Used truck price drop hurts new pickups

As trade-in values fall, new model launches in jeopardy

Bryce G. Hoffman / The Detroit News

Rising fuel prices and a collapsing housing industry have sent used truck prices into a nosedive that could threaten the launches of the new Ford F-150 and Dodge Ram pickups.

The same market forces have been eroding new pickup sales for a couple of years, and the accelerating decline in used pickup prices is putting additional pressure on a vehicle segment already under stress.

Used pickup prices plummeted nearly 13 percent year over year in April, according to Manheim Consulting, which tracks used vehicle sales across the United States. It was the biggest drop on record. Prices for full-size light-duty pickups dropped nearly 16 percent, but the real shock came in the full-size heavy-duty segment, where prices fell almost 20 percent.

"This represents a significant threat to this summer’s Dodge Ram and Ford F-150 new vehicle launches," said analyst Peter Nesvold of Bear Stearns. "Consumers will be less able to use their current used vehicle as currency to lower their monthly payments on a new purchase; and the new vehicles will be less price competitive on the market compared with used."

The credit crunch only compounds the problem. More customers will find themselves owing more on their old trucks than they are worth. In the past, lenders were more than happy to roll the difference over into a new loan, but not in today’s tight credit market.

Other big vehicles are also under pressure. Prices for used sport utility vehicles were down 11 percent last month. In fact, the only segment to show an increase was compact cars, which were up 2 percent year over year as shoppers seek out more fuel-efficient models. Overall, used vehicle prices rose in April for the first time in six months on a month-to-month basis, but were still down 5 percent compared with April a year ago, according to Manheim.

Tom Webb, chief economist for the consulting firm, said he expects overall used vehicle prices to be flat this year, but he expects truck prices to remain down for the foreseeable future.

"The prices might be bottoming out, but we certainly don’t see a significant rebound," he said.

Analyst Brian Johnson of Lehman Brothers said Ford Motor Co. and Chrysler LLC already face a real challenge trying to sell this year’s models to consumers who know new trucks are on the way, particularly as consumer tastes are shifting away from big pickups. Declining used truck values only make that sales job harder.

"This trend is likely to negatively impact Ford and Dodge’s sell-down of existing models before the launch of their new full-size pickups in the second half of 2008," Johnson said in a research note. "Once the new models are introduced, the pressure on pricing may limit the boost to both (automakers)."

He added that suppliers may also suffer as a result.

Many dealers also are concerned.

"The used truck business, right now, is absolutely in a free fall," said Kent Ritchey, who owns both a Dodge and a Ford dealership in Memphis. "It’s unfortunate that the new trucks are coming to the market in these trying times."

Dealers in southeast Michigan are less concerned because so much of their business comes from lease customers, who do not have to worry about the price of a trade-in. Most of their customers also benefit from employee or friends-and-family discounts. But even locally, high fuel prices have consumers looking at less gas-thirsty options.

"Our (truck) volumes have certainly deteriorated with fuel prices where they are," said George Gorno Jr. of Gorno Brothers Ford in Woodhaven.

But analysts say this decline threatens to undermine residual values for the new trucks, which translates into higher payments for customers who lease.

Dealers are looking to the automakers to provide a solution in the form of incentive programs when the new pickups launch later this summer.

"It will take some creative financing, and it will take some factory assistance," Ritchey said.

Chrysler understands that and is working on a solution. Dodge marketing director Mike Accavitti is confident that consumers will be attracted to the company’s new truck on its merits, but acknowledged that Chrysler will have to do something to help them get over the shock of their trade-in value.

"We’re not naïve enough to think we can just sit back and rest on the laurels of this truck," he said. "We’re going to do what we need to do to make sure these customers can drive off in a new truck."

Accavitti would not discuss the details of Chrysler’s incentive plan for competitive reasons.

Ford spokesman Jim Cain would not comment on the company’s marketing plans for the new F-150, saying only that "the best way to maintain high resale value is to offer the customer more choice, more capability and more smart technology."

This is one battle Ford cannot afford to lose, analyst Nesvold said. The pickup is too important to the automaker’s bottom line.

His concerns about the coming launch prompted him to downgrade Ford’s stock last month, despite the surprise $100 million profit the company posted for the first quarter.

"As goes the F-150," he said, "so goes Ford stock."