Values for fuel-efficient used vehicles are starting to decline after 20 straight weeks of gains and a total increase of nearly 25%.
Rising U.S. fuel prices pushed values up. Conversely, falling pump prices largely are responsible for the current drop in values for those cars, says Alec Gutierrez, manager-vehicle valuation for Kelley Blue Book.
“There is a certain threshold at which these vehicle values react to gas prices,” he says of compacts, subcompacts and hybrid vehicles. “It wasn't until $3.50 a gallon that we saw an aggressive uptick for fuel-efficient used vehicles.”
Fuel prices peaked in May with a national average of $3.98 a gallon — and beyond $4.00 in some markets — but dropped to an average of $3.71 today.
Overall used-car prices remain strong, largely because of short supplies caused by the dramatic decline in new-car sales in 2008 and 2009.
The industry average used-car valuation change is up $950 or 5.4% year to date. Fuel-efficient cars have outpaced that. Compact cars rose $2,250 (21.4%), hybrids $3,000 (20.4%) and subcompacts $2,200 (22.0%).
But Kelley reports the weekly valuation change by June 10 dropped 0.30% ($50) for compacts and hybrids and 0.10% ($25) for subcompacts. Those are small downticks, but, still, break the streak.
“In some respects, they appreciated too quickly,” Gutierrez tells Ward's. “One reason they now are dropping is because they were so elevated in the first place. They were unable to sustain those high levels.”
Dealers at used-car auctions were bidding “aggressively and competitively” for gas-sippers, he reports. The auction action “really heated up.”
Things have since cooled down. Because of cheaper gasoline, Gutierrez foresees in the next 30 to 45 days a 3%-5% drop in pre-owned hybrid and small-car values, and even more devaluation if gas prices fall below $3.50 per gallon.
“Oil just dropped to $95 a barrel, the first time in awhile that we've seen prices well below $100 a barrel,” Gutierrez says, noting Saudi Arabia plans to boost crude oil production to 10 million barrels per day, 13% more than last month.
Car buyers start to show greater interest in fuel-efficient vehicles when gas prices reach $3.50 a gallon, he says. “We start to see a shift at that point. At $4, we see a significant change in buying behavior.”
The pace of this year's fuel increases exceeded those in 2008, the last time consumers saw pump prices rise rapidly, Gutierrez says.