Higher Gas Prices Cause 'Split' in Used Car Costs
With the average price for a gallon of gas moving close to $4 a gallon, we're finally starting to see the impact on the used car lot. Buyers are demanding more small, fuel efficient cars and that's pushing the price of four cylinder compacts higher.
How high? Adesa,one of the largest used car wholesalers in the country, says the price of pint-sized four bangers has jumped 16 percent in the last 6 weeks.
By comparison, the price of used big pick-ups has dropped 8 percent over the same period of time.
The split shouldn't surprise us. It's only natural that people would move to more fuel efficient cars and crossovers.
But unlike the spike in gas prices back in 2008, most in the used car industry do not think we will see the price of large models plunge.
That's because demand for people buying cars shows no sign of slowing down, even as prices at the pump move higher.
Tom Kontos with Adesa tells me:
"I really don't think there is a tipping point at $4 or $4.50 or $5 obviously there will be a bit of a gradual decline in the sales, but I don't see the type of wholesale you know moving away from those vehicles that we saw back in 2008.
Back then, people actually wouldn't take them in trade, at dealerships. Folks weren't willing to bring their vehicles in for a trade because they were afraid at how low of an offer would be on their trade-in."
Unlike 2008, we are not in a recession and credit is easier to get. That combination, along with an improving job market, is driving greater demand for people buying cars, both new and used. Unfortunately for many used car buyers, there's a very limited supply due to three years of automakers building fewer cars and trucks. That limited supply is further fueling higher used car prices.
That said, we are are clearly seeing a split in prices. And it really accelerated in March, when gas prices skyrocketed. Look at how these used vehicle prices changed between February and March:
Compacts (up) 7.8%
Mid-size (up) 6.7%
Full size SUV (down) 6.8%
Full size pick-up (down) 9.1%
And as we head into the summer sales season I expect this split in prices to continue. Even if gas prices eventually moderate. This is not what people shopping for a used car will want to hear. And yes, this is one of those periods where buying new may make more sense than buying used.
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