As America’s love affair with gas guzzlers wanes, auto exporters have found a welcoming embrace overseas.
How can that be? When gas prices danced around an average of $4 per gallon this summer before receding in the fall, large, gas- guzzling behemoths -- like the Ford Explorer, the Cadillac Escalade, and General Motors’ Hummer -- became anathemas to people struggling to fill their tanks and buy groceries in a softening economy. In fact, monthly sales of new SUVs were down 17.5 percent nationally in July 2008 compared with the same month in 2007, and in the first quarter of this year, almost 20 percent of SUV owners were actually trying to get rid of their vehicles. Dealerships all across the United States have been complaining about the glut of new and used vehicles clogging their lots; some have even stopped accepting used SUVs, knowing that they’ll never be able to get rid of them.
So what is it that makes this dealership Caldwell sleuthed so different from all those struggling to move SUVs out of their inventories? Simple: It’s in Russia.
Caldwell, who works for Edmunds.com, a website that provides comprehensive information about everything auto-related, traveled to Russia in August to attend the Moscow Automobile Show. There, she discovered that not only does this particular dealership -- part of the largest auto mall in Europe -- have a huge backlog of people waiting for the Toyota Land Cruiser but also that SUVs in general are in sharp demand in the formerly Communist nation. In part, she says, the popularity is due to practical issues, such as the ability of SUVs and other large vehicles to handle crumbling roads choked with other drivers. “They have a lot of traffic issues. The traffic issues are probably worse than what we have here,” says Caldwell, who is based in Santa Monica, California.
But that’s just one of the reasons Russians find SUVs attractive: In the land where Levi’s blue jeans were once considered a luxury and where nondescript boxlike Ladas were the only cars available, SUVs are a potent status symbol, desired by those who have grown wealthy, thanks to the country’s vast and valuable oil and gas fields. The price of fuel, too, which the government subsidizes, is also relatively low -- less than half the cost of Western Europe’s gas. There also seems to be little, if any, environmental guilt associated with driving an SUV there, which is not the case in the United States. “They don’t really have a green movement. They’re not interested in hybrids,” Caldwell says. “I don’t think that mind-set has quite sunk in yet.”
It’s not just Russia that has an appetite for SUVs and other large vehicles. Other Eastern European countries, like the Ukraine, as well as nations in the Middle East and West Africa, also are major big-car buyers. And as more American drivers shy away from SUVs, the available inventory swells, which drives down prices. Between May 2007 and May 2008, wholesale prices of large luxury SUVs in the United States plummeted from roughly $32,000 to $26,000. At the other end of the spectrum, traders who sell used SUVs overseas typically make between $500 and $1,500 in profit per vehicle selling to buyers in countries with high demand and strong currencies -- even after factoring in shipping costs, which can run as high as $1,500 per auto.
ONE INDICATION OF HOW BRISK the trade is: how booked the ships are that carry vehicles from the United States to countries around the world. From the Port of Baltimore, for example, the number of privately owned vehicles shipped overseas in 2006 was 18,600. In 2007, that number went up to 27,000, and by the first half of 2008, it had already reached almost 14,300.
Susan Serrano, national marketing manager-OEM for Höegh Autoliners, a Norwegian shipping company that specializes in transporting vehicles around the globe, says her company has seen a “monumental increase” in the volume of used vehicles being exported from the United States to foreign buyers, particularly to those in Persian Gulf countries like Saudi Arabia, the United Arab Emirates, and Kuwait. Serrano says that in the past, there was a healthy trade in used passenger cars, but now there are more and more SUVs packing Höegh’s Ro-Ro (roll on, roll off ) vessels, a fact she attributes to the sinking value of the dollar in comparison with other currencies and to the summer’s high gas prices in the United States. “SUVs just this past year have become so inexpensive, with everyone trading them in and no demand in the U.S. for something that is not fuel efficient,” says Serrano. She adds that Höegh and other transporters have added vessels to try to keep up with demand.
Obviously, shipping companies like Höegh are big economic beneficiaries of the trade in unwanted American SUVs. So, too, are auto dealers like Jorge Rodriguez, the Centre manager of Warren Henry Land Rover North Dade in Miami. While Rodriguez describes the local market in used SUVs as tough, he says he receives a steady stream of foreign interest, particularly from Ukrainians and Russians. “Their oil money is very strong right now, and they have all this extra money to spend,” he says.
Even though many of his buyers could afford new vehicles, the low prices and the fact that American SUVs tend to come with features they might not otherwise be able to get draw foreign buyers to U.S. dealers. “The American market is very demanding, and these people want the best of the best, and you get more amenities with U.S. vehicles,” he says.
Although some of the foreign buyers Rodriguez gets are individuals, he says most are either brokers or foreign dealers and that they often buy more than just one vehicle to sell overseas. That group of middlemen has flourished since interest in SUVs has flatlined in the United States and increased in other countries. United Traders of Little Rock, Arkansas, for instance, buys used vehicles in the United States -- often at used-car auctions -- and then ships them to buyers in Saudi Arabia, Kuwait, and the United Arab Emirates. Of the 150 to 200 vehicles the company sells each month, about half go to the Middle East.
Although the export business in used vehicles, particularly SUVs, is humming along right now, things can change quickly, either because the dollar strengthens or due to an unforeseen political development. “For a long time, I was shipping 200 or 300 cars a month to Chile, and then many of them were sent on to Bolivia,” says Janet Frank, president of JDF International Transport in Baltimore. “And then Bolivia said, ‘We don’t want those cars, so we’re going to put a moratorium on receiving cars from Chile.’ All of a sudden, the market, within six months, went from 300 to three.”