With gas prices up, time to buy an SUV?

By The Wall Street Journal

The gasoline-price-induced collapse of the market in sport utility vehicles presents a quandary for consumers. With gas at $4 a gallon, SUVs no longer make affordable commuter vehicles. But at the same time, they've never been cheaper.

Manufacturers are offering discounts of $2,000 to $5,000 on once strong-selling models like the Ford Explorer and Chevrolet Suburban, and dealers say there's plenty of negotiating room after that.

Discounts are even bigger on many used vehicles, with some selling at roughly one-third the price they would have fetched new four years ago.

• Talk back: Would you buy an SUV now?

The bottom line is that, for people who don't drive much, today's deeply discounted SUVs may actually make financial sense.

"It is the ultimate buyer's market," says John Casesa, managing partner at Casesa Shapiro Group, a New York advisory firm that owns some dealerships.

For nearly two decades, the car industry rolled out one SUV after another, each seemingly more hulking than the one before. Consumers had little interest in high-mileage small cars, and automakers made huge profits by selling SUVs.

High gas prices have upended this world. After declining in both 2006 and 2007, sales of midsize and large SUVs have dropped 23.7% and 31.8% more, respectively, so far this year, according to research firm Autodata. New SUVs are stacking up in dealer lots, and demand for used SUVs is so slack that dealers are willing to break even just to get them off their lots.

Now, as it did following the energy crises of the 1970s, the auto industry is trying to remake itself. Sales of small cars are soaring, and carmakers both domestic and foreign are rushing to get more gas-sippers into showrooms.

Big Three hit hardest

But Detroit's Big Three in particular are struggling to adjust fast enough to new market realities. General Motors recently said it would shutter some plants making SUVs and pickup trucks, and is mulling selling its Hummer brand, a poster child for gas guzzling. Ford Motor recently abandoned its goal of restoring profitability in 2009 and said it would further cut production of SUVs and pickups, which have also suffered amid high energy prices and the economic slowdown.

Until automakers can catch up, SUVs represent a big buying opportunity for certain drivers who don't mind driving a vehicle viewed by many as politically incorrect.

The biggest SUVs, such as a Jeep Commander or Hummer, get only about 14 or 15 miles per gallon on average, depending on the model, according to government figures.

Most don't fare much better than 20 mpg on the highway. But for people who mainly use their vehicles to tool around the neighborhood, low mileage may not be a deal buster.

Even with $4 gas, a Chevrolet Tahoe SUV driven 8,000 miles a year costs only about $2,000 to fill up, according to government figures, while a Honda Civic compact driven 16,000 miles costs about $2,200.

Some drivers simply need the size or power that make SUVs such gas hogs. A Chevrolet Suburban seats up to nine people with plenty of room for luggage. Many SUVs have rear-wheel drive, which, along with their heavy frames, makes them better for towing boats or recreational vehicles. Others have four-wheel drive, good for off-roading and driving in snow.

Continued: Leasing an SUV could be the ticket

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