Automakers fret over resale values of trucks, SUVs

TRAVERSE CITY, Mich. -- Phil Awker's ad for a used 2004 Chevrolet Suburban has been languishing in an online classified for more than two months, even though it's priced $6,000 less than book value.

Billy Roach's 2002 Jeep Wrangler has been up for a month on Philadelphia's Craigslist. He just wants to pay off his loan, Roach says, and he's hoping to get about $10,000 for it. Book value is about $2,000 less than that.

Such situations are popping up all over the country, and automakers worry that declining residual values — how much vehicles are worth for resale — will embitter their customer base.

SUV residual values were down 26.1% in July compared with the previous year, according to the Manheim Consulting used vehicle index. Truck residuals were down 23.6%. Those declines in what once were the industry's most profitable segments have hurt the financing companies that must sell vehicles after leases expire.

They also are hurting individual owners who can't sell or trade their trucks or SUVs.

"One of the biggest dissatisfiers to customers is when, at the time they want to sell their vehicles, if it's lost a lot of value," says Mark Fields, president of the Americas for Ford Motor, at a dinner during the industry's annual Management Briefing Seminars here in northern Michigan.

For Awker, a small-business owner in Maple Grove, Minn., the price of gas made it seem as if now was a good time to sell his eight-cylinder Suburban, which is used to deliver sandwiches for a shop he owns. He considered trading it in when he negotiated a lease on a new six-cylinder Nissan Pathfinder, but couldn't get a good price.

"I didn't really foresee when I leased the replacement vehicle that the market would tank like this," Awker says.

Falling residual values have hammered the automaker's finance arms. Ford took a $2.1 billion charge in the second quarter to cover declining lease values; General Motors took a $716 million charge for the same thing. Toyota, too, says it's planning for larger residual losses.