CONTACTTRAFFICABOUT TOM VANDERBILTOTHER WRITING CONTACT ABOUT THE BOOK

Calling Dan Ariely

From today’s New York Times, about growing inventories of used SUVs on car lots. I’m not quite sure what psychologists would call this — perhaps a focusing effect?

“Given how much the automakers and dealers are willing to knock off an S.U.V.’s price, this is not a bad time to buy one, said Jesse Toprak, the director of industry analysis at Edmunds. Yet so many consumers are eager to avoid weekly $100 fill-ups that they are more focused on saving money at the gas pump than at the dealership.

“It’s a very psychological decision,” Mr. Toprak said. “You pay for the car just once, but you go to the pump every week, so that almost seems more important to you. Every time you go to the pump, you just want to feel good about it.”

And so thousands of Americans have been exchanging their sport utility vehicles for fuel-efficient cars, despite low trade-in values for the larger vehicles and a scarcity of small cars that has allowed dealers to charge sticker price or more for them.

“When you trade in a large S.U.V. for a compact car, you’re selling low and buying high,” Mr. Toprak said. “For a lot of people that’s not really logical, but they’re not really running the numbers.”

The story after the jump…

August 13, 2008
An S.U.V. Traffic Jam
By NICK BUNKLEY

DETROIT — The market for sport utility vehicles is starting to look a lot like the housing market, spreading pain to consumers, automakers and dealers.

Even the vocabulary is sadly familiar. Bloated inventories? Days spent on the market?

Well, in July, General Motors dealers had a 174-day supply of the Yukon XL/Suburban on hand, on average, up from a 92-day supply a year earlier. Inventory of the Chevrolet C/K Suburban nearly doubled over the same period, to 116 days from 63 days.

Just like hapless homeowners, countless car owners are now “underwater,” driving vehicles that are worth less than the balance on their car loans. And just like desperate homeowners, the sellers of S.U.V.’s are having to painfully cut asking prices.

For instance, Michael Kohan, a recent graduate of Hofstra University’s law school, decided that hundreds of dollars a month filling up his 2006 Land Rover LR3 would be better spent paying down his student loans. He calculated that his vehicle — loaded with luxuries like a navigation system, xenon lights, parking assist sensors, heated leather seats and three sunroofs — should be worth at least $31,000, according to the Kelley Blue Book.

But with a V-8 engine that gets only about 14 miles per gallon, Mr. Kohan, 24, decided to list his LR3 on eBay and Craigslist for $18,000. And yet, he told a reporter this week, “As low as I set the price, you’re the first person to call.”

Dealers are going through the same pain, only multiplied. They normally spend this time of year raking in some of their biggest profits and breathlessly promoting Detroit’s newest models. Instead, they almost cannot give S.U.V.’s away.

“There’s never been discounts this big before on them, but people are still shying away,” said Kevin Fortman, a sales manager at Wolf Chevrolet in Naperville, Ill.

Mr. Fortman said his dealership had dozens more sport utility vehicles left from the 2008 model year than it needed, even as factories began rolling out newer versions. “We’re not going to order any ’09s for a while,” he said.

Automakers are offering discounts of $10,000 or more on some S.U.V.’s just to get rid of them, so dealers have space to stock more of the fuel-efficient cars consumers are clamoring for. On average, new sport utility vehicles sold for 20 percent below sticker price in July, according to Edmunds.com, a Web site that gives car-buying advice to consumers.

That, in turn, has decimated prices for used S.U.V.’s.

Ultimately, car companies are the ones that will pay, because they will have the new S.U.V.’s on their hands as well as the used and leased ones.

The sudden collapse of the S.U.V. market has cost Detroit dearly. As part of its $8.7 billion second-quarter loss, Ford took a charge of $2.1 billion to cover the rapidly declining value of used sport utility vehicles coming off lease.

G.M. also took a big hit on its quarterly earnings. GMAC Financial Services, which is jointly owned by G.M. and Cerberus Capital Management, reported a $2.5 billion loss in the second quarter, which included a $716 million impairment charge from lower S.U.V. residual values. G.M., which lost $15.5 billion in the quarter, was also forced to contribute about $1.5 billion in lease support payments to GMAC.

Chrysler, which is privately owned by Cerberus and does not report financial results, stunned the industry by pulling out of leasing altogether on Aug. 1 because of the falling values of its used vehicles.

In their heyday, sport utility vehicles brought hefty profits to automakers. But today those companies are slashing output and closing plants amid plummeting demand — only they cannot act fast enough to prevent a logjam of the vehicles already produced and in the pipeline.

Sales of S.U.V.’s are down 32 percent so far this year, and were off 43 percent for July.

Ford logged just 5,404 sales last month of its Explorer, the best-selling sport utility vehicle in history, and is on pace to sell fewer than 100,000 Explorers this year for the first time since introducing the model nearly two decades ago.

The Expedition, the Explorer’s bigger sibling, has suffered even more.

Bob Creech, who sells semi tractors in Moorestown, N.J., found a buyer for his meticulously maintained 2004 Eddie Bauer Edition Expedition this week only after he knocked a few hundred dollars off the asking price. The vehicle, which he bought five years ago for about $44,000 and drove for 106,000 miles, sold for $8,600.

“I took a little bit of a beating,” Mr. Creech, 52, said. “I really enjoyed driving it, I liked the ride of it and the visibility, but it just wasn’t practical.”

Last month, Automotive Lease Guide, the company whose estimates of vehicle value, after several years of depreciation, are used to calculate lease payments, made unprecedented downward adjustments to many sport utility vehicles’ residual values. The company now says a Ford Expedition will retain 32 percent of its value after three years and that a Chevrolet Suburban will be worth just 30 percent of its original price. A few years ago, such vehicles were estimated to keep about half their value after three years.

“These big trucks and S.U.V.’s are really dinosaurs at this point,” said John Blair, chief executive of Automotive Lease Guide. “Consumers like S.U.V.’s. They haven’t fallen out of love with the things that made them popular, but it’s just become an issue of economics. When you look at paying several hundred dollars a month more in fuel, that becomes a big deal for most households.”

High gas prices have hurt S.U.V.’s more than pickup trucks because a large proportion of the people who have been driving S.U.V.’s were more attracted to their style than their capabilities, whereas pickups are popular among contractors and other workers who haul supplies. Many commuters and couples without young children have abandoned S.U.V.’s for vehicles that are less costly to drive.

Additionally, many shoppers interested in buying S.U.V.’s already own an S.U.V., and end up walking away from dealerships after learning how little their current vehicles are worth.

“Everybody thinks you’re lying to them,” said Mr. Fortman, the Chevrolet sales manager in Illinois. “Nobody wants to take that big of a hit.”

Because the S.U.V.’s decline is largely owing to high gas prices, experts say the only way that the segment could rebound significantly is for gas prices to decline. Edmunds.com said the number of visitors researching S.U.V.’s has increased slightly in recent weeks as gas prices have retreated.

Given how much the automakers and dealers are willing to knock off an S.U.V.’s price, this is not a bad time to buy one, said Jesse Toprak, the director of industry analysis at Edmunds. Yet so many consumers are eager to avoid weekly $100 fill-ups that they are more focused on saving money at the gas pump than at the dealership.

“It’s a very psychological decision,” Mr. Toprak said. “You pay for the car just once, but you go to the pump every week, so that almost seems more important to you. Every time you go to the pump, you just want to feel good about it.”

And so thousands of Americans have been exchanging their sport utility vehicles for fuel-efficient cars, despite low trade-in values for the larger vehicles and a scarcity of small cars that has allowed dealers to charge sticker price or more for them.

“When you trade in a large S.U.V. for a compact car, you’re selling low and buying high,” Mr. Toprak said. “For a lot of people that’s not really logical, but they’re not really running the numbers.”

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This entry was posted on Wednesday, August 13th, 2008 at 4:22 pm and is filed under Cars, Drivers, Traffic Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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Traffic Tom Vanderbilt

How We Drive is the companion blog to Tom Vanderbilt’s New York Times bestselling book, Traffic: Why We Drive the Way We Do (and What It Says About Us), published by Alfred A. Knopf in the U.S. and Canada, Penguin in the U.K, and in languages other than English by a number of other fine publishers worldwide.

Please send tips, news, research papers, links, photos (bad road signs, outrageous bumper stickers, spectacularly awful acts of driving or parking or anything traffic-related), or ideas for my Slate.com Transport column to me at: info@howwedrive.com.

For publicity inquiries, please contact Kate Runde at Vintage: krunde@randomhouse.com.

For editorial inquiries, please contact Zoe Pagnamenta at The Zoe Pagnamenta Agency: zoe@zpagency.com.

For speaking engagement inquiries, please contact
Kim Thornton at the Random House Speakers Bureau: rhspeakers@randomhouse.com.

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Traffic UK
Drive-on-the-left types can order the book from Amazon.co.uk.

For UK publicity enquiries please contact Rosie Glaisher at Penguin.

Upcoming Talks

April 9, 2008.
California Office of Traffic Safety Summit
San Francisco, CA.

May 19, 2009
University of Minnesota Center for Transportation Studies
Bloomington, MN

June 23, 2009
Driving Assessment 2009
Big Sky, Montana

June 26, 2009
PRI World Congress
Rotterdam, The Netherlands

June 27, 2009
Day of Architecture
Utrecht, The Netherlands

July 13, 2009
Association of Transportation Safety Information Professionals (ATSIP)
Phoenix, AZ.

August 12-14
Texas Department of Transportation “Save a Life Summit”
San Antonio, Texas

September 2, 2009
Governors Highway Safety Association Annual Meeting
Savannah, Georgia

September 11, 2009
Oregon Transportation Summit
Portland, Oregon

October 8
Honda R&D Americas
Raymond, Ohio

October 10-11
INFORMS Roundtable
San Diego, CA

October 21, 2009
California State University-San Bernardino, Leonard Transportation Center
San Bernardino, CA

November 5
Southern New England Planning Association Planning Conference
Uncasville, Connecticut

January 6
Texas Transportation Forum
Austin, TX

January 19
Yale University
(with Donald Shoup; details to come)

Monday, February 22
Yale University School of Architecture
Eero Saarinen Lecture

Friday, March 19
University of Delaware
Delaware Center for Transportation

April 5-7
University of Utah
Salt Lake City
McMurrin Lectureship

April 19
International Bridge, Tunnel and Turnpike Association (Organization Management Workshop)
Austin, Texas

Monday, April 26
Edmonton Traffic Safety Conference
Edmonton, Canada

Monday, June 7
Canadian Association of Road Safety Professionals
Niagara Falls, Ontario

Wednesday, July 6
Fondo de Prevención Vial
Bogotá, Colombia

Tuesday, August 31
Royal Automobile Club
Perth, Australia

Wednesday, September 1
Australasian Road Safety Conference
Canberra, Australia

Wednesday, September 22

Wisconsin Department of Transportation’s
Traffic Incident Management Enhancement Program
Statewide Conference
Wisconsin Dells, WI

Wednesday, October 20
Rutgers University
Center for Advanced Infrastructure and Transportation
Piscataway, NJ

Tuesday, March 8, 2011
Ontario Injury Prevention Resource Centre
Injury Prevention Forum
Toronto

Monday, May 2
Idaho Public Driver Education Conference
Boise, Idaho

Tuesday, June 2, 2011
California Association of Cities
Costa Mesa, California

Sunday, August 21, 2011
American Association of Motor Vehicle Administrators
Milwaukee, Wisconsin

Wednesday, October 26, 2011
Attitudes: Iniciativa Social de Audi
Madrid, Spain

April 16, 2012
Institute for Sensible Transport Seminar
Gardens Theatre, QUT
Brisbane, Australia

April 17, 2012
Institute for Sensible Transport Seminar
Centennial Plaza, Sydney
Sydney, Australia

April 19, 2012
Institute for Sensible Transport Seminar
Melbourne Town Hall
Melbourne, Australia

January 30, 2013
University of Minnesota City Engineers Association Meeting
Minneapolis, MN

January 31, 2013
Metropolis and Mobile Life
School of Architecture, University of Toronto

February 22, 2013
ISL Engineering
Edmonton, Canada

March 1, 2013
Australian Road Summit
Melbourne, Australia

May 8, 2013
New York State Association of
Transportation Engineers
Rochester, NY

August 18, 2013
BoingBoing.com “Ingenuity” Conference
San Francisco, CA

September 26, 2013
TransComm 2013
(Meeting of American Association
of State Highway and Transportation
Officials’ Subcommittee on Transportation
Communications.
Grand Rapids MI

 

 

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