Higher Gas Prices Raising the Cost of Smaller, Fuel-Efficient Used Cars

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used carHigher gas prices are beginning to bite in new and unusual ways. Not only are prices going up at the pump, but they are being propelled upward for smaller, fuel efficient vehicles on used car lots nationwide. At the same time, there has been a spike in drivers trying to unload their gas guzzling SUVs.

Gas prices currently average $3.80 a gallon for unleaded regular, according to the AAA. That's up 37% since last October 1. According to most experts, the stampede out of SUVs really begins when gas crosses the crucial threshold of $4 a gallon, which it has already breached in New York, California and Florida.

"Gas prices are definitely starting to ripple in the used car market right now," says Bill Visnic, analyst and senior editor at Edmunds' autoobserver.com. Visnic notes that in addition to the gas situation, the shortage of parts in Japan because of the earthquake and tsunami have added to pressure on car prices. In addition, the fact that the economy is improving is sending all used car prices higher, not just for small cars.

But smaller cars are taking the biggest hit. According to Edmunds' proprietary measure of car prices, a three-year-old Honda Accord has soared in value by 24% since last September. A similarly aged Hyundai Sonata is up 22%, the Honda Civic is up 13% and the Nissan Sentra has risen 12%.

"Particularly the Civic and Sentra are the standard bearers in the fuel efficient category," Visnic says.

Higher gas prices also affect the ways consumers think about a car purchase. While they might have considered a new car previously, the higher prices at the pump mean they are thinking more about used cars, driving up demand for those vehicles. "I may now buy a used car because I have to spend more for gas," he says.

So why are all car prices headed upward? Visnic says the rebounding economy is having a strong effect in that there are just more people shopping.

Interestingly, prices for used SUVs have not come down as much as small cars have gone up. That's because they tend to be a lagging indicator of consumer demand. People who already own SUVs can use online calculators such as the one at edmunds.com to figure out how long it will take to pay for the cost of trading in a larger car for a smaller one. For example, a driver may still have a $20,000 loan on an SUV but a dealer will only offer him or her $18,000. Then there's an extra $2,000-$4,000 for the newer smaller car. With higher gas prices, how many months of driving do you have to do to make that extra $4,000 for the smaller car worthwhile? It's a complex calculation and many people decide it's not worth the bother yet.

But that's not true of leased cars, which tend to be treated more like rentals than purchases.

According to John Sternal, vice president of leasetrader.com, which helps people transfer existing car leases to new owners, they are noticing a spike in listings for larger, fuel guzzling cars. But they haven't reached the panic stage that occurred in 2008, when there was a rapid runup in gas prices to a national average of $4.11 a gallon.

For example, Sternal says, the cash incentives that owners offer to induce people to take over their lease have increased from an average of $1,075 to $1,250 for SUVs and 6-cylinder or larger cars. Listing for these large cars have increased 5.3% since January. Search demand for large cars by potential owners has also fallen sharply.

On the other hand, cash incentives for Japanese economy cars have disappeared, down from an average of $450 in January. Listings for these cars have fallen from 19.1% of the total in January to 17.4% today - meaning that fewer people want to get out of their leases for small, fuel-efficient vehicles.

"We are seeing more and more people follow a similar trend to what we saw in 2008," Sternal says. "But $4 a gallon this time around feels much different than back in 2008: the jobs picture seems to be turning around and consumer confidence seems to be strengthening. If you're driving an SUV you're saying 'this stinks but I can weather this storm a little better than in 2008.'"

Sternal says the situation in Japan has had an immediate impact on people with leased cars because they saw retail showrooms cut their incentives after the earthquake because of anticipated shortages and they followed suit when it came to listing their leased vehicles.

"That makes it a little bit more of a seller's market," Sternal says. "The cash incentives dried up almost at the same time they did at the retail dealership level."

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54 Comments

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amani4000

Don't worry, when the stock market crashes again, due to all the lies about our economy, oil will be cheap again. Google oil prices and see what happened in 2008.

April 15 2011 at 5:25 AM Report abuse +2 rate up rate down Reply
frank1946

$ 3,000 garage Queens............................the 100 K. used cars now are the sleepers of repair shops, fuel injection
pumps, gaskets, transmission rebuilds, TPI switches, etc.

Lease a small new car, cost is about the same !

Add $ 3K. to the price of your garage Queen used car......................... it happens !

April 15 2011 at 5:06 AM Report abuse rate up rate down Reply
Eric

Whay are all these articles about high gas prices just shrugging their shoulders and basically saying, "Oh well, we have to live with it?". Again I say, the only reason prices are high is because of speculators paying the same game as they did before. There's no shortage and at least they aren't trying to brainwash us about shortages as they did before. All it takes is the government to threaten arrest and possible jail time on monopolizing and the prices with drop faster than a pair of pants at a nudist colony!

April 15 2011 at 3:01 AM Report abuse +3 rate up rate down Reply
hugozoon

buy the way gm covers the volt battery for 5yrs/100,000 miles fyi.

April 15 2011 at 1:52 AM Report abuse rate up rate down Reply
1 reply to hugozoon's comment
gpfs

And replacement of the battery is $10 -20K. They are going to offer lease's for the battery. Who in their right mind is going to buy into that?

April 17 2011 at 12:04 PM Report abuse +1 rate up rate down Reply
hugozoon

so many people make comments without reading or undertanding why its happening. there is no gas shortage the price increase is caused by oil futers on the stock market if more people buy stock in futers the price goes up!!!!!!!! this is not caused by obama this is caused by capitalizm. but i would buy stock in gm right now the volt is the best fuel efficiant car out right now and toyotas cannot built any prius's .

April 15 2011 at 1:50 AM Report abuse +2 rate up rate down Reply
1 reply to hugozoon's comment
gpfs

Your partly correct. Futures are adding to the price of oil, but the falling dollar is also a major player. A number of countries are pushing for a new world currency including China, Brazil, Russia, Germany and the Saudi's. Once that happen's we are in big trouble. The deficit and monetary policy of the Federal Reserve will bring a financial melt down like never before seen in this country. And soon!

April 17 2011 at 12:11 PM Report abuse +2 rate up rate down Reply
Bill

Supply and demand or is it greed? Lets all quit buying cars and see how quickly prices drop.Wake up america before it's too late. We can control what is happening in our government and stop it if we all pull together against big business and the crooked politicians. When they are about to default on their obligations to their debt suddenly things will change for the better for us.

April 15 2011 at 1:32 AM Report abuse +2 rate up rate down Reply
THE GREAT ONE

hell my family life is more important to me I will always drive big cars

April 14 2011 at 8:46 PM Report abuse +1 rate up rate down Reply
leroy

If I remember right, Bush and congress o.k. offshore drilling on the east coast 100 miles out, the last thing before the elections. Then in come Obama and the liberals and they repealed all the 100 mile out drilling and said buy your a volt car. Could this be part of the high price problem?????????

April 14 2011 at 8:45 PM Report abuse rate up rate down Reply
mikeemo1

there is no shortage on oil or fuel its the oil companys who know we americans drive more in the warmer months and are jacking the prices up to make more and more profits i think the oil companys need to be regulated since they control the worlds economy think of this every somer the gas price rises and every year job rates lower and people start loosing homes why because the oil companys can charge whet ever they want and get away with it
thank you to the military people and familys keep up the good work and be safe
mike nash
ft lupton co

April 14 2011 at 8:01 PM Report abuse +5 rate up rate down Reply
sugarcreekchile

Gas prices went up in 2008 under Bush but by the time Obama took office, they had dropped back down to a national average price of $1.65 per gallon. When the price of gasoline went too high for us to bear Bush released oil from the “Petrolem Reserves” to bring the price of gasoline back down and encouraged new drilling. The price done nothing but continue to rise under Obama since he is not oil friendly. He's on record for stating that he doesn't mind if gas hits $5 a gallon so he can dump more taxpayer dollars into his green initiatives. Obama says he has lifted the moratorium on new drilling but there is still a de facto moratorium as no new drilling permits have been issued. Obama cares more about his agenda than about the effect of his policies on the American public, particularly working class Americans. He's the oil speculators' dream child. It cost me $43 dollars yesterday to fill my 2004 Chevy Cavalier with gas at $3.69. My only consolation is that the majority of the states experiencing the highest gas prices are Obama states. I wonder how they're liking all that "hope and change" now.

April 14 2011 at 7:45 PM Report abuse rate up rate down Reply