It may make more sense to keep your depreciating SUV and bite the bullet rather than repo and pay higher interest rates.
Unlike housing, auto loan rates can hit 24% for the most credit poor borrowers.
Chances are is that if you do the math it is a wash or near wash to repo and purchase a more gas friendly vehicle. Does the 16% interest spread incraese on a 20K vehicle for 5 years make up for the depreciation? Is it worth it having a repo on your report for 7 years which will keep you in high interest rates even after your loan is paid off?
I think a proper cost analysis has to be done.
For the poor credit or no credit consumer:
The poor and undocumented will repo because they have nothing to lose as they are likely to be charged the same high interest rate no matter what vehicle they drive. All that matters for them is that they have enough down payment so that the lender won’t lose if the have to repo and sell the vehicle and off they go.
From the dealer perspective:
New Dealers have no alternative other than dumping their SUV inventory to anybody that will take it and focusing on new vehicles that sell. Unless gas prices change the franchise SUV dealer is screwed. His only hope is that his used inventory sales can cover the loss. Due to heavy competition from the used dealers (independents, Carmax) that possibility is unlikely.
Used Dealers are much more flexible than the new and their money is made buying cheap and selling high. Also, they can make points on the interest much more easily due to the abundance of interest charged. They do not have the overhead costs as the New Dealers and therefore can sell vehicles cheaper due to their lower overhead requirements.
Used Dealers will buy these depreciated vehicles dirt cheap at auction and reselling them at attractive prices when they are more cost effective than buying smaller vehicles. Sooner or later these gas hogs will be so cheap that people will pay the gas. Those dealers who have huge SUV inventories on lines of credit are screwed. The one who have bought cash can liquidate, take the loss and move on.
Like housing, cash is king in the auto business.
Side note #1 One dealer friend said to me, “The reason that SUVs will not go away is because large families need vehicles that can transport the whole family. Aside from the Dodge Caravan, how do you and the wife take five kids to grandmas in a Chrysler Sebring? You can’t. And seeing that much of our California economy is supported by communities with high birth rates we will continue to have a need for these vehicles
Side note #2 I leased for my wife a Lexus. Gas is expensive and payment is about $625. Do I regret it, not one bit. Although a smaller car is more affordable I have to remember that this vehicle carries my most precious cargo (wife, kids) with rear airbags and all the protection. That is worth a couple hundred bucks a month to me. I would rather not eat out at restaurants than lower the safety of my family. To me a SUV makes sense.
