Dealers overrun with trade-ins as fuel costs rise
In America, bigger has always been better: a big house and a big vehicle mean big money; and big money equals big success.
But lately, as drivers cringe at gas-pump prices, they look at their trucks and SUVs with a little less pride and a lot more worry.
Auto dealerships throughout Bellingham are taking in record numbers of trucks and SUVs from drivers looking to increase their fuel economy and decrease their monthly gas expenses.
Mitch Roberts, general manager at Rairdon’s Dodge Chrysler in Bellingham, said his dealership has trucks and SUVs being traded in left and right.
“I’ve got two rows of used trucks,” Roberts said. “A year ago at this time, I would have killed to have one row of used trucks.”
Ron Clark, general manager at Dewey Griffin, is seeing lots of truck and SUV trade-ins from people looking to purchase smaller, more fuel-efficient vehicles and from people for whom trucks were luxury items.
“You know, the guys who wanted the jacked-up, big-wheel, cool trucks—those guys are now buying cars,” Clark said.
However, Clark said there are people in Whatcom County, such as farmers and construction workers whose livelihood depends on having a truck.
“Guys that need the trucks are still going to buy them,” Clark said. “Just not as many.”
In May, national sales figures showed the Honda Civic outselling the Ford F-150 pickup for the first time in 17 years, symbolizing a change of the guard toward smaller, fuel-efficient cars and away from the trucks and SUVs that have saturated the market for the past 20 years.
Clark, Roberts and other dealers said trucks are being traded in at 30 percent to 40 percent lower than their Kelley Blue Book value because dealers can’t sell them.
“They’re in for sort of a reverse sticker shock,” Clark said.
Clark told the story of a 2006 Chevy Suburban with a Blue Book value of $29,500 that the dealership took in for $22,500.
“That was a month ago and it’s still here,” Clark said. “No one has even looked at it. Should we have taken it in at $18,000 or would anyone have even looked then? Right now, I don’t think so—it costs $170 to $180 to fill that thing.” Roberts said his customers are looking for better gas mileage but still want roomy vehicles.
“We are seeing larger sedans selling,” Roberts said. “People are also buying the little commuter car and leaving their family sedan at home.”
Sign of the times
Major car companies are responding to the trend.
In late May, Ford Motor Company announced it would reduce 2008 production of large trucks and SUVs, while increasing North American production of more fuel-efficient models such as Ford’s Focus and the Ford Edge.
“The challenge affecting the entire industry is the accelerating shift in consumer demand away from large trucks and SUVs to smaller cars and crossovers—combined with a steep rise in commodity prices and the weak U.S. economy,” Ford CEO Alan Mulally said in a May 22 press release.
Soon after Ford’s announcement, General Motors announced it would shut down four truck plants from Canada to Mexico by 2010; sooner if things get any worse.
“Since the first of this year, U.S. economic and market conditions have become significantly more difficult,” General Motors CEO Rick Wagoner said in a June 3 press release. “Higher gasoline prices are changing consumer behavior, and they are significantly affecting the U.S. auto industry sales mix.” With noticeable changes in prices at the pump and increased media attention on fuel efficiency, people are flocking to dealerships. But some dealers question whether the savings pencil out in the long term.
Short-term gain may not pencil out
Roberts at Rairdon’s Chrysler said that not a day goes by that he doesn’t get someone dying to trade in a large vehicle for a more fuel-efficient car.
Roberts said that most of these customers are concerned about the immediate effects gas prices have on their pocketbooks; however, they don’t do the math to see exactly what those effects are.
In his experience, Roberts said, the average American drives 1,200 miles a month in a car that gets 22 miles per gallon. At $3 a gallon, the average monthly gasoline expense would amount to approximately $164. With gas prices currently hovering around $4.25, the monthly expense would rise to $231.84—an approximately $68 increase that would add up to $816 extra spent on gas per year.
However, Roberts said, for those concerned about their current monthly expenses, it doesn’t make much sense to spend thousands of dollars to curb an added yearly expense of less than $1,000 unless the vehicle is owned long enough for the savings to pay for the investment.
“Even if people are paying extra at the pump, I don’t see the value there,” Roberts said.
Hybrids becoming more common
If consumers aren’t buying big trucks and SUVs anymore, then what are they interested in?
Julian Greening, general sales manager at Wilson Motors, said since the truck and SUV markets crashed with the rise of gas prices this spring, hybrids are a hot item.
“My hybrid sales are absolutely on fire,” Greening said.
Greening said he has a waiting list for the Prius and the hybrid Camry and has only a limited amount of Toyota’s hybrid SUV, the Highlander. Wilson Motors has nine models that get more than 30 miles per gallon.
“We are definitely cognizant of that fact and are actively promoting that,” Greening said.
Paul Binder, sales manager at Northwest Honda, also said his dealership is having a run on its hybrid Civics and more fuel-efficient models such as the Fit and the Accord. Binder said Northwest Honda had a hybrid Civic show up unexpectedly and it lasted all of a few hours.
“We and other Honda dealers are almost selling out of our Civics and Accords,” Binder said.“And our Fits are all pre-sold before they even hit the lot.”
Binder said Honda has always used fuel efficiency as one of its primary marketing tools but it is getting people’s attention now more than ever.
“We happen to be in a lucky position here,” Binder said.
Car dealerships are doing more than boasting their fuel-efficient models to attract customers.
Wilson Motors offered free gas for a limited time with the purchase of a Toyota Tundra pickup. Rairdon’s Chrysler is currently offering a three-year $2.99 gas guarantee and in the past it has offered free oil changes for two years and offered to pay for the first two months of gas with the purchase of a new vehicle.
“I have found that people really see the value in (these promotions),” Roberts said. “It really attracts people because they are trying to figure out how to spend less money a month.”
As for Dewey Griffin, Clark said the dealership focuses on stocking the cars its customers want.
“Now when we go to the used-car auction, instead of buying trucks and SUVs, which we were real heavy on before because it was a big part of our sales, now we’re targeting the $5,000 to $10,000 passenger cars,” Clark said.