices.