Rising gasoline prices and generous sales incentives on new vehicles are driving down the wholesale price of large used SUVs.
That decline could signal trouble for profitable sales of new full-sized SUVs, one of the industry's most lucrative segments.
The average wholesale price of large used SUVs in June was $15,079, reports ADESA Inc., a vehicle auction company in Carmel, Ind. That figure is 4.6 percent below May's average price and 8.6 percent below the average price in June 2003.
Wholesale prices of large used SUVs tend to soften in summer, when demand is lower. But the drop this year is steeper than usual.
Last June, for example, the year-over-year decline was 1.3 percent, ADESA figures show.
Wholesale price data from Manheim, an auction company in Atlanta, showed similar declines.
The large SUV segment includes the Chevrolet Suburban and Tahoe, Ford Excursion and Expedition, GMC Yukon, Nissan Armada and Toyota Sequoia.
Otto Belovich, owner of Cherry Capital Oldsmobile-Cadillac-Subaru in Traverse City, Mich., says customers shopping for used vehicles now seem more inclined to buy sedans than large SUVs.
Belovich says he doesn't hold on to large SUVs that he accepts as trade-ins. "If we don't retail them right away, we take them to auction," he says.
Tom Webb, Manheim's chief economist, says worried dealers are driving down the wholesale prices of large used SUVs.
Webb says some dealers are reluctant to buy older, high-mileage large SUVs. They know potential buyers of those vehicles are less affluent and more sensitive to changes in gasoline prices.
But SUVs that are only two or three years old aren't attractive to many dealers either, Webb says. These vehicles must compete with new vehicles that often carry thousands of dollars in incentives.
"The market for some of these units is, in fact, weak," Webb says. "There is a certain risk premium involved. Dealers are not sure how consumer acceptance for these vehicles is going to play out."
Judging by inventories of used vehicles, dealers have good reason to be nervous. Full-sized SUVs are swelling inventories of used-car dealers, says Art Spinella, president of automotive research at CNW Marketing/Research in Bandon, Ore.
In June, dealers had a 97-day supply of large used SUVs, up from 78 days in June 2003, Spinella says. Forty-two days is considered ideal for used vehicles. Falling prices of large used SUVs could have a domino effect on the prices of new vehicles in the segment. And that would be bad news for automakers, who rake in as much as $10,000 in gross profit for each full-sized SUV.
Companies closely monitor the prices of used vehicles because they affect transaction prices of new vehicles.