According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle
Prices by Vehicle Model Class1, wholesale prices of full-size SUVs and pickups have
fallen significantly over the last year, ostensibly because of higher fuel prices. A
question arises as to whether the fall in prices for big trucks is greater than what would be
justified by rising fuel prices. The analysis below shows that based solely on the rise in
gasoline prices, the market may be overreacting to what many believe to be a “tipping
point” as fuel prices reached the $4.00 range. As such, the bursting of the truck “bubble”
may be somewhat similar to what has been seen in other markets such as housing and
stocks, where shrewd opportunists are often able to capitalize on undervalued assets.
Apr-08 Apr-07 Differ
Wholesale Used Vehicle Prices*
Full-size SUV $12,383 $14,045 ($1,662)
Full-size Pickup $10,397 $12,227 ($1,830)
Fuel Prices ($ per gallon)**
Gasoline (Regular) $3.603 $2.971 $0.63
Diesel (On-Highway) $4.177 $2.811 $1.37
# of Gallons to Breakeven
Full-size SUV (Gasoline) 2,630
Full-size Pickup (Gasoline) 2,896
Full-size SUV (Diesel) 1,217
Full-size Pickup (Diesel) 1,340
# of Miles to Breakeven***
Full-size SUV (Gasoline) 39,446
Full-size Pickup (Gasoline) 43,434
Full-size SUV (Diesel) 24,334
Full-size Pickup (Diesel) 26,794
# of Months to Breakeven****
Full-size SUV (Gasoline) 39
Full-size Pickup (Gasoline) 43
Full-size SUV (Diesel) 24
Full-size Pickup (Diesel) 27
*Source: ADESA Analytical Services based on auction data.
**Source: U.S. Energy Information Administration.
***Assumes 15 miles/gallon average fuel economy for gasoline and
20 mpg for diesel.
****Assumes 12,000 miles per year or 1,000 miles/month.
As the table shows, it would take over three years to offset the year-over-year “savings”
in full-size SUV values with the increased expense of gasoline over the last year. Put
another way, full-size SUVs at auction were worth $14,045 in April 2007, when gasoline
was selling for under $3.00 per gallon. Their values have fallen by close to $2,000 as
national average gasoline prices have risen close to $4.00. At these rates, it would take
around 40 months for the increased gasoline prices to eat away the savings on the
purchase price of the SUV. For completeness sake, I did similar calculations for
permutations of SUVs and pickups running on gasoline or diesel. With diesel prices
rising more dramatically than gasoline prices in the last year, the savings on diesel
powered trucks are matched after about 20 months of diesel cost increases.
It should be noted that these calculations do not take into account the time value of
money; that is, the savings on purchase prices for these vehicles are immediate, while the
higher fuel costs would accrue over time. To be fair, however, the calculations also do
not include any potential future escalation in fuel prices either. On the other hand, the
calculations also ignore the increase in wholesale prices of compact cars, which have
risen by 7.2% in the last year. The vehicles are presumably being bought in place of big
trucks and their increased cost should also be considered as part of the trade-off.
Moreover, diesel vehicles may be fetching even less than non-diesels, which would
render the payback period above for diesel trucks conservative.
Despite their oversimplification, I hope these calculations are useful for dealers
“shopping” for vehicles at auction and communicating to their customers. To the extent
that savings in SUV and pickup wholesale purchase prices can be passed on to
consumers, the same payback period applies to the public. Some SUV or pickup owners
may wish to hold on to their vehicle based on this math, but consumers should
nevertheless be made aware that if they were ever in the market for a used SUV or
pickup, now may be the best time to buy one – even with higher gas prices.
1
The analysis is based on nearly seven million annual sales transactions from over 170 of the largest U.S. wholesale
auto auctions, including those of ADESA as well as other auction companies. ADESA Analytical Services segregates
these transactions using the J.D. Power and Associates Vehicle Segmentation Guide to study trends by model class.
The views and analysis provided herein relate to the vehicle remarketing industry as a whole and
may not relate directly to KAR Holdings, Inc. The views and analysis are provided for general
information only and their accuracy is not warranted. The statements contained in this report
and statements that the company may make orally in connection with this report that are not
historical facts are forward-looking statements. Actual results may differ materially from those
projected in the forward-looking statements.