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Gas Price Hikes And Used Car Blues

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On: Mon, Mar 5, 2012 at 12:03PM | By: Chris Salamone

Gas Price Hikes And Used Car Blues

A particularly savvy reader recently submitted an interested query: “I would love to see a blog about the rapid moving stats of trade in SUVs and compact car purchases. The gas hike is early this year, how is it impacting the pre-owned market.” As you might expect, nailing down market trends relative to gas price influence is a difficult task – especially so early in the year. But we’re always up for a challenge.

Fortunately or not, depending on your perspective, the premature gas price increases we’ve experienced have generated more than just oodles of critical media attention. Fuel efficient new car sales have also soared.

In point of fact, Bryce G. Hoffman of The Detroit News recently noted: “February was the strongest month for new car and truck sales in four years, as signs of a strengthening economy convinced consumers the time was finally right to trade in their old vehicles. And with gasoline prices surging, many opted for more fuel-efficient models.”

So we’ve sold a lot of new cars, especially amongst the Big Three. Ford Senior US economist Jenny Lin even attributes a supposed 115% sales boost of the Ford Focus to our .35 cent gas price increase over last year’s national average.

The problem, however, is that surges in new car sales and gasoline prices, mixed with already inflated used car prices, will likely create a perfect storm for used car sales to plummet. Pan-Asiatic natural disasters and the Great Recession caused used car prices to increase because new car supply and affordability were stifled. In the last few years we saw used car prices and demand jump by leaps and bounds. Dealerships even sent out direct mail solicitations to bolster pre-owned inventories.

While it’s too early to run a full statistical study on used car prices, as impacted by the recent gas price jump, we’re willing to go out on a limb and project that the pre-owned market will begin to show signs of stagnation in the coming months. Why? Because, on average, new cars are significantly more efficient, rebounding in the natural ebb and flow of market trends, and cars currently owned by Americans average 11 years of age – the longest term of service on record.

Coupled with the fact that new car sales are already surging from “pent-up demand” and pre-owned prices are already inflated, look toward gas efficient, new models to sell strongly – not the best cup of tea for pre-owned car buyers, but pretty tasty for everyone else.



AutoHistory | 4:30PM (Mon, Mar 5, 2012)

Seems like we'll have trouble buying used cars in the short term, because prices will not reflect demand, but as prices decrease...maybe we'll get a buyers market?

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