Mike Smith, an auto dealer in Paducah, Ky., treats every big SUV he takes in trade these days as if it's in rough shape - even if it isn't.
At his Toyota, Kia and Mitsubishi stores, the most he'll offer as a trade-in allowance on a large SUV is what wholesale-price guides say it would be worth in rough condition. That usually knocks $3,000 to $4,000 off the SUV's value.
As gasoline prices rise, most customers understand that trucks with poor fuel economy cannot command premium prices. "If (high fuel prices) are real for the person trading in the vehicle, that same price pressure is real for the next buyer," Smith said.
Prices of used SUVs - especially mid-sized models - are slumping as gasoline prices escalate. Dealers say many consumers are trading in their SUVs for more fuel-efficient new and used cars.
Falling used-truck prices eventually will hurt sales of new vehicles, too. As consumers get less money for their trade-ins, a new car or truck becomes less affordable.
Soft used-vehicle prices also put downward pressure on the projected residual values of new trucks. That, in turn, makes it more difficult for automakers to lease new trucks to consumers at attractive rates.
Big SUVs take most of the heat for poor fuel economy. But prices of used mid-sized SUVs are actually falling faster than full-sized ones.
In May, used mid-sized SUVs sold for an average wholesale price of $10,960, according to Manheim, the nation's largest vehicle auction company. That's a drop of 3.8 percent since January.
The figures are adjusted for mileage and model mix, Manheim says.
In this segment, one example of a hard-hit SUV is the Jeep Grand Cherokee. According to the Black Book vehicle price guide, a four-wheel-drive 2003 Grand Cherokee Laredo wholesaled for $11,900 in June, down 5.6 percent since January.
Meanwhile, large used SUVs sold for an average price of $14,481 - only 1.7 percent less than in January.
"Full-sized SUVs have reached the leveling-off point," says Tom Webb, chief economist for Manheim.
Prices of full-sized SUVs plunged last year, then leveled off this year despite higher fuel prices. Owners of big SUVs typically need the space and towing capacity the vehicles afford and tend to stay in the segment, Webb says.
Owners of mid-sized SUVs are more likely to trade in their vehicles for crossovers and smaller vehicles, says Mike Jackson, CEO of AutoNation Inc.
Not surprisingly, inventories of secondhand trucks are starting to build up. According to CNW Marketing Research, dealers report a 73-day supply of used trucks, compared with a 51-day supply of used cars.
Now the daily vehicle rental market is witnessing a rise in demand for cars - and soft demand for trucks. In some parts of the country, car rental companies are charging about the same for small cars as for SUVs.
In Bozeman, Mont., Hertz rented a Ford Focus and Hyundai Accent for $61.99 a day last week. Meanwhile, Hertz charged $62 for a GMC Envoy and Toyota 4Runner and $63 for a Ford Expedition.
Neil Abrams, an auto rental consultant in Purchase, N.Y., says rental companies "don't want to be sitting with a lot of (vehicles) they can't rent at a rate that they can make a buck."
Gail Kachadourian contributed to this report
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