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Reading the gas-price tea leaves with the new Ford Explorer

By Claes Bell, CFA · Bankrate.com
Wednesday, July 21, 2010
Posted: 1 pm ET

It's no secret in the auto industry that gas prices are headed skyward once the economy finally limps into a recovery. Gas may be sitting at a reasonable $2.72 a gallon now, but analysts at the Automotive Lease Guide predict it will be over $4 by 2013. Considering how long it takes to develop a new car model, it's no surprise that automakers both domestic and foreign are working hard to establish their fuel efficiency bona fides now.

Which brings us to Car Blog's favorite new station wagon, the Ford Explorer. Ford is set to unveil the new model this Monday. Their biggest selling point, according to an article in the Detroit Free Press this week?

"That 2.0-liter EcoBoost engine, which pairs a turbocharger with direct gasoline injection, will deliver at least 30 percent better fuel economy than the outgoing version, making it the most fuel-efficient SUV in its class."

car-blog-ford-explorer-america

The Ford Explorer America Concept, thought to be the inspiration for the 2011 Ford Explorer, to be unveiled Monday.

A four-cylinder in a Ford Explorer? If you have told me in 2005 that they'd be putting a four-banger in a Ford Explorer, I would have called you a moron on MySpace. But here we are.

What does this mean for your next auto purchase? Well, the reason the Auto Lease Guide cares about gas prices is they are a huge determinant of used car values. Since cars coming off lease must be sold in the used-car market, companies that finance leases must be able to have some idea what the car will be worth at the end of the lease to decide how much they'll need to charge customers to make a profit after taking the depreciation hit.

When gas prices are low, depreciation on cars with big, gas-guzzling engines isn't that much worse than for cars with more reasonable gas needs. But when gas prices spike, resale values for gas guzzlers falls through the floor, as everyone and their grandmother tries to unload the 15 mpg pickup truck that now costs $150 to fill up. ALG is predicting high gas prices, and so is in turn advising lease-financing outfits to build a higher expectation for depreciation into leases of gas-guzzling trucks and SUVs.

What this means for car buyers today is if you're thinking about buying the gas guzzler you've always wanted, don't expect to be able to sell it for anything close to what you paid for it. I know gas is pretty cheap now, and the sound of a V-8 singing through a Flowmaster is sweet indeed, but stop and ask yourself why Ford is putting a four-cylinder in an Explorer. Hint: It's not because they've gone all tree-hugger on us. It's because they got nailed by the last gas-price spike, and they don't want it to happen again when gas prices spike in the next few years.

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