As Car Owners Downsize, the Market Is Strong for Their Used SUV’s

In 2008, when gas prices first reached $4 a gallon, Americans could not trade in their hulking trucks and SUVs fast enough, and the castoffs piled up at dealerships as their value seemingly plunged by the hour. A year later, hundreds of thousands of additional gas guzzlers were sent to scrap yards through the government’s cash-for-clunkers program.

But today, in spite of high gas prices and low fuel economy ratings, big SUVs are no longer the pariahs of the used-car lot. Dealers and analysts say demand for the vehicles is steady and inventories are low, causing their values to stabilize or even increase.

Retail prices for five-year-old full-size SUVs are twenty-three percent higher than a year ago, according to Edmunds.com, an automotive information Web site. That is more than double the average price increase of eleven percent for all five-year-old vehicles. Prices for three-year-old SUVs are up six percent, triple the two percent average increase for all vehicles that age.

In recent months, large SUVs and crossover vehicles have also accounted for a larger percentage of the used-vehicle market, according to Kelley Blue Book, another research firm. They made up 4.5 percent of sales this year and 4.2 percent of sales in 2011, up from 3.8 percent in 2008.

Alec Gutierrez, Kelley’s Senior Market Analyst of Automotive Insights, said consumers were reacting to gas prices more rationally than in 2008, when some hurriedly bought vehicles that turned out to be too small for their lifestyles. Although SUVs no longer sell just for their image, people still want them if they have three or more children, need greater cargo capacity or want to tow a trailer, and more of those buyers are coming back into the market after putting off a purchase during the recession.

Even though automakers have made big vehicles more fuel-efficient in recent years, the lower upfront cost of a used SUV appeals to some buyers who need something large. For example, the 2013 Ford Explorer with a four-cylinder EcoBoost engine gets twenty-eight miles per gallon in highway driving, compared with eighteen miles per gallon for a 2003 Explorer. But the new Explorer has a sticker price of more than $30,000, while the Kelly Blue Book retail value for the ten-year-old model is about $8,100.

"You’re going to pay a little bit of a penalty in fuel economy, but ultimately the savings are going to make up for that fuel-economy hit," Gutierrez said. "Still, I don’t think you’re going out to buy a used Tahoe or Expedition because you want to drive it every day to work thirty or forty miles away."

The drop in new-vehicle sales during the recession means there are fewer two and three-year-old vehicles on the market, pushing up used-car values across all segments. The availability of SUVs from the late 1990s and early 2000s was further reduced by the cash-for-clunkers program, which has helped prop up their values.

That is good news for consumers who held onto their gas guzzlers during the recession and now want to trade up. Dealers also benefit because, even though they might have to offer more money to get a trade-in, they can feel confident that the SUVs they take will not just languish in the back corner of the lot.

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