Small used cars aren't big sellers as gas remains cheaper

Despite all the talk about small cars, many used car buyers are thinking big again.

Used small cars are taking the biggest hits on value in the resale market, Kelley Blue Book says. Even the once-hot, tiny Smart ForTwo is suffering, KBB says.

"It's part of a larger trend that's been happening all year," says Alec Gutierrez, a senior market analyst for KBB. "Some of the weakest segments are subcompact, compact and hybrids."

The trend reflects, for one thing, that gas prices seem relatively low and stable. A gallon of regular went for $2.55 on average nationally Thursday, down 8 cents from $2.63 a month ago and $3.86 a year ago, AAA reports.

And it shows that Americans may not be so quick to embrace smaller new vehicles the federal government is mandating — if they cost more.

The administration proposed Tuesday requiring an industry average for new vehicles equivalent to 35.5 miles per gallon by 2016, a goal that will mean more smaller vehicles with more costly technology.

Prices for SUVs and pickups fell so far when gas prices rose that they are in demand as a relative bargain — even with their prices rebounding.

"We do see big stuff moving," says Steve Bussjaeger, owner of the Star SuperCenter used car lot in Glendale, Calif. "They got cheap. ... People are more price conscious than gas (price) conscious."

Wholesale auto auction house Adesa says pickup prices slid 18% from August 2007 to August 2008. Since then, they have rebounded 23%.

Compact cars did the opposite, rising on average 17% in value from August 2007 to August 2008 and sliding 15% since then. "Everything did a flip-flop," says Tom Kontos, Adesa chief economist.

The tiny Smart ForTwo lost 3.9% of its value just from July to August this summer. Gutierrez notes, however, that Smart's longer-term depreciation still is not bad, with most retaining 85% of value since deliveries began last year.

"The entire industry has suffered this year. ... The small-car segment has been affected by this as well," says Smart USA spokesman Ken Kettenbeil. "However, we know that in time both situations will change. For this, and many other reasons, the trend will transition toward smaller vehicles."

The thing that's most apparent in the ups and downs of resale prices, however, is not size, says Fernando Ubeda, senior economic analyst for used car tracking service ALG.

It's that, he says, "Gas (price) is a very big factor in vehicle demand."

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