Anyone want to buy an SUV?
SUV sales warming up, and the deals are still there
By Shawn Langlois
Nov 21, 2008 15:14:00 (ET)
SAN FRANCISCO (MarketWatch) -- The steep drop in gas prices might not be enough to save Detroit, but cheaper fuel no doubt has made it easier for dealers to unload the trucks and SUVs that have been gathering dust ever since oil's record price spike this past summer.
That's not to say automakers are actually selling more of these vehicles than they were last fall. They're not. Everything from Ford's (F, Trade ) industry benchmark F-Series pickup to Toyota's (TM, Trade ) venerable Land Cruiser are still seeing big drops from a year ago.
But these days, that could be as much a function of the grim economy as anything else. Vehicle sales in general, including such hot offerings as the Prius hybrid and the perennial strong-seller Accord sedan, also have been hit hard.
In fact, October marked the worst month for car sales in 25 years, with GM's (GM, Trade ) 45% plunge leading huge declines for just about every manufacturer.
It's tough to discern trends in today's brutal environment where some rules just don't apply. But with automakers offering major incentives and gas prices careening back toward $2 a gallon, there's evidence that these highly-profitable beasts are regaining some traction.
"We saw this huge shift to smaller cars in May, but starting in June, there has been a gradual move back to the larger vehicles," J.D. Power & Associates analyst Tom Libby said.
He offered as proof the percentage of motorists who stuck with SUVs when shopping for a replacement vehicle compared with those who fled to smaller cars as fuel prices hit all-time highs.
In May, with gas topping $3.70 a gallon, only 9% of midsize SUV owners who traded in their vehicles bought another from the same segment, J.D. Power data showed. That number barely budged as gas approached a record-high of $4.11 a gallon in the middle of July, according to AAA.
But in August, when gas prices began their plunge, 20% of SUV owners went right back to their Highlanders, Explorers and Pilots. The same could be said for September, with that number leveling off a bit to 16.4% in October as gas closed in on $2.10 a gallon.
Libby said the market is unlikely to revive the heyday of big trucks or SUVs, but it also won't return to the stampede this spring into thrifty sedans and hybrids.
AutoTrader.com's monthly Trend Engine report, which tracks page views of specific models on its Web site, showed a spike in consumer interest last month in vehicles such as the Honda (HMC, Trade ) Pilot and Toyota Highlander.
"The jumps in page views on our site for some of these larger new vehicles may represent some pent up demand that is about to be realized in sales in the coming weeks or months," AutoTrader.com CEO Chip Perry said. "The fact that dealers and manufacturers are offering special pricing and financing on some of these larger vehicles can only help move that inventory."
During the decline of the SUV over the past few years, automakers maintained all along that gas prices would settle down and demand would come back. But none could have foreseen, nor prepared for, the breakneck pace at which gas reversed course.
George Pipas, Ford Motor Co.'s top sales analyst admitted as much earlier this month.
"At this point, our dealers, if taking a poll, would say now we've got maybe a need for more trucks in the months ahead to get those inventories lined up with where the demand is," he said. "That's partly a function of Ford scaling back production, but it also potentially reflects some pent-up demand for these kind of vehicles as well as other factors."
Essentially, buyers holding off in May and June are trickling back into the market to take advantage of steep discounts, but also because lower fuel costs help them justify buying a new sports utility vehicle that would have seemed fiscally irresponsible when gas was fetching $4.00 a gallon.
The boon for truck buyers is that while the cost of running the vehicle has plunged from record highs, the cost of buying one is still relatively cheap. Large trucks and SUVs offered the highest incentives as a percentage of sticker price in October and most major manufacturers have extended promotions such as zero-percent financing into November.
Even Toyota, in attempts to move some of their bigger vehicles like the Tundra and the Sequoia, is approaching record levels of incentive spending. In fact, the Sequoia SUV was one of the only vehicles in Toyota's lineup to score a sales gain year over year.
It might be too little too late for the reeling U.S. auto sector, but those in the market for a new truck or SUV are starting to take advantage of a silver lining in these desperate times.