Monday, June 16, 2008

Ready to sell that SUV yet?

Today AAA released that the average gas price in the United States went from $4.03 to $4.08 per gallon of regular gasoline.  One thing that I have seen in my line of work is the massive flow of large & medium SUV's into the marketplace.  I know I do not have to explain the law of supply and demand, but you have a massive influx of product and no one wants it.  Most SUV's are worthless!  I do not mean devalued, I mean worthless.  

Before you let your Urban Assault Vehicle get repossessed or go pick up the hybrid vehicle, I want to warn people to do what is best for their financial situation.  I come from a long line of practical decision makers.  Most of my relatives who drive any kind of distance have fairly fuel efficient cars and the only one who drives a gas guzzling Hemi, she is retired.  I just want people to think, think about what you buy and the implications it will have down the line.  That is part of the reason that people are stuck in SUV's, they bought more car than they needed.  

First, think!  Do you need an SUV?  If you do not own a cabin in the woods, if you do not have 3 or more children, if you live in a place where it snows less than once a year and rarely over 3 inches.... you do not need a SUV.  For those who will counter with my favorite dumb arguments, I say this.  You say you see more while sitting up higher, SUV's have more blind spots than a car, you see LESS.  You say you feel safer, more people die in accidents in SUV's because they are not capable of evasive maneuvers, they are far less safe than your average sedan.  Buy a car that meets your needs.  There are so many crossovers and body types in the market today, you can certainly find something that will work if you shop across the brands.

Second, analyze!  Will getting out now payoff?  Case in point.

If you bought a 2005 Chevy Trailblazer LT 4WD with Leather, Sunroof, and Bose sound, you paid in 2005 about $35,385.  Today, Kelley Blue Book says it is worth about $10,600.  Kelley Blue Book collects data at 6 month rolling increments, they are close but incapable of keeping up with the daily changing wholesale market.  This Trailblazer is worth about $8,000.  So without selling the truck, you have lost $27,385.  
chevy trailblazer
Here is the situation, if you just put enough money down to cover your sales tax and dealer fees, you are likely paying about $600 a month for that Trailblazer.  Three years in, you will owe on average 42% of the amount financed.  That is roughly $15,000.  So you are facing $7,000 in negative equity.  Ouch!

Furthermore, if you drive 15,000 miles per year as most Americans do, it costs you $91.80 per tank, annually that works out to $3,825 at 16 mpg. according to the EPA estimate calculator.  I cannot begin to work out what the finance charges have been and the maintenance.  

If you don't have $7 large on hand to bail yourself out... you can either try to sell it on your own in a flooded market.  That will be like getting rid of a condo here in Chicago, good luck!  The other option is to roll that negative equity on your new car.  Most people will want to retain the "utility" of the Trailblazer and a natural choice is the Toyota Highlander Hybrid.

Selling at a leading nationwide retailer for $39,325 and that is without the leather, sunroof, or Bose sound.  A Highlander Hybrid will cost you $2,354 annually at 26 mpg for that same 15k per year.  An annual fuel savings of $1,471.  Nice chuck of change huh?  

Remember how you rolled that $7,000 in negative equity?  Oh yeah, that monkey on your back.  Well you had to finance that, when you finance a loan with negative equity you have to pay a slightly higher interest rate.  So with fantastic credit, you will get a 10% rate.  So that 7 grand a year will add $148.73 to your monthly car payment.  Annually, that is $1784.76 in extra payments.  So the Highlander Hybrid not only costs more from the start, but actually costs you $313.76 a year more to own.  

Now this doesn't work in all cases, but this is very common for people to make these irrational "green" decisions.  Many times, Hybrids are a good way to go, the more you have to drive the closer to saving money they can get you.  The best way to lower your automotive expenses is to think before you go shopping, plan your route, and limit air conditioner use and rush hour use.  I hope I help one person figure out how complicated the car buying thought process SHOULD be and keep them from making a mistake.  


Allison said...

Great post, man! You sound so smart and informed. haha.

Anonymous said...

I agree w/Allison. I appreciate your suggestions. Did you write that BEFORE I sent my Qs about the Altima (light) hybrid?
ra - tue - 1:45pm, edt

Jon said...

I had already done the math part at work yesterday before I got your e-mail last night. There is a coming post on like-model hybrids sometime this week.

Jenni said...

There is too much math in this for my tired brain. SUV bad, right?

Dhara said...

Thank you for this informative post! I am going to share it with tons of people!

I would also like to point out that choosing a home and job that are near each other can also save you tons of money. People at work are starting to resent my short commute. I tell them that I value my time, money, and the environment more than a bigger house and yard.

andy said...

whenever i get a car someday , you're coming with me mr. vp !