I went to pickup a trailer this weekend. When I tried to hitch up to the trailer the spare tire prevented me from being able to drop the hitch down on the ball. The latch has to be in the up position when attaching the trailer, but there's not enough room under the spare. I ended up latching the ball hitch to the trailer first, then backing the Jeep onto the square tube the goes into the receiver, which was a bit tricky. Does anyone have a good workaround to this? The whole thing seems like a bad design to me.

This is what you need and you will be able to hook to just about any
trailer.
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Had the same experience. For my utility trailer I hook it up with the door open, works great, door opens full, the trailer has a long tongue. You can also get a hitch extension, or a drop hitch.

I've heard that extensions cut the weigt limit trailor and tongue in half. Get the longer one and not an extension!

I've heard that too, but I don't see the difference. If the overall length from the receiver to the ball is the same, you'll have the same leverage either way. Maybe the extension is the weak link?

The extension is not the weak link. The farther away the load is applied (tongue weight on the ball of the drawbar) from the receiver hitch, the more bending moment is created at the mounting bolts of the receiver hitch to the unibody.

The extension has multiple weak areas. First of all like the receiver shown it is hollow which is weaker than a solid shaft ball mount. Second, instead of one hitch bolt you now have two and the hitch bolt point reduces the strength as well. Finally you have the weld where the smaller 2" hollow shaft fits in the larger receiver. Multiply this by the extra length and you cut the oerall hitch capacity in half.