As Car Owners Downsize, the Market Is Strong for Their Used S.U.V.’s
By NICK BUNKLEY

Car dealerships have many customers like David King, who traded in his 2007 Chevrolet Tahoe in late April because filling its 26-gallon tank with $4 gasoline had become so expensive. He now drives a Chevrolet Volt 25 miles each way to work, where he can charge the plug-in hybrid so it rarely uses any gas.

But the old gas guzzlers don’t just disappear when their owners give them up. Many are quickly bought by someone else, sometimes before the dealer even has a chance to clean them up and put a for-sale sign in the window.

Mike Mayhan, a sales manager at the Victory Automotive Group, the Alabama dealership that took Mr. King’s Tahoe, predicted that the black sport utility vehicle would not last long. “I have people waiting to get one, so they turn around pretty fast,” he said.

That is because dealerships also are getting more customers like Jason Frank, who said he was thrilled with the 2003 Ford Explorer he just bought, even though “the gas mileage is kind of depressing.” Mr. Frank and his fiancée each drive more fuel-efficient cars for work, but neither of those vehicles can fit their two large dogs, carry their mountain bikes and pull a boat for weekend trips.

“It’s basically our extra vehicle just to use for our fun stuff,” said Mr. Frank, 28, an information technology manager at a bank in Chesterfield, Va. “We just got it because it fits our needs and it’s very versatile.”

_______________________________________
Go Further – :60 Commercial

What does it mean to Go Further? For a car company it means offering vehicles with innovative technologies, plug-in hybrids and EcoBoost® engines that combine power and efficiency. If you were offering a new car in today’s crowded market, you’d do all this to go further.
_______________________________________

In 2008, when gas prices first reached $4 a gallon, Americans could not trade in their hulking trucks and S.U.V.’s 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 S.U.V.’s 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 S.U.V.’s are 23 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 11 percent for all five-year-old vehicles. Prices for three-year-old S.U.V.’s are up 6 percent, triple the 2 percent average increase for all vehicles that age.

In recent months, large S.U.V.’s 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 S.U.V.’s 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.

“A lot of people with larger families or whatever have just swallowed that gas prices are what they are and there’s not much you can do about them,” said George Fussell Jr., a director at AOW Select, which operates two large used-car dealerships near Fort Lauderdale, Fla. “They’re not buying them for looks. They’re buying them because they need them.”

Even though automakers have made big vehicles more fuel-efficient in recent years, the lower upfront cost of a used S.U.V. appeals to some buyers who need something large. For example, the 2013 Ford Explorer with a 4-cylinder EcoBoost engine gets 28 miles per gallon in highway driving, compared with 18 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 10-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,” Mr. 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 30 or 40 miles away.”

Skip Geniapp, a bookstore manager and audio engineer in Ooltewah, Tenn., said he paid little attention to fuel economy ratings while browsing used-car lots last month. He wanted an S.U.V. with three rows of seats because he and his wife have two adopted children and two foster children.

Mr. Geniapp ended up paying about $6,000 in cash for a 1999 Ford Expedition.

“I’m not in the school of thought that says I should go get a newer, smaller, fuel-efficient car, where I’m saving pennies per gallon but I’m carrying a $450-a-month car payment,” he said. “The price of gas doesn’t affect me that much if I don’t have a car payment.”

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 S.U.V.’s 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 S.U.V.’s they take will not just languish in the back corner of the lot.

“If it’s been well taken care of and it’s a good, clean car, there’s certainly a market for it,” said Brad Schiller, the general manager of Huntington Ford in Rochester Hills, Mich.

Mr. King, the Alabama man who traded in his Tahoe for a Volt, said he was pleasantly surprised by how much he received for the trade-in. Although buying the Volt was more expensive than paying for gas, he said he preferred to put his money toward a new, more efficient car.

“I was spending between $400 and $500 on gas every month for my Tahoe, and I thought, ‘There’s got to be a better way,’ “ said Mr. King, co-owner of an accounting firm.

But even though an S.U.V. no longer fit his needs, he decided to buy a two-year-old Jeep Wrangler for his teenage son at the same time. Gas mileage was not as big an issue in that case because his son will not drive the car as far, Mr. King said.

Besides, he added, “he’s going to be responsible for the gas, so he’ll be getting some important life lessons.”