Used Car Markets Kinder to the SUV Lately

By Brendan Moore

11.29.2007


I get the data from the major vehicle wholesale auctions on a regular basis, look at the NADA and Black Book data on used vehicles as it comes out, and it’s become apparent that used full-size SUVs have gained a few points in residual value recently. This is a bit surprising, since it represents an inverse relationship to rising gasoline prices and the same inverse relationship to sales of new full-size SUVs, which have been declining for some time.

It appears that some consumers are making the decision that they need a full-size SUV around the homestead, and the rising price of gasoline will just have to be accepted as part of the deal.

Other people in the industry have noticed this as well, and acted accordingly. Dealerships are no longer running away from the full-size trade-in, but instead, putting a better ACV (Actual Cash Value, the real value of any trade – NOT the trade-in value) on the full-size SUVs that still show up on their lot every day.

And other automotive writers have noticed as well – David Welch of BusinessWeek, a auto writer who puts out some good work, had a piece in the magazine yesterday on the same subject.

One of the points made in Welch’s article was that some people have decided that they need an SUV and are buying used SUVs because a used SUV is much, much less expensive than a new SUV, and still fills whatever need they have.

This, by the way, if I could digress a little bit, syncs up with some strong anecdotal evidence I’ve run across in the past 12 months in consumer interviews that consumers who currently have an older SUV that was previously used as a primary vehicle are not trading those vehicles in when it comes time to get another vehicle, but rather, keeping the SUV as a second or third household vehicle.

The rationale employed by these consumers is that the market value of the high-mileage full-size SUV they have is so low that it is not worth trading in, but, the SUV still looks great and runs great, and since they have the room in the driveway, they simply keep it around for those “maximum-use” instances that that may crop up. These run the gamut from ski trips to needing to carry a lot of people at once to trips to Home Depot. From their point of view, the value of having a vehicle available to the household for these infrequent, but important, “maximum-use” instances far exceeds the minor expense and/or hassle of keeping the high-mileage SUV around. Which, of course, is a pretty valid rationale, all things considered.

What about the new vehicle that replaced that high-mileage SUV as the daily driver or commuter car? More and more, it seems to be a real car that gets much better fuel economy than that full-size SUV. It seems that some percentage of the SUV-driving population has come to the conclusion that doing 40 miles to work every morning and then 40 miles back in the evening by yourself in a 3-ton vehicle that gets 15 mpg is not in their own best economic self-interests. So they’re replacing the big SUV in the driving rotation with a more fuel-efficient car, but they still love that SUV for what it’s good at, so they keep it around.

Now, obviously, this scenario of owning both a full-size SUV and a commuter car (or, in the case of the stay-at-home parent, an errand car) makes no economic sense unless you already have the high-mileage SUV and were due to cycle into another new car anyway. But, a lot of people are in that exact situation because they bought a full-size SUV during the last 10 years, when SUV sales were going through the roof.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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6 Comments

  1. My situation exactly, and I reached the same decision. The dealer offered me $3200 for my Ford Expedition that has 88,000 miles on it. Still loks great, though, it was top of the line with leather, etc., and it runs perfectly and has never given me any trouble. I said what the hell I’ll just keep it. I bought a Fusion (I’m a Ford man) and its a good little car.

  2. Yup (raising hand) I’m getting ready to make the same decision. The dealer just kind of laughed at me when I told him I had an Infiniti SUV to trade in with 102,000 miles on it, and it runs fine, looks fine, so maybe we’ll just keep it.

    I’m definitely getting a car but I don’t know which one yet. Something good on gas, that’s for sure. My SUV is just killing me on gas in terms of everyday driving. So expensive!

  3. How in the world does it make economic sense to have a vehicle around that you rarely use, and that you could sell and get some money for, even if it’s a small amount of money? And I know you still have to have insurance and registration on that SUV if you’re actually going to drive it and that’s recurring cost every year. How does this makes sense? I don’t see the logic in it.

  4. Fritter, in most cases the insurance on a third viehicle is pretty maginal, and the registration on an older viehicle is fairly minimal as well. (if you have teenagers of driving age it may be a different story)

    I’ve been thinking about picking up a cheap used F-250 just for such a purpose, regestration ought to be about $50 a year, and a 10+ year old viehicle has pretty much depreciated all that is it ging to.

    What NEVER makes ecconomic sense is buying a new car to get better gas milage. Nobody uses enough gas to justify the $300-400/month payment on a new car .vs driving a paid for viehicle.

  5. Fritter, what mark in AZ said, plus, if the thing’s already paid for, the only recurring costs are the low costs of registration and insurance on a second/third vehicle. Let’s say that’s $500 a year (which is way too high, but lets use that as an example). Then the guy decides, “Hmm, is it worth $500 a year to have a truck/SUV around for those 2-3 trips to Home Depot, tailgating with the family at the game, driving my three kids and their friends to Pee-Wee hockey away games”, or whatever else they need something like that for, and the answer he comes up with is a quick and resounding “yes”. So that’s how it represents a good value.

  6. To carry this further, maybe we should all just have 3 or 4 vehicles in our driveway, all for certain specific needs. Seems like the American thing to do!

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