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Buyers Should Wait Til Fall To Go Small

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On: Wed, Jul 20, 2011 at 2:37PM | By: Tim Healey

Buyers Should Wait Til Fall To Go Small

Small-car prices have hit record highs this year, but they're expected to drop soon, right around the same time that the mercury does.

Small-car prices hit a record high of an average $20,500 in June, but analysts and experts are saying that the average might dip to $19,300 by the end of the year. That's for new cars. For used cars, Kelley Blue Book analysts expect the average to fall from a record $11,300 to around $9,600.

The reasons? Increased production capacity from Japanese automakers hit hard by March's earthquake and tsunami, plus falling gas prices. Also, as more cars reach dealer lots, the stores will add discounts.

High gas prices drove buyers out of SUVs and into smaller cars, but with prices dropping, people might once again start looking at bigger vehicles, thus reducing the demand for small cars.

Automakers say they won't slash prices, but analysts don't appear to be buying that. The experts say that as the average age of cars climbs—now up to 10.6 years—customers will need to buy replacements for their aging wheels, and small cars will be on shopping lists, with competition pushing prices down.

Fuel-price fluctuations are still the main factor driving price. As one might expect, the near-record gas prices that hit the pump earlier this year drove prices for suddenly in-demand small cars a lot higher. And now, with prices at the pump falling again, chances are good that consumers will start buying SUVs and pickup trucks again.

Both Honda and Toyota, which sell the popular Civic and Corolla, respectively, were hit hard by the disasters in Japan, but now, after several months of production being limited, those models will be in surplus at dealerships soon enough, with the larger supply driving prices back down.

Pricing is often cyclical, and this appears to be an example of that phenomenon.


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