The Great Dead Car Bounce of 2008

Ever heard the term dead cat bounce? It's commonly used in the world of stocks to characterize the price of a company's shares when it has been severely wounded. The price falls off a cliff and then a short time later, surprisingly, rises, despite the continuing dire, perhaps terminal, prospects for the company. Just like a dead cat falling from a height - one small bounce then down again for good.

SUV resale values have plummeted in 2008 in North America. I haven't looked at the numbers in any depth, though what I've seen is telling. The most gas-guzzling models are selling at 20% or more below Blue Book value. Owners are being badly hurt by the rise in fuel prices. Sales of new fuel-inefficient models is down about 25% between 2004 and 2008, and the number of used SUVs for sale is up about 20% for similar periods in 2007. Demand is down and supply is up, hence lower resale prices. Rather than lower the prices of new SUVs, manufacturers are throwing in extras like guaranteed lower fuel prices for a few months. It isn't helping much, so they're shutting down production.

Now let's suppose a barrel of West Texas crude continues to drop and reaches $100 per barrel by this fall. Will sales of SUVs, new and used, rise once again, and will resale prices return to book value? I would seriously suggest that this phenomenon would be a dead cat bounce. Just as with dead stocks, this may be the best time to sell your gas guzzler. You may never get a better price again. Ever.