What's the best buy in the auto market these days? Try a gas-guzzling sport utility vehicle.
That's right -- those same fuel-thirsty SUVs that went from being the darlings of American drivers to the pariah at the pumps might just give you the best bang for your buck over the coming months.
True, consumers are still gagging on prices at the pumps, even with the recent drop in gasoline prices -- the national average is less than $2.40 a gallon for regular. And there's no doubt the bigger SUVs are true gas hogs.
But some analysts suggest that now is the time to scoop up a bargain by purchasing a used, late-model sport utility vehicle.
"If you are a contrarian, now is the time to buy an SUV,'' says Jack Nerad, executive market analyst at KelleyBlueBook.com, long the authority on used-car values.
"In terms of overall transportation costs, the prices of SUVs have fallen to the point that the savings match or outweigh whatever you may pay in added fuel costs.''
Here's the logic of it all:
A combination of several factors has created a glut of three- and four-year-old SUVs on the used-car market.
Some SUV owners, upset at spending $50 or more to fill the tank, have jettisoned their vehicles in favor of more fuel-efficient models.
"The wholesale market for SUVs has dropped considerably,'' says Javier Vazquez, a senior buyer for Carmax, who says there has been an increase in people coming to Carmax lots seeking to unload their SUVs.
Added to that was the new-car buying frenzy that accompanied this past summer's employee-pricing campaigns among U.S. manufacturers. That meant dealers took in an abnormal number of trade-ins, particularly SUVs.
The buzz about gas-sipping hybrids, combined with the temporary gas shortages caused by Hurricane Katrina in the Southeast, also had some owners eager to go from a Ford Explorer to a more-efficient Ford 500. Those factors added up to an approximate 20 percent drop in the value of SUVs.
But wait. Isn't all this an argument for NOT buying an SUV?
If there were an ongoing shortage of gasoline, then that would be true. But what's currently at work in the marketplace is simply a rise in prices caused in part by an increase in global demand.
"We see the gas supply remaining stable, and the recent jumps beyond $3 per gallon more as market spikes, rather than a trend,'' says Nerad.
So what's the math on driving a used SUV versus a more fuel-efficient sedan?
Suppose you're looking at a 2002 Ford Expedition XLT two-wheel-drive, with a 4.6-liter V8. It's rated by the federal government at 17 miles per gallon in a combination of city and highway driving.
Driving 15,000 miles a year, and paying $2.80 per gallon for regular -- the price point that analysts think may reappear by next summer -- it will cost about $2,400 in fuel, annually, to drive the Expedition; or $200 a month.
Suppose, in a search for more fuel economy, the same Expedition buyer opted instead to buy a 2002 Ford Taurus, with a 3.8-liter V6. It's rated by the federal government at 24 mpg in a combination of city and highway driving.
Driving 15,000 miles a year, and paying $2.80 a gallon for regular-grade gasoline, it will cost about $1,750 to drive the Taurus.
So the savings is only $650 a year -- $55 a month -- driving the Taurus instead of the Expedition, a savings that's more than wiped out when you consider the 20 percent drop in prices in many SUVs since last summer.
A 2002 Expedition, two-wheel drive with a 4.6 liter V8 engine, automatic transmission, air conditioning and a bevy of the standard power options and 55,000 miles shows a retail value of $13,800 on Edmunds.com. At the beginning of the summer in 2005 that same vehicle was priced at $17,000 -- almost 20 percent higher than the value in November.
What's more, Nerad believes that long term, the popularity of SUVs, along with prices, will rebound. "I don't think we're going to see a major turn away from SUVs anytime soon,'' he says.
Austin Ligon, chief executive officer of Carmax, agrees.
"I can predict with some degree of certainty that at some point SUV prices will have been beaten down to the point that we will actually see a strong resurgence in the used-car market for SUVs,'' he says.
"We saw it with the Explorer when it went through its crisis -- the rollover crisis. We saw it last winter when we saw a strong resurgence in SUV demand because SUV prices were beaten down so far. So there is some price at which gas guzzlers become attractive relative to other cars.''
For shoppers looking at new vehicles, the bargains could be even larger. Manufacturers are attempting to boost sagging SUV sales by offering cash incentives of $5,000 or more on the largest vehicles such as the Chevrolet Suburban. Such a rebate would more than offset the added cost of fuel for years.
There are some caveats to all of this contrarian logic.
If a buyer no longer needs the room and versatility that a sport utility vehicle offers, then it makes economic sense to shop for a vehicle that fits a buyer's needs and provides the greatest fuel economy.
And if for some reason gasoline became scarce at any price -- harkening back to the Organization of Petroleum Exporting Countries, or OPEC, oil embargoes of the 1970s -- then economy once again becomes paramount. However, few but the gloomiest of energy analysts see that possibility on the horizon.
So the bottom line is this: Don't walk past those SUVs on the used car lot simply because they use more gas. They could be the bargain you're seeking.
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