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To: Bearcatbob who wrote (33314)	7/3/2004 6:39:30 PM
From: quehubo	Respond to of 206104

The problem is that many people are driving SUV's at 15 mpg instead of an efficient alternative that averages 25. When gas prices get high there will be more 6 cylinder Honda Accords instead of Ford Excursions. I suspect we are seeing more people leaving the SUV in the garage while driving the other more efficient vehicle. This would explain the drop off over the last 4 weeks in the YoY increase in gasoline demand. If people are driving 15K a year, the difference between 25 mpg and 15 mpg adds up. Not everyone is smart enough to be long energy stocks. fueleconomy.gov

To: Bearcatbob who wrote (33314)	7/3/2004 9:32:27 PM
From: profile_14	Respond to of 206104

Except that the SUV owner leased it because he cannot afford to take out a loan on it or even buy it outright with cash. The lease's residual value is in the mid- to high-fifty percentage range, making the payments around $500 per month. Now he can barely afford the car. The $2000 cash back is only good if you buy it, but that means a $700 or more monthly nut. At that point, it is still exciting because it is a new car. Then you get it in your driveway and find out that insurance is more expensive, gasoline mileage sucks because you get 15 mpg instead of the 20 mpg advertised for highway (since you only drive around town and in between a bunch of lights, etc.). If you do a cash flow statement you will quickly see that there are no free lunches. The buyer is way behind because at the end of the lease he has nothing to show for except a receipt. He has no asset and has to either purchase a new car or lease another one. He is forever on the treadmill. The risk is on the company but the lessor is paying along the way for the right to pass that risk onto the finance company. Should market conditions change slightly, those finance companies will take huge write-offs for overestimating the values of the used cars. Moreover, the car company in its eagerness to sell you a new car this month, has pulled sales forward. You really did not need a new car, but the deal was ending this month. Therefore, that is one less sale for next year. Now rates begin to rise and badabing!!! All of a sudden cars are expensive again, but no one needs one because they all got new ones. Now gas is expensive and SUV sales are slowing down. What next? Maybe an Acura sedan which is newly redesigned or a Nissan, or and Infinity G35. After all they are still cool, but are less expensive to purchase and operate, and so it goes. When people buy cars, they are not measuring what they can afford. They are measuring how big of a monthly nut they can cover with a lease payment. Had leases not come about, no one would be paying $40k or more for these cars with median incomes where they are. Low rates and leasing have pushed these vehicles into garages that cannot afford them -- all the while finance companies are making bets about what residual values are going to be 3-4 years from now. That used to be impossible not long ago, since leasing was done for 2-3 years max. Now we cannot afford a 2 year lease anymore...