Has the Death of the SUV Arrived?

At car dealerships everywhere, Americans look for more fuel-efficient vehicles.

June 4, 2008— -- It looks like the time has come for the SUV to be towed off to that great junkyard in the sky.

Rising gas prices -- and a greater understanding that fuel will probably never be cheap again -- appears to be killing off the gas-guzzling SUV.

Sales of the vehicles are plummeting, and those drivers who already have them are finding it increasingly difficult to sell or trade-in their old SUVs.

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Jack Nerad, executive market analyst for Kelley Blue Book and kbb.com, has been asked for years about the future of the SUV.

"Up until now, we've said it's not dead," Nerad said. "But right now, it's probably on life support."

Just a few years back, SUVs, pickup trucks and other heavy vehicles were flying off lots and heralded for breathing new life into struggling U.S. automakers.

But $4 gas has changed that.

All cars start to lose value the second you drive them off the lot. But recently, the prices of used SUVs have dropped faster than all other types of vehicles, according to several industry watchers.

For instance, take a 2005 Ford Expedition. In September, it sold for $16,350, according to kbb.com. Today, it sells for $12,400, a drop of 24 percent in just nine months.

Compare that to small used cars, which have actually seen an average 2 percent increase in value in the last year, according to the National Automobile Dealers Association.

Even the Geo Metro -- never really a popular car -- is seeing a resurrection in sales, despite the fact that the tiny car was discontinued in 2001.

The value of a 1990 Metro -- which can get 40 miles a gallon or more -- was just $1,175 a few months back. It now sells for $3,000.

"When you're so far down, you only have up to go," Nerad said of the Metro, which he described as "a car that got no respect from anybody at any time.

"This climate of high and volatile fuel prices has put a scare into people," Nerad added.

And it doesn't look like a temporary change in buying habits.

General Motors CEO Rick Wagoner announced Tuesday that his company would close four truck and SUV plants in North America, and might even discontinue its Hummer brand.

To meet customers' shifting desires, thanks to rising gas prices, GM is moving forward with production of the Chevrolet Volt, a car that runs on an electric motor and could be in showrooms by the end of 2010.

"We at GM don't think this is a spike or a temporary shift," Wagoner said.

Ford's CEO Alan Mulally also believes that fuel prices are going to remain high.

"That shift to small and medium-size cars and utilities … is going to be permanent," he told USA Today in a story this week.

Nerad said that GM's move to close plants is very telling.

"That really indicates that this isn't really a blip, but a shift in demand that they are going to see over time," he said. "I am a little surprised, because we have seen similar things in the past and we have seen the full-sized truck and SUV market come back."

But this time, he said, there is a greater concern about gas prices, and there are more fuel-efficient alternatives available, such as eight-passenger crossover vehicles.

Christina Hay lives in Fenton, Mich., and like many Americans, has been struggling with high gas prices. Last year she leased a Honda Ridgeline pick-up. Now, she is looking to get out of her lease to get "a small car like a Honda Civic or Fit to save on gas.

"This is killing me," she said. "Seventeen miles to the gallon isn't cutting it."

Most Americans apparently feel like Hay and are looking for those more-efficient cars.

In March and April of this year, new large SUVs sat on dealer lots an average of 69 days, according to J.D. Power and Associates. The typical compact took 54 days to sell.

"We're seeing a pretty radical shift from trucks to cars," said Michael E. Maroone, president and chief operating officer of AutoNation, the largest auto retailer in the country. "We're seeing the same radical movement from low fuel economy to high fuel economy. It's a structural change in the business."

Maroone places the blame squarely on high gas prices and the squeeze they put on people's disposable incomes.

AutoNation has seen "an absolute surge" in trade-ins of large SUVs, Maroone said. American drivers are not just trying to save on their weekly gas bills, but also driving cheaper cars with lower monthly lease or loan payments.

AutoNation, which sells 550,000 cars a year, includes 21 Toyota dealerships. Maroone said that everyone has a waiting list -- of several months -- to purchase Toyota's popular hybrid Prius.

Some potential buyers also find that they can't afford a new car because they actually owe more on their existing vehicle than it is worth. Maroone said the reason is two-fold. First, the trade-in value of SUVs has fallen so much. Second, drivers look to sell near the start of their loan period when they have yet to pay off much of the principal on their loans.

For them, and many other motorists, it might not be fiscally prudent to trade-in their gas guzzlers. But, next time around, they will probably go with a more efficient car.

"I think the smart money says that fuel prices are not going down over the long term," Maroone said. "If anything, there is a pressure that they may go up."