By on July 24, 2008

Free to a good homeSince this summer's sales slump, Detroit's stopped bitching about the so-called "perception gap." That's the alleged difference between consumers' idea of their vehicles' quality– relative to their Asian rivals– and "the reality." Suddenly, the concept is a lot less important than finding something, anything fuel-efficient to sell. Besides, there's a far more catastrophic "gap" in play, one that threatens Motown's very survival: the "gap" between what a SUV is worth new and its value come trade-in time.

For most of the SUV boom, U.S. truck resale values bucked the domestic passenger car trend toward higher (not to say killer) depreciation. These SUV residual values allowed the boys from Detroit to deploy a whole list of sales tricks no longer available in the car market, especially leases.

It also made it much less painful to get an SUV owner into a new loan before the old one was paid off. Resale values stayed high both because of demand (aspirational buyers who couldn't afford the full price) and general ruggedness (they WERE trucks after all). When the boom was in full swing, SUVs were both selling at huge mark-ups and "selling-on" to new owners long before the vehicles wore out. It was a license to print money.

SUV resale values held up well during the incentive wars of the last five years or so. You would have thought increased incentives would draw more "second-buyers" to buy new, but no. The most likely explanation: increasingly easy credit stretching the resale market ever lower. The Big 2.8  held their market share, at an ever-increasing cost to profits.

There was no way that the recent run-up in gas prices would NOT impact SUV demand. That said, the drop for The Big 2.8 has been dramatic, past the point of catastrophic. Some of this is due to the SUV market's violent contraction, making the domestics a victim of their old success. But the truth is rather darker, and does not bode well for any near-term recovery of light-truck sales.

There are two essential problems. First, obviously enough, supply and demand.

Just about everyone who wanted to buy a truck in the last five years has one. Aside from vehicles wearing out and people reaching driving age (or truck-love age), there is little "need" for more vehicles new or used– especially as the "fashion" SUV owners, looking for a way out, outnumber the new blood. This surfeit of sellers is driving SUV and pickup truck prices into the basement, and then padlocking the door.

This is bad enough. But the second factor makes the situation much worse. 

These days, most truck owners are "upside down" or "backwards" on their loan; they owe more than the vehicles' resale value. As re-sale prices continue to crater, their numbers are swelling into the millions. As the "gap" in value grows in a predictably ruinous way, truck leasing becomes practically impossible.

The only way to lure more buyers is with lower prices. This lowers resale value– again, more, still– and shuts more current owners out of the new market, as the depreciation exceeds the discounting. Again, the fact that these trucks/SUVs are quite durable (one reason they held value) is a bad thing.   

At some reasonable level of industry production, it will probably take five years to get the glut through the market, and perhaps another three to get prices back up. BUT the domestic truck makers can't afford to throttle back on light truck production. The Big 2.8 have counted on trucks to bring home the bacon for over a decade. As we've said here many times before, don't have a plan B ready to go.

Toyondissan are a little less exposed to this light truck debacle– they can count on making money in cars. Aside from pickups, they stayed out of the most vicious price wars. While this kept their sales volumes comparatively low, the strategy maintained resale values at a survivable rate. 

The Dai-san can shuffle factories, sell to the "choir" and maintain a presence in the U.S. market– until the sales environment recovers enough to sell to the "other" truck owners. Toyota can afford to take the long view on the Tundra. Honda can get by selling 200K "trucks" (Pilots, Ridgelines, Odysseys) to their loyal customers. Nissan can't afford the same luxury with the Titan; it's days are numbered.

For The Big 2.8, circles don't come any more vicious. They are STILL collectively building far more trucks than the U.S. market can absorb at a profit. If they cut production, they allow their competition to raise their prices just a little at the old volume. Cutting pickup production to salable levels would help the doer, but it would help the other two even more. 

In other words, Detroit's game of Last Man Standing is also a matter of waiting for the other guy to blink. When one U.S. SUV/pickup truck manufacturer cuts back, bails out or goes under, the others will prosper. Relatively speaking. Realistically speaking, in the next five years, this is the only way Detroit's truck glut could turn back into a short term asset.  

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75 Comments on “As Go SUV Buyers, So Goeth Detroit...”


  • avatar
    adam0331

    I was officially late the the late 90′s tech stock bubble. Bought my current house at the height of the housing bubble. But at least I never bought an SUV or truck in the past 10 years. Finally I can fall asleep with a smile on my face.

  • avatar
    pnnyj

    “In other words, Detroit’s game of Last Man Standing is also a matter of waiting for the other guy to blink. When one U.S. SUV/pickup truck manufacturer cuts back, bails out or goes under, the others will prosper. Relatively speaking.”

    I think this is what Toyota had in mind for the new Tundra, hence the increase in capacity of the San Antonio plant even before the plant was finished. Toyota has put themselves into a position where they can take market share (in what has traditionally been a highly profitable segment) not by conquest but by attrition. Toyota will be there to pick up the pieces, who else will be left is less certain.

  • avatar
    faster_than_rabbit

    Time for another round of “who didn’t see this coming?” The buff books have been warning Detroit to get on the ball since the 1950′s.

  • avatar
    Axel

    When gas falls below $3/gal after Labor Day, people will start buying up the glut of unwanted SUVs like they’re going out of style (which, I guess, they are).

    Because Americans are that stupid.

    Note to Ford: September 9 will be pretty much the ideal date to launch your new F-150.

  • avatar
    Axel

    Another prediction: The post-election Obama lovefest this November/December is going to be the needle that pops the oil bubble. I predict sub-$75 crude (and $2.25 gas) by Jan 1. It just may be enough to save the Detroit 2.

    When the world realizes Barrack is not the freakin’ Messiah, though, it could be ugly.

  • avatar
    TEXN3

    Gas is going to fall below $3/gal? Is this what Obama says…no wonder everyone likes him.

    Seriously though, what makes you think it will fall that far?

  • avatar
    gamper

    Pnnyj, Toyota got caught with their pants down just like Detroit did. To suggest that this was all some sort of master plan by Toyota is laughable.

    On a related note, I have seen numerous stories where dealers are shipping large amounts of SUVs abroad. Perhaps, emerging markets like Russia will be the dumping ground for our unwanted stock of trucks and SUVs.

    The details today regarding the substantial losses by Ford Motor Credit are very telling of how bad resale values are. Usually Ford could count on a profit from FoMoCredit. They are probably taking huge losses on lease turn ins, defaults, etc.

  • avatar
    toxicroach

    If Barack gets oil to 2.25, there will be a strong movement to add him to the Bible.

  • avatar
    John The Accountant

    What I don’t understand is how they keep going when they know its this bad. Bob Lutz amazes me with his comments. They are almost “dillusional” comparing a Cobalt to a Civic or Corolla? They aren’t even in the same league when it comes to quality.

    If I was CEO, I’d pull the leaders of the UAW in for an immediate meeting and say this, “Look, we need to make some immediate changes. We are going to have to shut down a lot of factories and lay a lot of co-workers off, but if we don’t do this none of us will have a job at all.”

    But that won’t happen. They will move too slow, and by the time they start to apply the fixes the foreign Big 3 will already have their updates in place and ready to roll.

    The only way I’d EVER buy Chevy or Ford is if it was a Mustang Cobra or Corvette (new Camaro too). Nothing else seems worth a look at all.

  • avatar
    Axel

    TEXN3 :

    Gas is going to fall below $3/gal? Is this what Obama says…no wonder everyone likes him.

    Seriously though, what makes you think it will fall that far?

    The fall to $3 will have nothing to do with Obama. That drop is already starting ($4.15 to $3.85 here in just a week) due to the drop in oil prices. Oil is way way WAY overinflated, and is undergoing a correction, IMO. It will probably correct to around $100 as speculators see the writing on the wall and sell their petropaper. After a brief spike for Labor Day travel, I see regular finally ticking below $3.

    Another precipitous drop in crude will happen after Obama is elected, and this will be entirely psychological. Do you have any conception the amount of irrational expectations heaped upon this man amongst the common people of the oil-producing world? On Nov. 5, there will be dancing in the streets of Riyadh, Tehran, and Lagos. A perception that the US will be fundamentally changed in its dealings with the world. All a crock of sh*t, of course, but the palpable, temporary era of good feelings will drive down the price of crude. A lot.

    I think in the first 100 days of the Obama administration, reality will take hold, but it’s impossible to predict what will happen to the price of crude at that point. In my rough estimation, the supply/demand balance should be about $60/bbl, and everything above that price is a “psychological premium,” but the market is just too irrational to make sense of.

  • avatar
    detroit1701

    The Cobalt not in the same league as the Corolla? C’mon now. Have you sat in a comparably-equipped Corolla or Cobalt in the past six months? I have. Toyota does not have the upper hand (maybe a few mpg). This “assuming, without experiencing,” trend is not getting us anywhere.

  • avatar
    Axel

    My analysis ignores any oil company electioneering-by-gas-price conspiracy theories. Will Big Oil sell product at a huge loss to “buy” a McCain win in November? I don’t believe in such nonsense, but there are those who do. If it is so, we could see $1.99/gal gas starting October 15 and ending Nov 5 :).

  • avatar
    gamper

    Interestingly, I recally gas prices dropping rather dramatically right before 2006 midterm elections. Dems still won big.

  • avatar
    Axel

    toxicroach:

    If Barack gets oil to 2.25, there will be a strong movement to add him to the Bible.

    Even if it drops to $2.25 before the man even takes the oath (which I think is a distinct possibility)?

    It will certainly inflate his already Chicago-sized ego to even more absurd proportions.

  • avatar
    mgrabo

    detroit1701 Says:

    Here, here! I’ve had Cobalts and a last gen Corolla a few times as rentals. The Cobalt was competitive without comparing sell price. I have test driven the Civic – it dominates this segment and carries a well deserved price premium.

    Keep in mind the launch of the current Corolla was delayed a year after Honda bought the current Civic to market. I’ve previously owned a Toyota and routinely drive others owned by family members. I find Toyotas boring & at least through the early 00s equipped with painfully uncomfortable seats.

    Hypocritically falling into the same “assume, without experiencing” trap I’m criticizing, I haven’t made it out to test drive a new Corolla and likely never will.

  • avatar
    Axel

    detroit1701:

    The Cobalt not in the same league as the Corolla? C’mon now. Have you sat in a comparably-equipped Corolla or Cobalt in the past six months? I have. Toyota does not have the upper hand (maybe a few mpg).

    The new Corolla is bloated pig of a compact. I used to say, “If you like to drive, buy a Civic. If you hate to drive, buy a Corolla. Either way, you can’t go wrong.” But now I’d probably recommend the 3, Sentra, OR Cobalt above the Corolla.

    The 2009 model lost all the things that made it great, while keeping all the things that made it suck. It’s a cheap-seats, slightly smaller Camry.

  • avatar

    To me the Cobalt and the Corolla are the same car

  • avatar
    Axel

    The new Corolla is huge compared to the Cobalt. Probably its best saving grace is it will last forever, but do you really want to drive one for 20 years?

    The ‘Balt is vastly underrated, perhaps more than anything else on the road. I’m not saying it’s a Civic killer, but it’s no dog, especially if you can deal on the price.

  • avatar
    Runfromcheney

    I don’t think that the SUV will ever be fashionable again anytime soon. The only reason why the SUV got big in the 90s was because Ford proved with the Explorer that SUVs can be friendly to the average person, and the booming economy. The main reason why people bought these gigantic SUVs was for “Keeping up with the Joneses” purposes. (Mine is bigger than yours!!!!) These things were huge and luxurious.

    The reason why the value for these things have tanked is because just about anyone who bought these leased them. We all know by now that anyone who is of the “Keeping up with the joneses” type is the kind of person who has no money, but it willing to go up to their ass in debt in order to put on a show and look rich. These thing’s value have tanked because of the same reason why the economy tanked in the 1930s leading to the great depression: There was no solid foundation, everything was based on “pretend” money. Same goes for SUVs, the majority of these things were leased, and since everybody is exiting their leases early to get into Camrys, these things are never fully “funded” and are piling up on used car lots with no takers.

    But, whether we like it or not, the economy is in a recession. Because of this, jobs are disappearing and money is getting tight. This is getting the average American to worry less about impressing people and stand back and access their most needs. The high gas prices are only making a bad situation worse.

    So, in a nutshell, despite how cheap gas gets, there will be no demand for SUVs if the economy remains poopy. Besides, history itself will show that the SUV will never be popular again for a LONG time, just like any fad.

  • avatar
    Ronin317

    Wow…Axel, in the fantasy world in which your thoughts are currently residing, does your wife look like Carmen Electra too? Oh, and please tell me that somehow Wagoner lost his entire fortune in this fantasy world, and is working as the lowest-on-the-totem pole sales guy at a Chevy dealer stuck with 50 Aveos on pure commission…while Lutz is the lot attendant?

  • avatar

    Its sort of a pet peeve of mine concerning both the numerous Cobalt sucks or the Corolla sucks comments. Both are perennial best sellers. I’ve driven the base 04 Corolla, I thought for what it was that it was an outstanding car. To me the Cobalt was simply a Corolla with a Chevy badge virtually the same vehicle. True I would buy a Corolla because I don’t trust the Cobalt but to me it’s virtually the same car.

    Most people don’t drive and cannot afford BMW’s, Mercedes’s, Audi’s, Lexus’, Infiniti’s or even Acuras.

    The Cobalt and the Corolla are entry level economy cars. The Civic is truly head and shoulders above both but then Honda in my opinion is an exceptionally well run company.

  • avatar
    Axel

    Ronin317:

    Wow…Axel, in the fantasy world in which your thoughts are currently residing, does your wife look like Carmen Electra too? Oh, and please tell me that somehow Wagoner lost his entire fortune in this fantasy world, and is working as the lowest-on-the-totem pole sales guy at a Chevy dealer stuck with 50 Aveos on pure commission…while Lutz is the lot attendant?

    Laugh all you want, but no rational supply/demand analysis can possibly justify $125 oil. The current price of crude is based on wonky economics and irrational fear. Meanwhile the OPEC nations are flooding the market with black gold, and laugh when we ask them to increase production. They’re already overproducing!

    Or do you have a rational explanation for the price of crude? Because I’d like to hear it.

  • avatar
    John The Accountant

    If you figure in depreciation, the Cobalt loses everytime, all the time.

  • avatar
    AKM

    Or do you have a rational explanation for the price of crude? Because I’d like to hear it.

    Markets have not been rational since the firs tulip bubble in the Medieval Netherlands.
    Actually, they haven’t since humans began trading.

    While no expert, I agree that oil currently carries a “irrationality premium”. Yes I don’t see it going below $100.00/barrel anytime soon, if ever. Let’s keep in mind that it had been traded too low for decades, and is now catching up. Add to it the fact that it is a finite product (it’s not a matter of “if” peak oil will occur, but “when”), and you have all the makings of a long period of expensive oil.

    Oh, and tar sands may not be exploited anytime soon after all: their exploitation requires enormous amounts of water, which then needs to be treated. I work in water chemicals, and both treatment chemicals prices AND demand are climbing. People are using more and more water even though they’re paying more for it. Adding huge amounts will be difficult. And I mean huge: in Colorado, water treatment for shale/tar oil may be DOUBLE that of the Denver metro area, i.e. completely impossible.

    As for the small car discussion: why not buy a Mazda3. The civic has better mileage, but beside that, I do find the 3 superior in all aspects. And yes, I’ve driven both, but neither the Cobalt nor the corolla.

  • avatar
    Axel

    Sherman Lin Says:

    Its sort of a pet peeve of mine concerning both the numerous Cobalt sucks or the Corolla sucks comments. Both are perennial best sellers.

    McDonald’s Quarter Pounder is a perennial best seller, but that doesn’t make it better than a Hardee’s Thickburger.

  • avatar
    Ronin317

    Axel,

    I agree the current price of crude is inflated because of irrational behavior, but $60 a barrel is a bit ambitious, don’t you think? I’m not sure we’ll ever see less than $100 per. I do think it will drop post-labor day though. I think you’re right to an extent, and tried to have a little fun with it. Sorry you didn’t find it funny…

  • avatar
    Axel

    AKM Says:

    While no expert, I agree that oil currently carries a “irrationality premium”. Yes I don’t see it going below $100.00/barrel anytime soon, if ever. Let’s keep in mind that it had been traded too low for decades, and is now catching up.

    The inflation-adjusted “historical” price of oil is $28. I think the appropriate supply/demand balance lies at $60. There’s your upward correction. I doubt oil was trading at 1/4th what it should have.

    Add to it the fact that it is a finite product (it’s not a matter of “if” peak oil will occur, but “when”), and you have all the makings of a long period of expensive oil.

    That’s as maybe, but right now the oil fields are gushing and there’s vastly more than enough supply to meet demand. Supply is not yet an issue, despite the 20-year discovery-production gap theory that has only been shown to be valid for US Oil.

    As for the small car discussion: why not buy a Mazda3. The civic has better mileage, but beside that, I do find the 3 superior in all aspects. And yes, I’ve driven both, but neither the Cobalt nor the corolla.

    I drove the Civic LX and the 3 (2.0L) back-to-back. The 3′s interior was junky by comparison, road noise was much louder, handling was (surprisingly) not as good, and the performance was only slightly better. The 3 had more toys and a better stereo for the price, but the Civic felt like a substantially nicer car overall.

  • avatar

    Axel, “McDonald’s Quarter Pounder is a perennial best seller, but that doesn’t make it better than a Hardee’s Thickburger.”

    A thickburger (a favorite of mine) is like 3 or 4 dollars here in Tampa and a Big Mac is like dollar fifty here.

    A 3 series or a Mini is a much better car than either a Corolla or a Cobalt but then again they are much more expensive.

    They are perenial best sellers because they deliver a lot for that price point. Again you can’t dump on either the Corolla or Cobalt simply because there are better cars at a higher price point. I note that the Civic is far superior to either but then again almost all Honda’s kick ass and even the Civic is a more expensive car.

  • avatar
    Axel

    Sherman Lin: I note that the Civic is far superior to either but then again almost all Honda’s kick ass and even the Civic is a more expensive car.

    Just sticker-shopping, the Corolla isn’t that much cheaper than a Civic. Maybe $1000 less for the same set of features.

    The Cobalt isn’t cheaper either, but then you usually have thousands of dollars of incentives and dealers who are willing to deal. That’s why I’d recommend someone check one out before looking at a Corolla.

    Toyotas carry a “reliability and durability” premium due to a well-earned brand reputation over the years. Hondas are built just as well, and so are Chevys if you get one that wasn’t built on a Friday ;).

  • avatar
    nonce

    I might not agree with Axel, but he’s actually giving us falsifiable predictions about when he thinks the oil bubble is going to pop, unlike some others who refuse to say anything that might end up being proven wrong.

    So in September and November and January we’ll be able to see whether or not he was right or wrong, which puts him ahead of most other folks.

  • avatar

    Axel I haven’t compared in a while but is that true for the low end base models Civic vs Corola vs Cobalt.

    In 2004 I think my mom paid 13k for a Corolla CE automatic and she got a rebate so it was actually less plus tax and tag.

  • avatar
    Axel

    nonce Says:

    I might not agree with Axel, but he’s actually giving us falsifiable predictions about when he thinks the oil bubble is going to pop, unlike some others who refuse to say anything that might end up being proven wrong.

    So in September and November and January we’ll be able to see whether or not he was right or wrong, which puts him ahead of most other folks.

    If I’m right, I’ll be able to say “Neener, told ya so!” and if I’m wrong, I can just STFU. Nothing much to lose :).

    All that said, looking at the last few years, gas ALWAYS spikes in the summer, and ALWAYS troughs in Jan/Feb. Remember when we dropped below $2 in early 2007? That was only 18 months ago. And I honestly think there will be a totally insane, irrationally positive reaction around the world to the election of Obama as President.

    Of course, should McCain win, all forward-looking statements become null and void.

  • avatar
    mel23

    A VERY wild card is whether we, or our puppeteer, attacks Iran. We won’t know this until Jan. 20.

  • avatar
    indi500fan

    Why would “big oil” want a McCain win?
    Isn’t 80% of world crude production sourced from gov’t owned areas?

  • avatar
    TEXN3

    Axel, my original comment was a bit ‘tounge-in-cheek’ and I still disagree with a $60/barrel price but honestly $100/barrel is just fine.
    I haven’t seen prices drop here, in Boise (or anywhere else in the NW). The avg. is around $4.30 which is just fine with me.

    The Mazda3 base leaves a little to be desired, but the Touring and Grand Touring are an excellent value. Of course, the GT was the model I test drove and bought and I’ve enjoyed it much more than the Civics I test drove when they were first introduced…plus the lack of a 5-door model helped sway my decision.

    I agree with the positive reaction to Obama, because they’ll be duped like Americans. Look at the reception he has been recieving on his Mid-East and Europe tour.

  • avatar
    Dave

    Isn’t one of the theories about the price of oil that a substantial part is driven by investors pulling out of the stock market and buying tangible items – oil and other materials – look at the price of steel etc.

    I’m not an expert, but I think the only way for oil to get to trend, or even $60/barrel would be a/restored confidence in the financial markets, and b/ slowing of China, India etc.

    And here from the US colony moored off the west coast of Europe, I’m not sure that Obama or the other one is really going to have that much effect on world commodity prices.

    Just my 2 pence worth, and I’ve probably got it wrong ’cause if I were that smart I’d be a lot richer.

  • avatar
    bill h.

    Don’t forget the surcharge on oil that occurs with each Orange Alert issued by the Department of Fatherland Security just before the elections…..

  • avatar
    davey49

    I vote for the Sentra as the best car in the compact segment. The 3 and Civic (maybe the Cobalt) win on the sporty driving front but the Nissan is the most luxurious.

  • avatar
    andyinsdca

    Cal Worthington Dodge here in San Diego is offering 50% off new Dodge trucks with a combination of discounts and rebates..

    http://boongawnee.com/calworthington.com/carlsbad/WD071108.html

  • avatar
    Adub

    I took my sister shopping for her new car a while back and the Corolla interior was cheap in a 90s Cavalier way. I think the Cobalt has better interior materials. That said, she bought a Honda because we knew it would be reliable.

    Gas won’t drop. The Saudis won’t help, they never do. All the conspiracy theorists thought we’d catch Osama before the last election too.

  • avatar
    Axel

    TEXN3:

    The Mazda3 base leaves a little to be desired, but the Touring and Grand Touring are an excellent value. Of course, the GT was the model I test drove and bought and I’ve enjoyed it much more than the Civics I test drove when they were first introduced…plus the lack of a 5-door model helped sway my decision.

    By the time you get to the 5-door GTs you’re well into the 20s on price. I bought my Malibu Maxx new for $21k, which is twice the size, nearly as fast, and has the same MPG. Handles like a bus by comparison, but when you can haul four adults in comfort with all their camping gear, who cares? I buy hatchbacks for their ability to haul stuff, and compacts for drivability and fuel sippage.

    Though if there were a Civic hatch I’d be all over that.

  • avatar
    M1EK

    Again the GM apologists with the “you just haven’t given the Cobalt a chance” nonsense. Newsflash: Anybody who travels on business gets a chance to drive this car, or at least ride in it (I’ve now ridden in three). It sucks. It sucks less than the Cavalier did, but that’s not saying much. It gets worse mileage in practice than do much larger and better offerings from competitors, but feels even cheaper and even crappier than it’s actual segment competitors.

  • avatar
    pnnyj

    gamper Says:
    July 24th, 2008 at 12:08 pm

    Pnnyj, Toyota got caught with their pants down just like Detroit did. To suggest that this was all some sort of master plan by Toyota is laughable.

    There’s an expression that Warren Buffett often uses: “You only find out who is swimming naked when the tide goes out.”

    Toyota has the financial strength to weather this downturn however it unfolds. No, I don’t think that they saw such a dramatic market shift coming but they’ve now got a competitive truck and the production capacity to steal market share if one or more of the D2.8 should fail.

    Here’s a frightening mental image: Rick Wagoner swimming naked.

  • avatar
    TEXN3

    Correct, mine came to about that price, and quite honestly had planned on buying an Escape for Utah and Idaho driving but enjoyed the test drive with the 3 that I bought it (and some Pilot Alpins for winter). I absolutely loved the quirky EP3 Civic Si even though it was a 3-door model.

    I buy hatches/wagons for the same reason. But the Malibu (or any other GM product) was never on my radar and would take alot to get one on there. And twice the size, while rational, is not enough of an arguement for me. But I’m glad that someone enjoys it because it showed Chevy tried to sell something practical. Handling does matter to me quite a bit due to the mountain roads I encounter in Idaho. And 4 with camping gear fits, but it a little tight. Still, got the job done quite well.

  • avatar
    Landcrusher

    Andrew,

    Well done. Nice to see someone gets it.

    The SUV was a better buy when the depreciation was so low that it overcame the poor fuel mileage. The increase in fuel prices did not directly change that relationship. It was only the incredible drop in demand, largely due to pump shock, that caused depreciation to increase to the point that even if you got free gas, it was a bad deal.

    Depreciation is expensive. Gas is still cheap.

  • avatar
    Axel

    TEXN3:

    I buy hatches/wagons for the same reason. But the Malibu (or any other GM product) was never on my radar and would take alot to get one on there. And twice the size, while rational, is not enough of an arguement for me. But I’m glad that someone enjoys it because it showed Chevy tried to sell something practical.

    WIN: Creating the only 25+MPG, sub-$25k midsize hatch/wagon on the US market. FAIL: running all of one corporate ad for it. I still get tons of compliments on it: “That looks really sharp! It’s huge inside! How much can you get one for?” (I have to disappoint them with the fact that it’s no longer sold.) And that’s before they get in and I step on the pedal and the grunty, torquey V6 throws them back in their seats. We always called it “GM’s best-kept secret.”

    The handling isn’t bad, it just feels very disconnected after driving the wife’s Civic, which has laser-precise steering and carves corners like a sports car.

  • avatar
    Waffle

    Coal to liquid conversion technology is more than 60 years old, the US has more coal than anyone else, the commercially viable price for CTL is equivalent to $45-60 per barrel (tar sands are even cheaper)… bottom line, $100+ oil long term is total nonsense.

    http://www.knowledgeproblem.com/archives/002049.html

    I was too young to buy a chrysler hemi in 1980, when they were giving them away, but this time i will take advantage of the “irrational revulsion” over oil prices to pick up a bargain in a big guzzler (maybe a V12 mercedes from the 1990s).

  • avatar
    John Horner

    “When one U.S. SUV/pickup truck manufacturer cuts back…”

    Haven’t all of the truck makers scaled back production dramatically and announced more plans to do so in the near future? It isn’t as if they continue to the run factories flat out.

  • avatar
    folkdancer

    It is one great balancing act. The price of fuel is going down but how much and for how long? Will the price drop cause us to return to buying 13 mpg vehicles? Will we file away the plans for electric cars, oil shale, tar sands, hydrogen power, wind farms, solar energy, biofuel, and off shore drilling? Will the problems in the housing market prevent people from buying anything? Will credit remain turned off or will it return? How can some dealers still advertise 0% financing and will this destroy them and their customers? Will fuel prices go down and stay down long enough to save the 2.8? Will bailing out the Frannies and the 2.8 cheapen the dollar and cause fuel prices to go back up? Will Osama die of old age?

    I haven’t a clue as to what is going to happen.

    I hope all of you remember your predictions and own up to them next year:-)

    Lisa Ling for President!

  • avatar
    jurisb

    Why should Oil prices go down? Us prints excess dollars that are not covered either by gold reserves or manufacturing. External debt exceeding 10 trillion, record trade deficits, dramatic extinction of US manufacturing base, abnormal money borrowing from abroad, middle class extinction along manufacturing, government overspending on military programs. Decline in dollar value. So before your cheap shots obamas give you empty promises, ask them why exactly should oil prices go down? And they shouldn`t! Fluctuations in a 10 bucks territory are just fooling you that prices go down!
    Actually it doesn`t matter if gas prices are high or low, it matters how fast can companies adopt to customers needs, and japanese are always faster, more diverse and better! And if gas prices were cheap, japanese would continue SUV onslaught and wipe out detroit anyways. Japanese succeed not because they have fuel sipping cars, it is because they have trustworthy cars that are always based on their own platforms , sweat and committment to quality! Would otherwise Landcruiser be selling so good? And when gas prices go up they still stick to Toyota, because they know a company they can trust. DETROIT, HARD AND HONEST WORK AND INPUT ALWAYS PAYS OFF! What a pity that you haven`t noticed that!

  • avatar
    davey49

    Oil prices will go down because we are buying less oil at the prices they are asking.
    waffle- a Hemi in 1980 still would have cost you a decent amount. Even back then a Hemi equipped car was rare.

  • avatar
    macarose

    “Why should Oil prices go down?”

    The laws of economics?

    “Us prints excess dollars that are not covered either by gold reserves or manufacturing.”

    Since when has manufacturing covered the cost of currency? Gold reserves haven’t been used as a standard by any country in over 35 years.

    “External debt exceeding 10 trillion, record trade deficits, dramatic extinction of US manufacturing base, abnormal money borrowing from abroad, middle class extinction along manufacturing, government overspending on military programs.”

    All true…

    “Decline in dollar value.”

    Which is why I’m invested in non-US currency for the last five years.

    “So before your cheap shots obamas give you empty promises, ask them why exactly should oil prices go down?”

    Huh? What does Obama have to do with this? Have you been listening to Rush & Co.?

    “And they shouldn`t! Fluctuations in a 10 bucks territory are just fooling you that prices go down!”

    No, the dot com stocks of times past had even more seismic shifts. In times of uncertainty you have greater volatility in prices. It’s been the case ever since the Dutch were selling tulips.

    “Actually it doesn`t matter if gas prices are high or low,”

    Tell that to most consumers…

    “it matters how fast can companies adopt to customers needs, and japanese are always faster, more diverse and better!”

    The Japanese??? Are you kidding me? This type of generalization reminds me of that Sony commercial where the punch line is ‘Sony, Because Caucasians Are Too Damn Tall.”

    http://www.youtube.com/watch?v=93KrnZ0UJQk

    “And if gas prices were cheap, japanese would continue SUV onslaught and wipe out detroit anyways.”

    Yep, and Mary Poppins can really fly.

    “Japanese succeed not because they have fuel sipping cars, it is because they have trustworthy cars that are always based on their own platforms , sweat and committment to quality!”

    Just ask Mitsubishi…

    “Would otherwise Landcruiser be selling so good?”

    Huh?

    “And when gas prices go up they still stick to Toyota, because they know a company they can trust.”

    Well, I once had a Toyota for 12 years and 239k miles. Great car… boring car. I now have three German and two American vehicles on my driveway.

    “DETROIT, HARD AND HONEST WORK AND INPUT ALWAYS PAYS OFF! What a pity that you haven`t noticed that!”

    Yes the American worker is SO lazy. That’s why they work more hours, take fewer vacation days, and are more productive than their ‘Japanese’ counterpart. Well, maybe all Americans but me.

  • avatar
    Landcrusher

    jurisb,

    Without regards to the merits of the gold standard, the rest of the world doesn’t believe in it. Nor do they care.

    You are of course free not to suffer the consequences with them. Just keep your savings in gold instead of US Dollars. If you are right, one day you can light your cigars with worthless dollars while sitting in your mansion after the collapse of the monetary system.

  • avatar
    jurisb

    Quality of end products has nothing to do with productivity. productivity is amount of labour hours maximally minimized for squeezing out a product or a part. just because Americans idle more hours at work joggling around with a computer mouse , doesn`t make them more competetive in cranking out tangible hardware. Which they don`t, evidently.Americans are not lazy , actually they are wasting so much of labour force on simulated jobs that it is no surprize, their economy is sinking. If , instead of wasting labours on creating golf courses, consulting companies and fuck funds, they were more focused on manufacturing real items they consume themselves, the economy wouldn`t be in abnormal debt because all the commodities have to be created by foregn companies and imported.
    You also mentioned Mitsu. Guess , since when Mitsu got into problems? When it sold shares to Chrysler corp, and Chrysler pushed their strategy of amalgamating resources and sharing.
    And you can`t compare dot com bubble to gas prices. Dot coms had no real consumers behind it who would pay real cash for it. it was not an indispensable item, that people would be obliged to purchase. Fuel is different, because it is not substitutable, and contraction of consumption will be insignificant and gradual. people use fuel because of commuting to work, doing their businesses etc, while dot com was a greed hysteria without financial backup .
    And japanese are faster, more diverse and quality oriented, it is not a generalization. In any segment of electronics, every fucking japanese company prospers and every fucken japanese company is profitable even today under harsh markets, which American company could say that? Which goddamned American precision manufacturing company using their own engineering capacity is flourishing and gaining market share?
    And manufacturing is tied to the value of domestic currency. Manufacturing is the best pillow and buffer of currency fluctuations, because manufacturing can be exported, which again turns in income, which are not printed by Fed, but return as added value. Do you know any country with strong manufacturing base but weak currency?

    A country can make potatoes and a country can make plasma Tv sets. If a country exports potatoes, they set a certain price range on it and try to conquer local markets, if prices are too high, local manufacturers buffer it by selling their own produce at lower price.Now imagine that you sell plasma Tv sets abroad. And you set certain price range on it. If your price is too high, local manufacturers sell their tv sets cheaper, buffering your price. but here is the trick, how many countries are able to manufacture Tv sets? not that many. So it turns out the more complex and indispensable items you manufacture and sell, the higher the price you can set, and the higher the profit margins. Today US manufactures less and less complex things, which are replaced by imports, and funnily enough there are no buffering companies for price increase in USA, that is why the more US is dependable on imports , that can not be substituted by local products, the higher the inflation risks. So far Chinese have been playing around with low prices, but there is nothing that will stop them when their own market will get self- sustainable. The prices will go up, and they will give not a shit if US threatens them with trade sanctions, because they will be able to profit just by their own Asian market, and will sell off all their Us 1,6 trillion obligations.
    One day in some country will be born a clever economist who will understand that all stock exchanges and shares are nothing but but added inflation to prices. everything that is sold and speculated without tangible backup , adds to inflation.

  • avatar
    ihatetrees

    Landcrusher:
    Depreciation is expensive. Gas is still cheap.

    Yup. An exterminator I know tells me his total cost of (light truck) vehicle ownership is DOWN because of the late model deals he can get. (Although I think he was previously buying new).

    And prices still haven’t hit bottom.

  • avatar
    jurisb

    Landcrusher- nobody believes in gold standard? guess, you are right. well, except Ron Paul believes. And Bob Barr,..and Dennis Kucinich, And Peter Schiff, well, and Steve Forbes.

  • avatar
    Landcrusher

    JB,

    I stand corrected. How about this:

    There are more people in prison than believe in the gold standard, and just as many of them will actually consider the gold standard when they vote.

    Also, this:

    Everytime a libertarian drones on about the gold standard, dozens of people become even more certain that there are only two viable political parties in the US.

  • avatar
    Pch101

    Everytime a libertarian drones on about the gold standard, dozens of people become even more certain that there are only two viable political parties in the US.

    Yep.

    For those who have trouble spelling, here is the proper spelling of “gold standard”:

    D E P R E S S I O N

    If you like having one of these economic wipeouts every one or two decades, then yes, let’s all run out and sign up for the gold standard. Because that’s exactly what you’ll get if we have a gold standard, and exactly the reason that we got rid of it in the first place.

    You can either control the money supply, or else you can allow it to control you. Funny thing is, when the money supply is running the show, it pretty much sucks for everyone else.

  • avatar
    M20E30

    “Everytime a libertarian drones on about the gold standard, dozens of people become even more certain that there are only two viable political parties in the US.”

    -Every time a libertarian drones I tend to ignore them. It’s ridiculous idealogy, it would fail IMMEDIATELY. It’s a pipe dream exactly like Communism is. I cannot fathom how horrible a libertarian society would be.

  • avatar
    Engineer

    The inflation-adjusted “historical” price of oil is $28. I think the appropriate supply/demand balance lies at $60.
    Axel, have you developed an economic theory that allows you to calculate an appropriate price based on supply and demand? That would be quite impressive, since it would mean a permanent end to all bubbles. I suspect you could get the Nobel Prize for Economics for that.

    Call me a skeptic, but until I read you thesis, I’m calling it bull manure.

    Or do you have a rational explanation for the price of crude? Because I’d like to hear it.
    Perhaps a picture will help.

    Laugh all you want, but no rational supply/demand analysis can possibly justify $125 oil.
    No need to laugh. Just refer to the picture. You’ll note that for the last three years supply has been static, unlike demand.

    On Nov. 5, there will be dancing in the streets of Riyadh, Tehran, and Lagos. A perception that the US will be fundamentally changed in its dealings with the world. All a crock of sh*t, of course, but the palpable, temporary era of good feelings will drive down the price of crude. A lot.
    LOL! Please expand on your theory of international politics. I sense another Nobel prize. This one perhaps in the area of Fiction.

  • avatar
    Waffle

    davey49 Says:
    “Oil prices will go down because we are buying less oil at the prices they are asking.
    waffle- a Hemi in 1980 still would have cost you a decent amount. Even back then a Hemi equipped car was rare.”

    Davey, don’t know where you were located in 1980 but Vancouver, Canada already had significant japanese volumes by then, also, we went to world price immediately, no gas lines, any real musclecar was a 10 yr old guzzler by then. they were not popular and pricing reflected that.

  • avatar
    jurisb

    Imagine you have a garden, and yo grow vegetables and fruit there. And most of people around you do the same.But you don`t sell it, you consume it yourself, and if you need some more of it, you buy it at local grocery store.What happens when all society quits growing anything at their gardens and have only lawns there? Right, those who sell vegetables feel more in control, because they know you don`t have a choice not to buy. This is a sprout of greed and inflation. If you are used to driving so much that you don`t even consider bicycle or public transport as an option , they can trim as a sheep. So the more lazy and physically challenged the society is , the easier to push up fuel prices without losing sales volume. And US, by the way is pretty rich in money so there is a big reserve to trim. Unfortunately the rest of the world has to suffer , because every bastard gas station will find US price increase as an excuse to increase their prices as well. In Latvia fuel ( octane 95) costs approx 8 dollars a gallon, while average salary is 450 dollars a month! Factories are closing one by another, while in last 20 years I haven`t noticed a single closed gas station. SO here is the reality, an average factory loosing 1000 workers of middle class is being replaced by 10 millionnaires as gas filling station owners.
    Do you see a correlation between dying middle class and inflation? By the way oil prices are pretty proportional to gold prices, so while gold is flirting in territory of 900-1000 per ounce, why should oil prices go down? I believe oil prices will go back to records again in 2 months period of time, because dollar has no increase in parity, the more dot coms and consulting companies you have the more imports you have, the more imports, the bigger the debt, the lower the value of dollar, which will be lowered even more by China`s massive currency reserve diversification.

  • avatar
    Landcrusher

    JB,

    Seriously? Do you know how much we get exporting our consulting services?

    Also, if you think all the guys who own gas stations are greedy bastards, why don’t you call Exxon? They are selling all of theirs because they aren’t profitable. So, you can own one of your own and be a rich, greedy bastard yourself. Or, you will find out they aren’t so greedy after all.

    It will be the latter. Don’t come looking to me to help you out when you lose all your money. I am not interested in owning a gas station. I know better.

  • avatar
    jurisb

    Landcrusher- how can you be exporting consulting services if you yourselves don`t know how to run business? Oh , I forgot, consulting businesses don`t have any precision cast real , tangible parts or movements. So , it could work. And , oh, yeahh, poor Exxon Mobil are so unprofitable that have to sell gas filling stations, except that last year they set an absolute profit record of all time in any businesses in the world- 45billion. This is your lunch money, evaporating middle class!

  • avatar
    golden2husky

    And japanese are faster, more diverse and quality oriented, it is not a generalization. In any segment of electronics, every fucking japanese company prospers and every fucken japanese company is profitable even today under harsh markets, which American company could say that? Which goddamned American precision manufacturing company using their own engineering capacity is flourishing and gaining market share?…

    American high tech can’t compete in the consumer grade electronics market price wise. This is true. But your “America makes movies and music – using Japanese equipment” and nothing else viewpoint is rather myopic to say the least. In the industrial/commercial sector where quality and performance is far more important that price, American companies more than hold their own in the world marketplace. Next time you are in the hospital – yeah, including Britain – look at who make the equipment in the operation room. I’ll bet 80% bears the made in USA label.

    And regarding American productivity, the figures that show the US the highest in productivity take into account actual output, so somebody just “moving a mouse” all day with no production wouldn’t help that figure at all. If you are going to be so US hostile, why not try to find things where you hostility is based in fact? The past 7 years have provided plenty of fodder for such thinking; there is no need to make any up.

    Regarding the erosion of the middle class, here you are correct. The middle class is evaporating like spit on a hot tin roof. Happened in Great Britain, and it is well under way in the US. America has sold itself out for short term gains. The “trade deals” have made a few rich and have deprived middle/lower middle class people of their existence.

  • avatar
    Landcrusher

    JB,

    When I said “we”, I meant the USA. Now, either you got that or you didn’t. I think the latter.

    Are you saying the US businesses don’t know how to run a business? Or are you saying I don’t know how to run a business?

    The first is ludicrous, the second is a personal flame. Please clarify your position.

    As for precision casting and moveable parts, I think the US aviation industry is still competing just fine. Since I own an aviation consulting and aircraft brokerage company as well as an aircraft leasing company, I think I am qualified to make that statement.

    You likely aren’t going to let any of this penetrate into your oversimplified worldview, so I am likely wasting my time explaining it, but just in case there is a chance I will try one more time.

    If you believe the country would be better off adopting more libertarian principles, then you should do a better job picking your battles. I am one of the most libertarian leaning people on this site, and yet you do nothing but remind me why I should just hope the Republicans can get back to being for small government rather than try to support the libertarians. What’s a few religious fanatics compared to a complete parade of nuts after all?

    PS I am not writing this because I am afraid of “Black Helicopters” or whatever the government is supposedly now using for surveillance and mind control.

  • avatar
    jurisb

    I didn`t mean to insult you. And I am not either for libertarians, democrats or whatever. I don`t care. I am for a presidential candidate who would be honest, stick to his principles and couldnt be bribed by large corporations. Who would have some economical education and would have an IQ at least compatible to James Woods. Of course military complex also yields to economical development, like new materials and technologies. But is that worth those 500 bn annual allotments? Every Northrop or Oshkosh wastes so much taxpayers money by inflating price on any single part or equipment piece. Imagine if car industry was taxpayers covered, every single ashtray would cost 600 bucks, as it does on those obsolete B-52s.
    And I am not hostile, I just want you to wake up , before this country turns into immigrant , service driven third world country, where last white people hide in some mansions in Vermont golf course resort.

  • avatar
    Landcrusher

    “And I am not hostile, I just want you to wake up , before this country turns into immigrant , service driven third world country, where last white people hide in some mansions in Vermont golf course resort.”

    Wow, at this point I am speechless.

  • avatar
    folkdancer

    And I am not hostile, I just want you to wake up , before this country turns into immigrant , service driven third world country, where last white people hide in some mansions in Vermont golf course resort.

    I would like to recommend a book titled “The Post American World” by a man from India named Zakaria.

    In this book I discovered that the U.S. is in much better shape economically, in manufacturing, and even educationally than our news people have lead me to believe.

    The idea of this book is that the U.S. percentage of wealth is decreasing BUT the overall pie is getting bigger so we and the rest of the world all have an opportunity to have a better standard of living.

    The author points out the problems facing the U.S. and India/China/Japan/Europe. How each of us solve our problems will determine if we continue to do well.

    Incidently it is the immigrants (legal and illegal) who are paying our Social Security benefits.

    The Europeans and Japan do not have many immigrants or high birth rates and their social programs are facing even bigger problems than ours.

    But if ALL the remaining white people are going to hide on a tiny golf course in Vermont then they probably don’t need to fund any social programs or even read books:-) Of course they better pay their electric bill so they can recharge their golf carts.

  • avatar
    davey49

    Waffle- you specifically said HEMI. The Hemi engines were rare when new and still rare even in 1980. My brother was willing to trade his clean 57 Belair for a running Hemi Engine.
    A big block muscle car of any other type (440,454,428,429,455) was common and readily available.
    folkdancer- I’m pretty sure that European countries have more immigrants than the US.
    Landcrusher- right, If the US wasn’t full of service driven immigrants, we wouldn’t exist.
    jurisb- Korea has been destroying the Japanese on the consumer electronics front lately. And most of the popular stuff lately has been designed in the US. Think Apple and Microsoft. Even Japanese branded TVs are very often using Samsung and LG panels.

  • avatar
    macarose

    “And I am not hostile, I just want you to wake up , before this country turns into immigrant , service driven third world country, where last white people hide in some mansions in Vermont golf course resort.”

    Sorry, this is TTAC, Not NAZI.

  • avatar
    jurisb

    But this is how rich people intended their lives. On rich desolated islands with those marijuana style looking palm tree leaves hanging over an indiglo lagoon. With chateaus, and beeping power gates and white columns with angel sculptures. And they got away. With taxes, speculations and paperwork. And when they slide open their power tinted bentley windows they are okey to tolerate for a couple of minutes the strange faces from distant countries, the rust belts passing buy and some sales people that don`t fathom english tongue clearly.They are okay with Harlems and trailer towns, and shuttered factories, because their own houses have distinctive fences, and gargoilles, and security cameras.And they never ask questions, why Americans don`t have children any more, they just sign more petitions for immigration.And seem not to notice 44 trillion Social Security holes, because you are paying taxes, and the more people pay we should be happier, shouldn`t we? This has nothing to do with cars, so I WILL STOP HERE.

  • avatar
    jimmy2x

    I would like to recommend a book titled “The Post American World” by a man from India named Zakaria.

    For those who may not be familier with him, Zakaria has lived in the US for many years and is a regular columnist for Newsweek. Personally, I consider him one of most astute political commentators in America.

  • avatar
    robert

    I received a dose of reality today caused by “THE SKY IS FALLING” syndrome. I purchased a 2003 Honda Accord from a neighbor…only 18k miles. I own a 2004 Lincoln Aviator with 38k miles and is LOADED AND SPOTLESS. My wife and I were talking about trading this vehicle. We went to CarMax for an appraisal…they will only give me $10,000 for it. What is ABSOLUTELY ridiculous is that the 2003 Honda is worth $5,000 MORE than my 2004 Lincoln. Just wait and see….the speculators are now backing away from oil, Americans are not only driving less, but buying cars with better mileage. Which MAY further reduce consumption. Gas prices will retreat and people with larger families will want larger vehicles again, an so the cycle continues.

  • avatar
    50merc

    robert: “a 2004 Lincoln Aviator with 38k miles and is LOADED AND SPOTLESS. … went to CarMax for an appraisal…they will only give me $10,000 for it.”

    Ouch! My sympathies. It seems your CarMax quote is about 2/3 Edmunds’ trade-in estimate and roughly half the supposed dealer retail. Gas has fallen to $3.59 here; maybe SUV values will come back some. In the late 30′s the classic Packards, Pierces and such became unwanted, too. But it’s not practical to put the Navigator in a barn and wait fifty years.


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