Last updated Monday, May 15, 2006

I hinted in last month’s market conditions blurb that I sensed a slight lessening of activity in general as a result of an overall lack of retail business. That “slight lessening” has become what seems to be a serious negative adjustment in the market as demand has continued to be extremely light for all but the most unusual vehicles. It is an unusual circumstance for this time of year and therefore confusing, but what hasn’t been unusual about the market patterns over the past few years??? Combined with the lack of demand, and probably somewhat responsible for it, is the consumer response to rising fuel prices that must create confusion on their part. Those who were considering a larger vehicle may have put their shopping on hold, and those who would like to get out of their fuel swilling transports may be having second thoughts when confronted with the reality of trade-in offers from increasingly cautious dealers. At any rate, what was already weak demand has become significantly weaker in a lot of formerly popular market segments and the prices reflect that.

Hardest hit are the full size SUVs. Vehicles such as Suburbans, Excursions, Tahoes, Expeditions, et.al. are in plentiful supply and have few buyers and most are looking to steal. While the book is dropping rapidly, no one really knows what the bottom is and I’m afraid we are in that unwelcome situation where no matter what the book is, they want to buy such vehicles for well under book. There is no telling how long these conditions will last. We experienced similar conditions last fall when fuel became so expensive and things moderated as fuel prices dropped. If I had to guess, I would say that things will remain difficult in this segment until fuels prices drop once more as I think they will after the oil companies extract maximum profits in the short term before responding to the outrage of consumers and the threats of alternative fuels by dropping prices once again. The public has proven itself to have a short memory in the past. In the interim, this will be a very difficult segment and buyers are going to want to own such vehicles very cheaply or not at all. There will be some great deals out there.

The other, smaller SUVs will suffer also, but to a lesser extent. We think the larger pick-ups will also be affected but not as harshly as SUVs. Whenever this situation occurs, the smaller and more fuel efficient SUVs and pick-ups hold up pretty well - sometimes even increase in desirability - and we think that will be the case this time as well.

Beyond the gas issue, however, this is still a difficult market and will probably continue to be so for some time. There is very little demand and the market is reacting to that. Unless you have an unusual vehicle or one that will be chased because of its fuel stinginess, it will be a difficult sell. The ordinary vehicle with ordinary mileage and equipment will have nothing to attract buyers but a low price. We have seen some significant drops even among the usual stalwarts, the Toyotas and Hondas of the auto world. If they are experiencing difficulty, you can imagine what the rest of the players are experiencing. For the most part, you can sell a very low mileage example or a very high mileage example, but the in between vehicle is very difficult. Such is the case for all but the most desirable products.

European luxury vehicles continue to soften, but that has been the case for quite some time and the downward pressure on them is probably not as severe as on those vehicles that have been holding up so well in the recent past.

The under $8,000 segment remains strong - often very strong - especially for those vehicles that are fuel efficient.

Caution is advised.

Dan Galves