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Price Correction SUV

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May 09, 2008 – Comments (17)

It is about time that SUV are being priced where they should be, no profits for the manufacturers.

According to CR wholesale prices are down 17%. Dealers are having problems with having to tell clients even though they paid $32k, their trade-in value is now $17k. 

This reminds me of the early 80s.  Large vehicles were plummeting much faster than small vehicles.  

It is a shame that energy prices ever went down

17 Comments – Post Your Own

#1) On May 09, 2008 at 9:28 AM, dwot (56.31) wrote:

It looks like DemonDoug beat me big time with his prediction we see $120 oil before $80.  The effects on reducing damage to the environment leave this as one bubble I applaud.

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#2) On May 09, 2008 at 9:34 AM, abitare (94.81) wrote:

Back in 2003 a buddy of mine's wife was wanting to buy an Explorer. I told him "no way" oil and gas was going a lot higher. Finally,  I am right and I do not look as crazy....

What will we do with all the extra unwanted GAINT SUV and trucks?

Mish had a great post:

Death of the SUV

http://globaleconomicanalysis.blogspot.com/search?updated-max=2008-05-07T15%3A47%3A00-05%3A00&max-results=5 

 

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#3) On May 09, 2008 at 10:07 AM, LordZ wrote:

Personally I love my SUV...

and it really doesnt matter to me the price of gas, as driving a normal car to me now seems like trying to drive a go kart.

Simply invest in oil and it'll easily pay for your gas.

 

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#4) On May 09, 2008 at 10:27 AM, madcowmonkey (< 20) wrote:

I was driving in to work this morning and I noticed all the cars parked along side the road were trucks/suvs/minivans/jeeps. Not one single 4 door sedan, until I showed up. My "classy car" gets 35+ mpg. I can't fit in it, but it works with my futuristic budget. Both my co-workers drive hummers and I just giggle every day I see them drive off. Cars becoming a fashion statement, that gig has been around for since they were made. My ultimate car would be a gto, but I am not stupid enough to use one to drive back and forth to work.

Toyota is planning on increasing the msrp for the prius and some other small vehicle, but I can't remember the name. I guess they took a hit in the US. Go figure. They start producing a top of the line truck that many have liked, but they still have a bad....ahmmmm ahmmmm not so stellar year? 

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#5) On May 09, 2008 at 10:40 AM, AnomaLee (28.66) wrote:

I've been keeping up and freelance writing about oil extensively for a while now. Recently, when crude was just at $119 peaking near $120 I wrote a similar blog from my papers the price was because of all the speculation... Crude oil traded down slightly, and I wrote a blog and changed my position and said I'm more neutral but no longer negative and now we're back up $125...

I still feel that way... We're running out of production, even while demand is coming down. The dollar trade isn't broken, but rather inflation is growing globally as currencies have inflated globally.

Let me be one of the few to say that it is completely ridiculous, absurd, stupid, moronic that we have decided to run our vehicles on gasoline for all these years... People will look back on this era in awe. Although gas inventories are rising, approximately 70% of the cost of unleaded gasoline is due to crude oil prices(and its speculation)

As the world continues to use the more viable, economical, and more common sense fuel, diesel, it will continue to drag unleaded gasoline prices higher for a while and LordZ you better hope we can continue to bring additional oil from Iraq and Canada because it's not going to be coming from Saudi Arabia, Russia, Iran, Venezuela, Nigeria, Mexico, or our own oil fields anytime soon.

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#6) On May 09, 2008 at 1:33 PM, lquadland10 (< 20) wrote:

If you buy a gas saving suv now factor in the effect of higher prices on the popular suv and I think it will take 12 to (20?) years to make up the price difference with gas being 3.55 a gal.Does anyone keep the suv that long?  Brazil new oil find online reported as soon as 2010. Pay the refiners or pay the car dealers. Someone will make money on this. We could all slow down to 55 mph to conserve I hear the airlines and the truckers are going to. Nah.......to many like speed and less travel time. We could save up to 20% on packaging by using something less toxic than plastic like glass.You know for milk, soda, water, ,juice, coffee, creamer, IV bags, Formula and what not.  Nah...... Oil is not high enough yet. How much oil did it take to transport all the parts of the car around the world? Was that factored in? What about the energy it took to mine the minerals to forge the new cars?  What about how much energy did it take to build the machine to mine the minerals to make the car then ship the car that saved the gas we used to run the car.  I am a greenie but the way they are doing it is doing more harm to the environment than helping it. How much energy did it take to do all these studies on global warming and peek oil?  What was their carbon impact?  How far did they drive or fly to go to the meetings and what was the extra impact on oil consumption for hundreds of people around the world to meet and air condition the buildings where the talks were held?  The new scam to make money off of us I just have to figure how to play it. Let me look into what both sides are saying and figure out what kind of money can be made from the 2 sides fighting each other.

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#7) On May 09, 2008 at 4:52 PM, DemonDoug (75.10) wrote:

For some reason, this blog is really resonating with me right now - great comments by all, and I want to comment on all of it.

As far as SUV's, their time has come.  I have thought about the SUV thing for many years, as when I'm driving around the highways of los angeles, I was constantly shocked at how many commuters are driving a big freakin SUV to and from work.  To drive home this point, my co-worker was driving an Acura MDX to and from work until recently where she switched to her Accord.  (She is a mid 40's lady with 2 children in high school).  I always think about the space they take up.  Not just in parking lots, but on the freeways.  I imagine, let's say the average SUV is 1 foot longer than the average sedan.  Now lets say 10,560 people changed from an SUV to a car in a typical morning rush hour - that would be literally two miles of road space opened up for all commuters.  And the gas - yikes.

Unlike the early 80's though, we are not going to go back to cheap gas again.  OPEC made a concerted effort to save their marketshare by driving down prices, and they are not going to do that again (partially because they can't).

As far as oil price, I'm not sure why Deb but I thought that it was floridabuilder that made that prediction.  But it always feels good to be right. :)  My conservative prediction is for oil to be 200/barrel by 2010, with a 50/50 chance of 300 and a 10% chance of 400/barrel.  You can see by my caps picks this is a core thesis of my investing.

From the Mish article abitar linked:

"The SUV craze was a bubble and now it is bursting," said George Hoffer, an economics professor at Virginia Commonwealth University whose research focuses on the automotive industry. "It's an irrational vehicle. It'll never come back."

I'm going to throw out one more thesis: We will see a new rise in electric cars, and this type of car will show very big growth over the next 10 years.  Check out www.teslamotors.com for state-of-the-art electric cars.  I wouldn't be surprised if Tesla or any of the other electric car company startups get bought out by GM or maybe even Toyota or Honda. 

I find that Lovelock artilce far too fatalistic though.  He compares the earth right now to having cancer or kidney failure.  IMO the earth is running a slight fever and is a little nauseous, although symptoms could worsen if the patient isn't better cared for. 

LordZ: You have nailed another core part of my thesis.  If you drive, you cannot lose by investing in oil.  If oil goes down, you pay less for gas.  If it goes up, you will mitigate your loss by the increasing value of your portfolio.

I've actually thought about buying an SUV at some point.  Not for every day travels, but I do a lot of camping and desert driving, and having a good 4WD helps in the desert roads of California.  Also transporting big items from Home Depot and whatnot.  I figure I'd use it about once/month or so.  Biggest problem with that though is that I have no place to store it (living in a city ouch), and the extra cost to insure and register it makes it prohibitive.  Now if I could get rid of my 400/month student loan payment I might be able to do that more easily (but I think I'd rather buy more PM stock).

Madcow: My ultimate car right now would be the Tesla Roadster.  Unfortunately I don't have a spare 100k lying around to buy one.  I shake my head at people that drive trucks all over the place.  Incidentally, Toyota is increasing the price of Yaris and Camry (regular and hybrid).

AnomaLee: What evidence do you have that it is speculation that is driving up oil prices?  The biggest factor in oil prices right now is the decline in the dollar.  I would argue that when oil dropped below 60 early last year, it was waaaaaaaay undervalued.  Right now oil is about fairly valued (in the 110-130 range).  The Fed keeps issuing new debt money - all that money has to go somewhere, and it's been flowing into commodities, which had been undervalued for many years.  We are in the middle of a secular bull market in commodities that has been going on for a good 8 years or so now.  The fundamentals of that bull market are still there (protection from currency, high inflation of all currencies esp. us dollar, stocks generally underperforming, debt instruments that were getting money are no longer being bought, etc.)  Incidentally, we will keep increasing imports from canada which is why I recommend buying SU and also look into ECA and CNQ, and to possibly speculate on BQI.  Because all the other oil sources are fast drying up and are declining for sure.  My initial investment in SU has almost doubled from last year and I'm not selling it.

LQ: I'm not sure what you mean by sides fighting.  We are at another turning point in human history in terms of energy usage.  The era of cheap and easy energy (the 20th century) is over.  What you are going to see from this point on is a diversity of energy solutions - geothermal, wind, hydroelectric, fossil fuel, solar, biofuels (NOT ETHANOL - most likely it will be biodiesel), better conservation measures for example higher mileage on cars and more energy efficient buildings.  These changes are already happening - hopefully we are not too late if a true oil shock hits.  Everyone is trying to profit for their own side.  It's not like the car manufacturers and solar panel manufacturers are shooting with howitzers at each other.

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#8) On May 09, 2008 at 5:18 PM, GS751 (27.49) wrote:

Politicians can change some laws but they cannot change the laws of supply and demand

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#9) On May 09, 2008 at 5:49 PM, dwot (56.31) wrote:

We actually have a small SUV, a toyota RAV which  uses about 10% more gas then the car.  I love driving it because of how the monster cars on the road obstruct vision.  That shouldn't be a main influence on vehicle purchase.

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#10) On May 09, 2008 at 6:11 PM, DemonDoug (75.10) wrote:

RAV4's are great.  They get pretty much the best mileage of any non-hybrid SUV I've ever seen or heard of.  Rated at 21/27, I've had a friend tell me they've gotten over 30/mile on the highway.

I drive a toyota corolla. LordZ said: "driving a normal car to me now seems like trying to drive a go kart."

I agree.  You should see how I dart in and out of congested freeway traffic here in LA.  I swear it feels more like driving a go-cart than a 1 ton vehicle.  I can't imagine maneuvering a lumbering behomoth truck/suv through all that traffic volume.

I would love to pick up a used RAV4 in a couple of years.  Let me know if you ever wanna sell yours dwot it'll be a good excuse for a road trip to BC.

p.s. - I wonder if cars with 4WD like the subaru WRX and the mitsubishi Lancer will increase in geographic regions with a lot of snow, like in Canada, the US Rocky Mountain cities like Denver and Salt Lake City, Lake Tahoe area, etc.  I would imagine cars with great handling and better gas mileage would be more sought after.

p.p.s. - Tesla Roadsters are freakin awesome.  I just saw they opened a dealership near me, I'm gonna go check it out soon. 

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#11) On May 09, 2008 at 7:51 PM, lquadland10 (< 20) wrote:

DemonDoug It's not like the car manufacturers and solar panel manufacturers are shooting with howitzers at each other. I was referring to the greenies and the oil and alt energy people. The howitzers that will be used are LAW SUITS and demonstrations and petitions as well as hearings before congress. liquid coal is already coming under pressure.Also the pollution prospect from the waste by product from solar is on their radar.  High inflation to me is just another way of saying dollar devaluation.You said it well The biggest factor in oil prices right now is the decline in the dollar.  I would argue that when oil dropped below 60 early last year, it was waaaaaaaay undervalued.  Right now oil is about fairly valued (in the 110-130 range).  The Fed keeps issuing new debt money - all that money has to go somewhere,  The illusion is that if a dollar was worth a dollar then oil would be about  30.00 a barrel. If the dollar was worth the paper it was printed or held to a gold standard then you would see gold selling at about 20.00 to 30.00 an oz. We are in the middle of a secular bull market in commodities that has been going on for a good 8 years or so now. Yes building around the world but also how much the dollar has been tanking for the past 8 years. This all cycles over the years. I lived this all  through the 70's and 80's and when the S & L's tanked only this time it is the homeowner. The news shows and what the experts talk about is the same news different players as it was 35 years ago. Don't worry about that though, we will see WW 3 in about 3 or 4 years to thin out the population out. Rockefeller sr. said it himself. I heard him on tape say that there were just to many people living, and that the earth's recourses can't sustain the population. Dafur, Afghanistan,Iraq, Israel,and now  US says Syria, Iran behind Lebanon violence
AP via Yahoo! News Fri, 09 May 2008 12:18 PM PDT
The Bush administration accused Iran and Syria on Friday of fueling ongoing violence in Lebanon by inciting members of the radical Shiite Hezbollah movement to take up arms against the country's western-backed government. Rice blasts Syria, Iran on Lebanon violence
AP via Yahoo! News Fri, 09 May 2008 11:07 AM PDT
Secretary of State Condoleezza Rice says Hezbollah, backed by Syria and Iran, is killing and injuring innocent civilians in Lebanon.  (Political Animal) IRAN'S WEAPONS....Tina Susman of the LA Times reports that Iranian involvement in Iraq's civil war may not be everything it's been cracked up to be:There was something interesting missing from Maj. Gen. Kevin Bergner's introductory remarks to journalists at his regular news briefing in Baghdad on Wednesday: the word "Iran," or any form of it. It was especially striking as Bergner, the U.S. military spokesman here, announced the extraordinary list of weapons and munitions that have been uncovered in recent weeks since fighting erupted between Iraqi and U.S. security forces and Shiite militiamen.

....A plan to show some alleged Iranian-supplied explosives to journalists last week in Karbala and then destroy them was canceled after the United States realized none of them was from Iran. A U.S. military spokesman attributed the confusion to a misunderstanding that emerged after an Iraqi Army general in Karbala erroneously reported the items were of Iranian origin.

When U.S. explosives experts went to investigate, they discovered they were not Iranian after all.This item only showed up on the LAT's Iraq blog, not in a regular news piece. If it weren't for the blog, I wonder if we ever would have heard of this? The news media feed us what they want us to believe, I personally think that gs. and the white house are using oil to manipulate us into the next phase of their plan. It was not long ago that Cheny and the white house and Enron were planning our country's energy plan. News never followed up on this. Lots of our energy plan was formed by Enron and other companies. Add in the War's with 2 country's. The dollar devaluation due to Bush Clinton Bush  failure to regulate the lending institutions. Chenny and Halaburton. Iraq misappropriations with funding.The list goes on. After the olympics China will get in the fray. I personally think that oil will hit 200.00 this year. The Fed will have to lower the lending rate even lower to save the banks. This was planned long ago and I knew it would happen when boon pickens went from oil to liquid gas. We are at another turning point in human history in terms of energy usage. That was said before and will be said again.  Downsize the best you can and pratice a backyard garden because you will need it next year. Pay cash and get out of debt. Save as much as you can because you will do well on the recovery and be able to buy things dirt cheep. 

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#12) On May 09, 2008 at 7:58 PM, lquadland10 (< 20) wrote:

I used to drive a 15 passenger van for work and I so love the suv's. I had a friend who let me drive an 18 wheeler and for the open road I love the 18 wheeler over a little suv any day. But the gas? no way. Oh well I quess my little kiddie car will do just fine.

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#13) On May 09, 2008 at 8:52 PM, DemonDoug (75.10) wrote:

LQ, where is your evidence for your commodity info.  If the US dollar was at parity with the euro, oil would be 81/barrel.  As far as gold, have you seen or studied supply and demand?  The fallacy is that people think gold is in a bubble due to speculation and currency plays and gold bug/stock bears.  I have proven on many blogs that this is just not true, using hard evidence.  Gold is used in industry, jewelry, dental fillings, and yes, currency, and some other uses, like medicinal non-dental. 

Other than that I agree with the rest of your premises.  Clinton, Bush, the Fed - all creeps.  And I would not be surprised to see oil get to 200/barrel by years end, as I have predicted a 90% chance it will hit that mark by 2010. 

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#14) On May 09, 2008 at 11:06 PM, AnomaLee (28.66) wrote:

Doug, there's speculation on all exchanges otherwise they wouldn't exist. My inclusion of oil and its speculation didn't mean it wasn't justified. Premiums and discounts are part of trading.

I wrote about that in my last blog. People who think they oil discovery offshore of Brazil will be huge, but estimates are usually overshot and we'll never know how much oil is there until it is actually drilled.

The basis for my change was that our daily oil output is apparently peaking quicker than I'd assumed. Look at what has happened in many major oil fields. Russia is declining, Mexico is declining, Saudi Arabia is near peak, Iran is near peak and no one else is invested enough to increase output...

I've been heavily long on energy futures, and my real life holdings are long energy futures. I just share my thoughts on its trading activity. It's a hot topic, and the temperament is going to get hotter.

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#15) On May 09, 2008 at 11:35 PM, dwot (56.31) wrote:

Doug, I used to have a Toyota Corolla.  I loved that car.  It never gave me any trouble, was good on gas, good on power, it was the hatchback so I could haul enormous amounts of stuff.  Serously, I moved practically all my stuff a fews times that I moved in that car.  I could fit a whole dresser into it.  Somehow I got a queen bed tied to the roof rack.  Oh, the days of youth and being poor, lol.

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#16) On May 10, 2008 at 1:09 AM, HistoricalPEGuy (62.17) wrote:

I also had a Corolla -- it lasted me 11 years with no problems.  Loved that car...

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#17) On February 11, 2010 at 1:15 AM, BrandonPaulChevy (< 20) wrote:

Well, sometimes this happens. Just like the volvo parts. I've seen on the internet that the price of my windshield is half the original price already. But on a local auto parts dealer, the price is still the same.

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