Why now's the time to buy an SUV

By Christopher Solomon

Here's a piece of unconventional wisdom: Now may be a great time to buy that SUV.

What? you sputter. Haven't you seen the price at the pump?

Sure, gas prices are still above -- sometimes way above -- $3 a gallon in many parts of the nation. But that translates into lots of people trying to unload their sport-utility vehicles. (In one extreme, California authorities foiled an arson-for-hire ring in which SUV owners, weary of paying for their gas-guzzlers, paid an arsonist to burn them.)

The simple law of supply and demand means there are some hard-to-ignore deals out there on big rigs -- particularly used, late-model SUVs, experts say.

"It would be a great time to buy an SUV, based on what we're seeing on our site." says Louise Barr at used-car classifieds site AutoTrader.com. AutoTrader.com saw an increase of nearly 70,000 more SUV listings between last June and this June, a nearly 20% rise.

"Psychologically, a lot of people would think it's a bad time," adds Jack Nerad, executive market analyst for Kelley Blue Book. But given how much many SUVs have dropped in price, Nerad explains, "The savings you would realize in buying now versus some future date when (SUV) prices are likely to be higher would more than pay for the potential price hikes in gasoline you might see."

Surveying the SUV carnage

In the last 18 months, several things happened to lead to a real buyer's market, say experts.

Some consumers had already started to shift away from sport-utility vehicles. Then higher gas prices and higher interest rates arrived, which made consumers fall out of love even faster. Last year, a flood of leased, three- and four-year-old SUVs also returned to dealers. The result was a surge of sport-utes on the market.

At the same time, automakers were having trouble moving the latest models, so they started offering thousands of dollars in incentives. (Right now, for example, a buyer of a 2006 Ford Expedition is tempted by up to $4,000 in incentives, plus 0% financing and up to $1,000 in free gas.) Such incentives are the single greatest factor affecting prices of used cars, says Alex Rosten, an analyst at Edmunds.com. As a general rule, a $1,000 rebate on a new SUV will depress the price on a year-old model by $800 and on a two-year-old model by about $600, Rosten says.

The upshot of all this? Prices "really went down last year," says Paul Spears, used-car sales manager with Pohanka Used Car SuperCenter in Chantilly, Va., which handles the vehicles brought during trade-ins by the company's Acura and Chevrolet dealerships. In some instances, owners trying to unload their late-model SUVs watched their value fall by as much as 20%.

"They've kind of leveled off at this point" -- albeit still at a pretty low point, Spears says of prices, echoing other observers.

But not all prices have stabilized. For example, the average trade-in value of year-old, large SUVs dropped more than 11% between May 2005 and this May, to about $24,000, according to Edmunds.com.

Does it pencil out?

Still wondering why an SUV might make sense? Let's crunch some numbers:

Let's say you're in the market for a car. You consider a 2002 Dodge Durango SLT, two-wheel drive with a 4.7-liter V-8 engine. It's rated by the EPA at about 17 mpg in combined city and highway driving. If you drive the national average of 12,000 miles a year and pay the national average of $2.90 a gallon for regular, it'll cost about $2,047 in gasoline, annually, to steer your Durango around town. That boils down to $171 a month.

Now let's say your alternative is a 2002 Honda Accord LX, with a 2.3-liter, four-cylinder engine. It gets a combined mileage of 32 mpg, which means you'd spend $1,087 annually, or $91 per month. That means the Honda will save you $960 on gas annually.

But wait. The average sale price of a four-year-old Durango has dropped significantly over the past year: 8%, to $12,643, according to Edmunds.com's Rosten. "Normally prices should be going up year to year around 2%." That's $1,000 that you could use for gas.

Meanwhile, the Honda's average sale price rose about 10% over the past year, or more than $1,000, to about $12,000 at dealers. It will cost you a lot more to buy that Honda. (In fact, the market value of compact cars generally has climbed 11% in the last year, and subcompacts are up 23%, says Rosten, as more people have looked to get into a smaller car.)

In short, that SUV looks like a better and better deal, especially relative to the more expensive Honda.

Of course, there are a few caveats and considerations. Buying an SUV doesn't make a lot of sense if you don't really need one. Ask yourself if you're going to use that room. Do you have hauling to do, whether of supplies or lots of kids?

Second, know that you're making some environmental sacrifices. Sure, you get a bigger, nicer car. But you'll still be burning more gas, and polluting more.

Not every SUV is a bargain

So is it an unqualified good time to buy an SUV?

Yes and no, say the experts. Translation: some SUVs are steals, and others not so much. Here's a rundown:

The best deal? The experts agree: mid-sized SUVs (usually American) like the Chevy TrailBlazer, the Ford Explorer or the Toyota 4-Runner. "Those are the ones that have particularly taken a hit," says Kelley Blue Book's Nerad.

Where the bargains aren't: Smaller SUVs like the Toyota Highlander and Chevy Equinox, and crossover-type cars. "The smaller SUVs are actually pretty hot, and the crossover SUVs, too," says Nerad. Americans still need to move stuff, so they've moved toward these smaller SUVs.

What about the behemoths? In terms of bargains, the large SUVs are more of a mixed bag. "If you'd like to buy a large SUV, this is a good time to do it," says Rosten. Prices fell last summer and have remained there. Rosten's advice holds particularly true if you want to buy a year-old Expedition or a similar gigantic ride: In fact, the average market value of a year-old, large SUV fell a whopping 11% between May 2005 and May 2006.

An example from AutoTrader.com: In June 2005 1,159 Ford Expeditions were listed on the site and the average price of the vehicle was $26,110. Right now there are 1,345 Expeditions listed and the average selling price is $22,199, or a whopping $3,911 less than last year.

But the ultra-big category gets a little ambiguous, too: Large SUVs that are a bit older -- say, four and five years old -- have seen their prices actually rebound in value somewhat in the last year, according to Edmunds.com.

"Just because it's an SUV doesn't mean that people aren't going to buy them," explains Pohanka manager Spears.

How long will it last?

Barring severe gas shortages, don't expect SUV prices to plunge again, several observers agreed. And while there's a current backlash of sorts against SUVs, Nerad says his company's market research "doesn't indicate that there's a big shift to higher fuel economy vehicles." In other words, SUVs are not falling completely out of favor.

Partly, that's because there's no guarantee that oil prices won't crash instead of soar. While current high gasoline prices are forecast to linger for the next year or so, the long-term picture is different. The U.S. Energy Information Agency forecasts that oil prices now above $70 a barrel will sink below $34 by 2015.

So if you want or need a big SUV, now is probably the time to pick one up, before everyone else notices the fire sale.

Christopher Solomon is a free-lance writer in Seattle. A former reporter for The Seattle Times, he writes regularly for The New York Times, and has written for Outside magazine, Ski and Skiing magazines and Men's Journal. His work will appear in 2006 Best American Travel Writing.