SUVs and Trucks Plunge in Trade-In Value

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"The SUV population is a big source of sales of trade-ins in the crossover segment," said George Pipas, U.S. sales analysis manager for Ford Motor (F), during a conference call earlier this month. "With the sharp decline of residual values [truck resale values], this is sharply limiting the availability of those people to get out of their SUV and into that segment," he said. Pipas added: "Crossovers in June and in the second quarter continued to decline. Not as sharply as full-size SUVs and pickups, but declines nevertheless."

As a group, new-vehicle sales of full-size SUVs such as the Chevy Tahoe and Ford's Expedition were down 31.4% year to date, to 189,690. Midsize SUVs, including the Chevy TrailBlazer and the Jeep Grand Cherokee, were down 26.3% in the first half, to 425,033. Small SUVs such as the Jeep Wrangler and Toyota's (TM) FJ Cruiser were down 33.6%, to 115,255. Full-size pickups, led by Ford's once-mighty F-150 and the Chevy Silverado, were down 24% as a group, to 814,078 in the first half.

Keeping Trucks Longer

Eventually, many truck owners will have to replace their vehicle, even if they take a hit on the trade-in. In turn, that could mean they have to come up with a bigger down payment, borrow more and/or pay more interest, and spread payments out over a longer term in order to achieve an acceptable monthly payment.

"It's like owning a stock that's depreciating in value," says Tom Kontos, executive vice-president, customer strategies and analytics for Adesa. "True, you don't realize the loss until you sell it. But if it's depreciating, what do you do, hold onto it while the value goes down even more? Sometimes you just have to take your lumps," he says.

There's nothing stopping many truck owners from hanging onto their trucks. Quality and durability have improved over the years. And unlike cars, trucks are less likely to be leased, especially pickups. Lease customers have to take action at the end of a lease. Most leases end with the customer turning the vehicle in, but they can also buy it or extend the lease. In any case, they have to do something.

Mark LaNeve, GM North America vice-president of sales service and marketing, estimates leasing only makes up about 5% of midsize and full-size pickup sales. "It's not a big lease category for the industry or for us," he said during a July 1 conference call. For some luxury cars, leasing accounts for a majority of sales.

Adesa's Kontos says auctions are getting fewer vehicles that were traded in at dealerships, but he could only guess at the reasons why. If there are fewer new-vehicle sales, it stands to reason there are fewer trade-ins. It's also possible people are hanging onto their vehicles longer, to avoid an onerous trade-in. "Certainly it's a disincentive [to trade] if your trade-in's not worth as much," he says. Kontos adds auction volume is down 15% to 20% for the category of used vehicles that includes trade-ins from dealerships.

An Overcorrection?

Selling may be a tough choice, but buying a used truck might not be such a bad idea, Kontos says. He estimates it would take at least two or three years of use for the price of gas to outweigh the money that could be saved by buying a used truck at today's depressed values.

Edmunds.com, a car-shopping research and advice site, on June 30 added a "Gas-Guzzler Trade-In Calculator," to help people figure out how long it takes for better gas mileage to pay for itself in a car that costs more than the vehicle being replaced. "Car buyers think they can save money by dumping their gas-guzzler and purchasing a gas-sipper," said Philip Reed, Edmunds.com's senior consumer advice editor, in a written statement. "But when you look at the big picture—total cash out of pocket—a very different situation is often revealed."

For instance, it would take 41 months worth of gas savings for a Toyota Prius that cost $21,647 to save money, vs. a four-year-old GMC Yukon worth $13,483, he said. The Prius saves about $200 per month in gas, but it costs more than $8,000 more, Reed said.

Kontos says he thinks the drop in values for used trucks is an overcorrection, and eventually prices will start to recover. The Big Three Detroit automakers and Toyota, Honda (HMC), and Nissan (NSANY) have all announced cutbacks in North American truck production, which helps.

"The bursting of the truck 'bubble' may be somewhat similar to what has been seen in other markets such as housing and stocks, where shrewd opportunists are often able to capitalize on undervalued assets," Kontos says.

Click here to see the vehicles with the worst trade-in values in the U.S.

Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.