Like A House Of Cards . . .

[unit731]

Donna Harris

and Arlena Sawyers

Automotive News

June 23, 2008 - 12:01 am ET

 

 

Dealer Poncho Redfern sees big used trucks that were worth $20,000 just a few months ago valued today at $12,000. And he winces.

 

"It's not like prices are just a little soft," says Redfern, president of Thomason Auto Group, of San Francisco, which owns seven dealerships in California and Texas. "The values have dropped extraordinarily. We are having a hard time adjusting."

 

Many new-vehicle dealers grew accustomed to raking in big profits on large used pickups and SUVs. But now those trucks are sucking out cash as they gather dust.

 

Soaring fuel prices have toppled the market for big used trucks "like a house of cards," says Tom Kontos, executive vice president of analytical services for the ADESA auction company.

 

In the past three months, values of large used trucks have depreciated more than ordinarily would be expected in a year, according to CarMax Inc., the largest used-vehicle retailer in the United States. Some full-sized used trucks now fetch as little as half their wholesale book value.

 

Dealers say they can't offer customers much for trade-ins of big trucks — and some are refusing to take those pickups and SUVs at all.

 

Sales and prices of large used trucks continue to slump.

 

Last month, used full-sized pickups sold at auction for an average price of $9,343 — a 21.3 percent decline from May 2007, ADESA says. The average wholesale price of large SUVs plunged 19.7 percent to $11,271.

 

The market for big used trucks shifted "overnight," says Patrick Walsh, a Ford dealer in rural Atwater, Minn. "I don't think any of us were ready for that."

 

Truck dump

Wholesale prices of used big pickups and SUVs plunged by one-fifth last month.

Change

AVG. Price FROM

MAY '08 MAY '07

Full-sized

pickups $9,343 –21.3%

Large SUVs $11,271 –19.7%

Source: ADESA Analytical Services

 

 

 

 

Earnings plunge

 

Late last week, Ford Motor Credit Co. said it will take a pretax loss this year, mainly because of "further weakness in large truck and SUV auction values."

 

Last week, CarMax said its net income for the three months that ended May 31 fell 55 percent from the year-ago period, to $29.6 million. Company CEO Tom Folliard cited a 25 percent drop in wholesale prices of big trucks in the quarter.

 

The steep decline has continued in June, Folliard said. "This is the longest-lasting depreciation of a large segment we've ever seen," he said during an earnings call last week.

 

DCH Auto Group, of South Amboy, N.J., owns 31 dealerships in California, New York, New Jersey and Connecticut. Last year, sales of large pickups and SUVs accounted for 25 to 30 percent of the private group's used-vehicle sales. Now it's 15 to 20 percent, the company says.

 

"This collapse is a major issue for us," says DCH CEO Susan Scarola.

 

Big losers

How wholesale prices of some used big trucks fell between January and June. All vehicles are 2005 models.

15-Jun Jan. 1 CHANGE

BMW X5 4.4i $24,200 $31,400 –22.9%

Toyota Tundra Ltd. Double 4wd $16,525 $21,425 –22.9%

Ford F-150 Lariat SuperCrew 4wd $16,100 $20,500 –21.5%

Chevrolet Silverado 1500 LT Crew 4wd $15,675 $19,875 –21.1%

Infiniti QX56 awd $23,800 $30,000 –20.7%

Nissan Armada SE awd $15,150 $18,800 –19.4%

Source: Black Book

 

 

 

 

Wreaking havoc

 

Dealer Redfern says his dealerships typically have earned gross profits of $1,500 to $2,000 on the sale of a used truck, not including finance and insurance. On a new car, he says, the typical profit margin is $300 to $700. The collapse of used-truck sales is especially painful, he says.

 

"You can't outrun it in F&I," Redfern says. "There's only so much you can honestly earn in that department. This wreaks havoc on the bottom line."

 

In May, an informal Automotive News survey found that one out of 10 dealers no longer accepted big SUVs and pickups as trade-ins. Other dealers said they didn't have that option but were offering far lower trade-in prices.

 

"We can't turn them away," says Ken Cooper, sales manager of Alex Chevrolet in rural Charles Town, W.Va. "We are in a small town. If it gets around that we weren't taking trucks as trade-ins, we wouldn't be doing any business."

 

Customers who want to trade in a big truck for a fuel-efficient new car are having the hardest time, Redfern says. Some new trucks carry factory incentives of several thousand dollars, he notes, while the incentive on a car might be just a few hundred dollars.

 

Owners who owe money on their sharply depreciated big trucks are in for an even bigger shock, he adds.

 

"We see people with $10,000 in negative equity," Redfern says. "A dealer does not have enough room to help the customer out of it."

 

Alysha Webb contributed to this report

[Zembonez]

Good post. Yet another example of the panic people are willing to buy in to. A dealer friend of mine has people trading in Suburbans and losing 10 grand in the process to buy a car that gets 10 miles per gallon more fuel economy. It doesn't take much to lead the average idiot off the cliff.

[Wingnut]

No kidding...I just WISH I were in the market for a new truck right now. I could damn near buy TWO for what they're asking these days.

[Won_Hunglo]

Going to get much worse before it gets better. As long as you paid cash & plan on keeping your truck for at least 7 years you are setting in high cotton. It is the people who financed big toys they can't afford & have a had time paying for gas that are panic selling. Just wait until next summer & I can see full size GM trucks going for 30-35% off list for top of the line crew cabs. If GM does file the big BK you can expect 50% off list as warranties will not be offered. ("As is" new truck?) GM will likly run out of cash in 2009 so it is going to get interesting. If the stock keeps dropping it might happen before then. The 53 year low is a wake up call you can't ignore if you are an educated invester. I have made a lot of money trading GM but I knew when to get out. If there are signs of GM survival you can bet I will be back in but at a much smaller stake. I will only put what I can afford to loss in American auto companies. You will either lose it all in the BK or make it big with a four bagger plus. Me likes four bagger pluses.

[unit731]

Could it happen? Yes. Anything is possible.

 

But I doubt the US government would allow this. I recall the 'bailout' of Chrysler. I also recall the last large auto manufacturer to file BK.

[Zembonez]

Going to get much worse before it gets better.

 

I find it amazing how many people are willing to throw in the towel just because times get a llittle tight. It's a good thing our founders had the nads to fight for what they wanted...

[Won_Hunglo]

Going to get much worse before it gets better.

 

I find it amazing how many people are willing to throw in the towel just because times get a llittle tight. It's a good thing our founders had the nads to fight for what they wanted...

 

 

I am not throwing in the towel on GM. GM choose to throw in the towel on itself. As an investor it is easy to see when the time to bail and take profits was. Remember when Rick Wagner canceled the EV1 because he though that electric vehicles & hybrids would never sale? GM had people arrested people who did not turn in their EV1s to be crushed at the end of there leases. Instead they demanded GM take their hard earned cash instead but GM refused. Buying Hummer when everyone knew the price of fuel had only one way to go. Screwing up the GMT-900 trucks so bad that sales never matched the GMT-800 it replaced. (No offence owners but this is a business statement. Sales numbers talk, BS walks.) Major UAW issues with no easy solution in sight. The list goes one & one. I made a lot of money on GM stock & I hope to be back & make the ride up but first I have to see the changes that signal there will be a ride up. What is there to grow nads & fight for? If you fight the market you will go broke. Ride the trends & enjoy the rewards.

 

This is where GM started to fall apart: http://en.wikipedia.org/wiki/Ev1 "According to GM Chairman and CEO Rick Wagoner, the worst decision of his tenure at GM was "axing the EV1 electric-car program and not putting the right resources into hybrids."

 

The EV1 is not the car for me but GM has to follow the market demand or it will not be around to build full size trucks we choose to drive.

[Zembonez]

Going to get much worse before it gets better.

 

I find it amazing how many people are willing to throw in the towel just because times get a llittle tight. It's a good thing our founders had the nads to fight for what they wanted...

 

 

I am not throwing in the towel on GM. GM choose to throw in the towel on itself. As an investor it is easy to see when the time to bail and take profits was. Remember when Rick Wagner canceled the EV1 because he though that electric vehicles & hybrids would never sale? GM had people arrested people who did not turn in their EV1s to be crushed at the end of there leases. Instead they demanded GM take their hard earned cash instead but GM refused. Buying Hummer when everyone knew the price of fuel had only one way to go. Screwing up the GMT-900 trucks so bad that sales never matched the GMT-800 it replaced. (No offence owners but this is a business statement. Sales numbers talk, BS walks.) Major UAW issues with no easy solution in sight. The list goes one & one. I made a lot of money on GM stock & I hope to be back & make the ride up but first I have to see the changes that signal there will be a ride up. What is there to grow nads & fight for? If you fight the market you will go broke. Ride the trends & enjoy the rewards.

 

This is where GM started to fall apart: http://en.wikipedia.org/wiki/Ev1 "According to GM Chairman and CEO Rick Wagoner, the worst decision of his tenure at GM was "axing the EV1 electric-car program and not putting the right resources into hybrids."

 

The EV1 is not the car for me but GM has to follow the market demand or it will not be around to build full size trucks we choose to drive.

 

I disagree with about 50% of your opinion but you are right about the fact that GM has had every opportunity to "fix" their problems over the last 25 years but mostly chose cheap products and high profits instead of making tough decisions and investing in new technologies. My point was meant to be much broader than GM. Throwing in the towel was a general statement about how quickly we as a people seem to be willing to give up. For the record my GMT900 is a much better product than any of my GMT800s were.