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Maybe it’s Time to Buy the Gas Guzzler that You’ve Always Wanted

By: Steve Johnson

8/1/2008 - 27 Comments

Today General Motors Corp. said it lost $15.5 billion in the second quarter.

As the largest automaker, GM said its North American sales plummeted and the company faced expenses due to labor unrest and its massive restructuring plan. GM sold 2.29 million vehicles in the second quarter, down 5 percent compared with the previous year. The company said a record 65 percent of those sales were outside North America. If Ameican cannot buy vehicles, they will ship them to someone that can. The weakening dollar is helping because these vehicles cost much less when converted to foreign currencies that have risen against the dollar over the last few years.

Chrysler, Ford, and General Motors are running aggressive sales campaigns touting employee pricing on the majority of their cars and trucks.

The total savings including, factory discounts, cash back incentives and employee prices – add up to 20-30% price.  These discounts are temporary because the automakers cannot go on losing money on each vehicle they sell. These discounts will only be available until the automakers can reduce their excess supply.

The only way prices are going to get cheaper is if one of these automakers goes bankrupt. At that point, the creditors will force these companies to liquidate their assets. That means they will auction off their vehicles to the highest bidder. Can you imagine going to an auction at your local GM dealer and buying a new SUV for $1000?  It could happen. 

If you have always wanted to buy a new Truck or SUV, this is the time. In the short time prices are likely to drastically increase as raw material costs are increasing very quickly and automakers are cutting back on production to equalize supply with demand.  In two years, SUV and Truck prices are likely to increase 20-40% and the discounts that the automakers are giving today will be gone. 

If you want a new SUV or Truck to use for anything but communing to work and back, then you’re probably not going to drive a lot of miles and are therefore are not going to pay a lot of money in gas.  The problem is very few people have any money to take advantage of this opportunity, now that the housing market decline is removing the home equity option. And if you have a home equity option, I would be very careful to use it as housing prices are still coming down and if you cannot make the payments (down the road) you could lose your home.

What Could Go Wrong?

Gas prices could spike. If gas prices continue to increase, you could be forced to park your SUV.  I think prices could get to 5-6 per gallon, but a doubt they will get higher than that for several years because at those prices the entire economy would reduce demand and prices would drop.

The government could enforce rationing. If it came to this, you may not be able to get enough gas to drive your SUV. But, if you are only using your SUV for recreation or non-work related drives then rationing will have little effect.

What Could Go Right?

SUV prices could spike in the next few years. If you get a new SUV at a 20% discount off the base price and then after a few years, the discounts are removed and prices increase by 20% of the base price. Then, you may actually be able to trade in your SUV for more money then you paid for it. 

You could enjoy the ride. Your growing family could enjoy a larger vehicle at a better price then paying more for a smaller new mini-van. The mileage between a mini-van and an SUV are not that different, yet the SUV is much larger with perhaps better quality – which could result in a longer lifetime of usage. SUV’s are usually more durable, including a better engine, tyranny and drive train.

Would you buy a new SUV today?

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