Gasoline Prices and Its Impact on Used Car Values

by Don Elliott on June 8, 2011

Gasoline prices are up $1.06 per gallon compared to the same time last year. Even though the national average dropped $.07 this week, many Americans expect that gasoline prices could reach $5.00 per gallon before the summer is over. The cost of fuel as a percentage of the household budget continues to rise, forcing some consumers to consider buying a more fuel-efficient vehicle.

Several combined factors in the marketplace discourage shoppers when they enter their new or used car dealership. It can be described as a “perfect storm” of factors that have impacted this spring’s used car values.

First, the economic depression of 2008-2009 lead to a significant reduction in the number of new cars produced. The number dropped from 16 million units in 2007 to approximately 9 million units in 2009. Bankruptcy and reorganization at General Motors and Chrysler contributed to the limited production numbers. Fewer new car sales means there are fewer used cars in the pipeline. Used car dealers are struggling to find vehicles with good used car values, regardless of their fuel economy or price.

Second, ALG predicts that some new vehicles could rise in price by as much as eight to nine percent.  The production delays from Japan’s tsunami caused the increase in price. Many of the models affected by production shortages carry some of the industries highest fuel economy ratings.

Third, incentives offered by car manufacturers have reached their lowest level in years. This is due to the demand for fuel-efficient cars because of increasing gas prices. In a recent article posted on TrueCar.com, incentive spending by new car manufacturers is expected to drop 13.1 percent in May 2011 versus the April 2011 incentive levels. That would be 8.9 percent less than May of 2010.

Given the shortage of good used cars and higher used car prices, is now a good time to shop for another car? Edmunds.com has come up with a calculator to help you determine the actual cost of trading your car for a more fuel-efficient vehicle. The calculator will estimate how long it will take for you reach the breakeven point using factors like your zip code, the car you would like to buy, the car you own, the current gasoline price, and your driving habits.

As gas prices go up, more car owners will consider trading in their current vehicle for something more fuel-efficient. ALG estimates for every $1 per gallon increase in the price of gasoline, the price of fuel-efficient compact vehicles will increase eight to twelve percent.

Send us a comment if this information on the impact of gasoline prices on used car values was helpful to you.

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