Last updated Monday, April 9, 2012

Fuel-Efficient Vehicles Up
Once again the increase in the cost of fuel that has become something of a rite of spring over the past several years has created some hills and valleys in what is traditionally a pretty stable time of year for the used vehicle market. One need look no further than the Toyota Prius for evidence. We have raised the value of a 2010 model some $1200 over the past couple of weeks. That is an extreme example, but all fuel-sippers have increased in value as well even if not to that extent. That includes most hybrids and the more fuel efficient compact SUVs and crossovers.

We do sense that the media focus on gasoline prices seems to have died down recently and that fuel prices have stabilized for the time being at least. If that were to continue to be the case we think the market would stabilize as well and that we have already seen most of the increases and decreases that would occur. People seem to have come to terms with the reality of gasoline prices in the upper $3 range, perhaps even closing in on $4. What seems to have motivated consumers and will continue to do so is talk of $5/gallon gas. So far that is just talk and hopefully will remain so. But if something approaching that were to become a reality we think the market would be impacted dramatically, both positively and negatively.

Market Expected To Remain Strong
With that caveat, we expect the market to remain strong to very strong and to continue in that mode for a longer period of time than is typical for a traditional spring market. We still have a shortage of vehicles in most segments and strong retail demand as consumer confidence improves and pent up demand trumps more practical decision making. There are so many good choices out there that it is really difficult for consumers to convince themselves that they don't need/deserve a vehicle upgrade.

Higher Gas Prices But Little "Panic Selling"
Surprisingly, those vehicles that typically move in an equal and opposite direction as gas prices rise have been relatively stable thus far. There has not yet been the panic selling that often accompanies such circumstances, and full size SUVs and pick-ups have not plunged as they often have in the past. Perhaps that is the result of diminished sales in those segments in recent years and a more reasonable supply/demand ratio. That is not to say that they have not moved at all or that they are chased after in the lanes, but that it is not yet fire sale time. The future for them remains to be seen and bares watching, but unless gas prices continue to move upward into the mid-$4 range we think they will be at least saleable.

In many cases new vehicle inventory is scarce and that means very late model product is doing better than might be expected. Spreads between years are often tighter than normal. And as vehicles age condition and mileage become more important than model year.

With some exceptions among the more expensive models, even the European and Asian luxury segments are holding steady and we expect that to continue as well.
Dan Galves



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