SUV Drivers Looking To Downsize Are Hitting Financial Roadblocks
Tuesday, June 03, 2008SUSIE GHARIB: General Motors said today it is shutting down four truck and SUV plants in North America. The factory closings in Ohio, Wisconsin, Canada and Mexico could result in 10,000 job cuts. They are expected to generate an additional $1 billion in cost savings. It's the latest restructuring move by the top-selling U.S. auto maker and once again a move away from big vehicles towards smaller, more fuel efficient ones. GM also announced plans to build a smaller Chevrolet car in Ohio and make the Chevy Volt electric vehicle in Detroit. GM Chief Executive Rick Wagoner said today's announcements are in response to general economic conditions in the U.S. and the unprecedented rise in oil prices.
RICK WAGONER, CEO, GENERAL MOTORS: These higher gasoline prices are changing consumer behavior and rapidly, significantly affecting the U.S. auto industry sales mix. We at GM don't think this is a spike or a temporary shift. We believe that it is by and large permanent.
GHARIB: High gasoline prices were the main reason GM and other U.S. auto makers reported a large drop in vehicle sales during May. Sales tumbled 28 percent last month at GM. And increases in fuel-efficient cars could not make up for soft demand for trucks. Ford sales were off 16 percent. Truck and SUV sales declined the most, with F-series trucks falling 31 percent. Chrysler was down 25 percent but the auto maker says its $2.99 gas promotion boosted showroom traffic. And Toyota sales slipped 4 percent, a reversal for the Japanese auto maker which posted a 3.5 percent increase in April.
PAUL KANGAS: Meanwhile, many consumers hoping to trade in big gas-guzzlers for more fuel efficient vehicles are running into a roadblock. Re-sale values on big sport utilities and pickups are plummeting. As Diane Eastabrook reports, those slumping values are creating yet another problem for the troubled auto industry.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mike Sweeney is caught in an upside down auto loan. Sweeney bought this 2005 Dodge Durango last summer when gas prices were in the $2 a gallon range. Now that prices are double that, he wants to trade in the sport utility for a more fuel efficient vehicle. The problem is, Sweeney owes $17,000 on the Durango, but it's worth a lot less.
MIKE SWEENEY, SPORT UTILITY OWNER: Today I think the last time I looked at my blue book it was like somewhere in the 12s.
EASTABROOK: Actually a check on the Kelly blue book website, which tracks vehicle values, indicates the Durango is worth closer to $10,000. Analysts say Sweeney's situation isn't unusual these days. Soaring gas prices are dramatically driving down demand for big sport utilities and pickups, therefore, driving down their residual or resale values. Manheim Auto Auctions says in April the average resale value of full-size SUVs dropped 17.5 percent compared to the same month last year. The average resale value of full-size pickups plunged 15 percent. Global Insight auto analyst John Wolkonowicz says this type of event is not unprecedented.
JOHN WOLKONOWICZ, AUTO ANALYST, GLOBAL INSIGHT: We saw this phenomenon to some extent back in the '70s with the two energy crises of '73 and '79. But, we certainly haven't seen anything of this magnitude in recent history.
EASTABROOK: In the showroom at Elmhurst Toyota, smaller, more fuel efficient vehicles are getting a lot more attention from potential buyers, while larger used sport utilities sit outside practically unnoticed. Elmhurst Auto Group Vice President Kurt Schiele admits the trade-in market for big trucks and SUVs is tough. But he says his dealership tries to help customers with upside down loans trade-in those vehicles.
KURT SCHIELE, V.P., ELMHURST AUTO GROUP: We can take a look, we can shop their vehicle to make sure we get the most we possibly can for it. In some cases they need to have an extra down payment to cover some of the negative equity that they have in their vehicle.
EASTABROOK: Meanwhile, as fuel for the Durango takes a bigger bite out his family's budget, Sweeney ponders his options. For now, trading in the sport utility isn't one of them.
SWEENEY: I'd like to buy a smaller car, but for me it's probably cheaper if I keep what I have and park it and get another car rather than trying to trade it in.
EASTABROOK: Analysts think if gasoline prices fall to around $3 range, then sales of large SUVs and pickups could rebound, taking resale values with them. But they doubt that sales will ever return to the robust volumes they were at just a few years ago. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Elmhurst, Illinois.
