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Used Gas Sippers, Keeping That New-Car Value

Cars are not supposed to be a good investment. But Spencer Hunter, an Oregon patent lawyer, recently turned a small profit selling his 13-month-old Toyota Prius.

2010 Prius
Source: toyota.com
2010 Prius

“I drove a brand-new car for free for a year,” said Mr. Hunter, who now rides a motorcycle.

The rule of thumb says that a car loses at least 10 percent of its value the moment it leaves the dealership. But soaring used-car values are turning that formula on its head for many fuel-efficient vehicles, which are suddenly in high demand as Americans fret about escalating gas prices and do not want to pay for a new car.

Used cars over all are retaining a higher percentage of their original value than ever before, according to auto analysts who track prices. Compact cars that are one to five years old are worth, on average, about 30 percent more on the wholesale market now than just six months ago, the National Auto Auction Association reports.

“You’re not going to find a better return than that on anything,” said Jonathan Banks, executive auto analyst for the used-car guide published by the National Automobile Dealers Association.

The value, for example, of a 2008 Honda Civic LX (highway mileage: 34 miles per gallon) has increased by $2,098 since January, and the value of a 2010 Chevrolet Aveo LS (highway mileage: 35 m.p.g.) by $3,448. A three-year-old Ford Focus (highway mileage: 35 m.p.g.) is worth about two-thirds of its original sticker price, according to Kelley Blue Book, another widely used vehicle valuation source; in 2009, a three-year-old Focus retained just a third of its original value, a difference of more than $5,000. A year-old Prius actually can command about as much as the list price of a new Prius because the new ones are in such short supply that many dealers are selling them for several thousand dollars more than the sticker price.

An unusual confluence of factors creating low supplies and high demand is behind the unprecedented prices.

Many consumers seeking a higher-mileage vehicle consider a used car as more affordable than a new one. But the plunge in new-vehicle sales in 2008 and 2009 has meant that significantly fewer late-model cars are available for the used-car market. And because the tight credit markets during the recession led to a sharp cutback in leasing, the usually steady stream of leased vehicles has also slowed to a trickle.

On top of all that, there are shortages of Japanese models at many new-car dealerships because of the March earthquake and tsunami, prompting some shoppers to check used-car lots instead.

“There’s just so many things hitting the market all at once,” said Alec Gutierrez, manager of used-car pricing at Kelley Blue Book. “For those really hot, in-demand cars, we’re seeing one- and two-year-old vehicles that are selling for very close to” sticker price.

Some of the biggest gainers are hybrid cars, which were offered at big discounts last year but regained popularity as gas prices climbed. Toyota’s Prius is in particular demand because the Japanese factory that builds it closed for a month after the earthquake and tsunami.

A 2008 Prius, with a Blue Book value of $13,600 a year ago, can command $18,250 today. A three-year-old Prius is worth 77 percent of its sticker price today, versus 48 percent a year ago, according to Kelley Blue Book. Mr. Hunter, the Oregon lawyer, sold his Prius less than 72 hours after he posted an ad on Craigslist. The car turned out to be a more fortunate investment than the three houses he owned when the real estate bubble burst. “I got soaked pretty bad,” he said.

Over the 13 months he leased his 2010 Prius, Mr. Hunter spent $3,860 on the car, not including gas. Last month, after buying out the lease and selling the car, he ended up with a check for $3,900 — a profit of $40.

Dealers are trying to capitalize, too.

The Patrick Auto Group, which operates dealerships selling Hyundai, Mini and other brands in suburban Chicago, has been buying up used-car inventories around the country and calling past customers to see if they are interested in trading up for something newer.

The dealerships have been leaving tags in the cars that customers bring in for service, asking if the owner wants to trade in the vehicle and offering an approximate value. “It will probably never ever be worth more than it is now,” said John Leanardi, the general manager of the group.

As a result, used-car sales at the Patrick dealerships have risen 20 percent this year, and new-vehicle sales are up because people traded in their current cars while values were high.

“It’s helped us really gain some momentum,” Mr. Leanardi said.

Analysts say used cars are likely to spend the rest of the year shedding some of the value they have gained in recent months, but even if the cost of gas drops sharply, used-car prices are expected to remain high. The blue book value of the average vehicle from the 2008 to 2010 model years has risen more than $1,000 this year. (Not every vehicle’s worth has gone up. Full-size sport utility vehicles and pickup trucks have each declined more than $900.)

The higher prices are welcome news for automakers. Some used vehicles are worth so much that consumers might decide they would rather pay a little more and get a new car. In addition, people who are able to sell their car for more than they expected are more likely to stick with the same brand as they shop for a replacement.

“Perception of a brand is really driven a lot by trade-in values,” Mr. Banks, the guide analyst at the dealer’s association, said. “People were angry at Ford and at General Motors" when resale values for those companies’ products were much less than import brands, he said.

“It really promotes a healthier attitude by the consumer and gives the dealers a lot more to work with.”

John Shen, who lives in Los Angeles, definitely is feeling good about Toyota after selling his year-old Prius. The sale price was higher than the going price for an equivalent car from the 2011 model year.

Mr. Shen, 30, found a buyer who paid $25,500 for his 2010 Prius II. He had to spend $1,000 on repairs and pay a fee to the dealer because the car had been leased. Even so, his net take on the deal was $121 more than he paid for a 2011 Prius II — and the new car came with hands-free Bluetooth phone connectivity, a feature his old car did not have.

“I think it’ll be the only time I ever make money on owning a car,” Mr. Shen said.

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