by Victoria Fierson
Depreciated SUV values have changed the way dealers and consumers approach trade-ins. The days of consumer-dealer haggling are gone; nowadays SUV trade-in prices are non-negotiable for dealers.
SUV sales have steadily declined during the course of the past year. According to ADESA Analytical Services, as of September 2008, overall truck sales declined 9.8 percent from September 2007. Consumers are looking to trade in their SUVs for smaller, less-expensive and more-fuel-efficient cars out of fear that they will only lose more money should values decline further.
Dealers face significant risk in paying the customer more on the trade-in than it is worth on the used-car market. Consumers have two choices: to either continue with the transaction at the dealer-offered price, or keep the vehicle and hope the value appreciates.
Scott Wold, owner of Macdonald Wold, located in Aitkin, Minn., says dealers are still willing to accept trade-ins and they try to offer the customers the best values they can.
“People are having a hard time with trade-ins because they expect to get back what they paid for the SUV,” Wold says. “A lot of them owe more on the SUV than it is actually worth right now. The real question is if the consumer will accept what we’re able to offer them.”
Dealers base trade-in prices on the wholesale price. The fluctuation of wholesale prices is making it difficult for dealers to price trade-ins accurately. “Everyone is cautious about giving someone $10,000 on a trade-in,” Wold says. “If it doesn’t re-sell in 30-60 days, you are at risk of losing $1,000 to $3,000.” Low trade-in prices have slowed trade-in activity. For example, Ernie Grant, general manager, Bob Poynter Chevrolet in Morgantown, Ind., says his dealership has not seen many SUV trade-ins recently.
“People are realizing the values are dropping and they are holding onto them because it is not worth the losses they would take,” Grant says.
He says many people do not want to carry over an existing loan balance onto their next vehicle loan.
Grant agrees that fluctuating wholesale prices have made the trade-in transaction riskier for dealers.
“I generally look at auction results from up to six weeks prior to see what the values are and what the trend is like,” Grant says. “It’s a hind-sight marker, but it is the only way to get a general idea of the markets.”
Wholesale SUV prices also affect dealers’ decisions to buy used SUVs at auctions. “Dealers have to feel that they’re buying it cheap enough to take a risk,” Grant says Meanwhile, broader economic worries are prompting c0nsumers to act.
“The general consensus is that gas prices will go down and probably come back up,” Grant says. “Consumers are more worried about borrowing money, which is creating poor selling situations.” Guy Burns, used car and sales manager, Lunghamer Buick GMC, in Waterford, Mich., says consumers are their own worst enemies. The problem is that many consumers are misinformed about the value of their vehicles.
“They go on the Internet and look at Kelley Blue Book or Edmunds,” Burns says. “Those values should be used as guidelines, because the numbers can be months behind and do not account for the condition of the vehicle,” he says. “The average Joe does not know that their SUV needs new tires or that the wiring is old; that’s why many people expect more money than the SUV is worth,” he adds. “We spend more time justifying why we give them the price we give them because people are misinformed.”
Burns agrees that the economy is now the biggest factor influencing SUV trade-ins.
“People are concerned because they owe $5,000 to $10,000 on their SUVs, and they are fearful of the losses, if the value depreciates more,” he says.
The U.S. automotive market being as large as it is, not all dealers are faced with SUV trade-in risk. For Szott Ford, in Holly, Mich., business is booming despite the overall industry troubles.
“We’re taking everything we can get right now even in this time of downsizing; we’ve being doing more prime business than ever,” says Adam King, the finance manager at Szott Ford. “I had two top-of-the-line Explorers last week and sold them off within a couple of days.”
