Glut of SUVs swells, and so does the pain

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?

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 Chevrolet's C/K Suburban nearly doubled over the same period, up to 116 days from 63 days.

Just like hapless homeowners, countless car owners are now "under water," driving vehicles that are worth less than the balance on their car loans. And just like desperate homeowners, the sellers of SUVs 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 Kelley Blue Book.

But with a V-8 engine that gets only about 14 miles per gallon, Kohan, 24, decided to list his LR3 on eBay and Craigslist for $18,000. And yet, he said 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 hyping Detroit's newest models. Instead, they almost cannot give SUVs 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.

Fortman said his dealership has dozens more sport utility vehicles left from the 2008 model year than it needs, even as factories have begun 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 SUVs 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 sent prices for used SUVs plummeting.

Ultimately, car companies are the ones who will pay, because they will have on their hands both the new SUVs and the used and leased ones.

The sudden collapse of the SUV 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.

Chrysler, which is privately owned by Cerberus and does not report financial results, stunned the industry by pulling out of leasing altogether 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 shuttering plants. But they cannot do it fast enough to prevent a logjam of the vehicles already produced and in the pipeline.

Sales of SUVs are down 32 percent so far this year, and were off 43 percent for the month of July.

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," said Creech, 52. "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 what vehicles will be worth after several years 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. Only a few years ago, such vehicles were estimated to keep about half their value after three years.

"These big trucks and SUVs are really dinosaurs at this point," said John Blair, chief executive of Automotive Lease Guide. "Consumers like SUVs. 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."