Pain is all around as Americans shun SUVs

By Poornima Gupta - Analysis

DETROIT (Reuters) - Record fuel prices have ended America's love affair with the SUV.

But the break-up is proving to be more painful than anyone anticipated. Some U.S dealers have stopped buying used trucks. Lenders are bracing for losses. Automakers have slashed output, and Americans have seen the value of their big rides drop by thousands of dollars in recent weeks.

The decline in sales of the heavy sports utility vehicles and trucks favored by Americans for more than a decade has gathered momentum in the last month, leading to a glut on dealer lots and sharply lower trade-in values.

But unlike the last recession in 2001, discounting from Detroit is not showing signs of reviving demand.

"The auto downturn appears to be entering a problematic second phase," Lehman Brothers analyst Brian Johnson said in a recent note for clients. "In this phase, with gas prices remaining stubbornly high, demand for both new and used large pickups and large SUVs is falling precipitously."

For years, North America's truck market has been an outsized anomaly. Cars outsell trucks by a 5-to-1 margin in Europe and by 2-to-1 in Asia Pacific. But in North America, the popularity of SUVs and trucks made that ratio almost 1-to-1 last year, according to Automotive News.

Yet record gasoline prices have driven resale values for big trucks such as the Ford F-150, Chevy Silverado and Toyota Tundra down by 20 percent or more this year.

That decline, in turn, is expected to force lenders, including finance companies like GMAC and Ford Motor Credit, to write down the value of vehicle leases.

General Motors Corp and Ford Motor Co could see write-downs of more than $3 billion on a combined basis for the depressed value of trucks and SUVs coming off leases that are then sold at auctions, analysts have said.

The crunch comes at a time of rising concern about liquidity for Detroit automakers. GM shares on Thursday tumbled to their lowest level since 1955, while privately held rival Chrysler LLC had to deny rumors it was facing a cash crunch.

GM's decision this week to slash truck production by 170,000 units and offer interest-free loans for six years underscored the severe pressure on the automaker.

Ford is already offering its market-leading F-Series pickup trucks with employee pricing, a discount worth up to $5,000 on some models. In an unusual and costly move, Ford has also opted to delay launching a redesigned F-150 to clear out inventory.

Analysts expect the discounting pressure to remain strong for the rest of the year as U.S. auto sales near decade lows.

'THE MATH DOESN'T WORK'

Mike Jackson, chief executive of the No. 1 dealership group AutoNation Inc, said even stepped-up incentives did not begin to address the shift in the market away from trucks.