According to Alec Gutierrez, Senior Market Analyst, Industry Insights at Kbb.com, for the first time since April, Kelley Blue Book has seen values increase on affordable small cars such as the Honda Fit, Smart fortwo, Suzuki SX4, Volkswagen Jetta TDI, Kia Rio and Honda Insight due to the small hike in gas prices. These vehicles have increased anywhere from $100 to $600 on average over the past four weeks. A jump in fuel prices nearly always precedes a rise in values of fuel-efficient vehicles. However, we usually do not see a quantifiable increase in demand until gas prices approach $3.75 per gallon or more nationally.
Despite the $0.07 per gallon increase in fuel prices so far this month, prices remain $0.50 below their April peak of $3.92 per gallon and are due for further declines later this year. If seasonal patterns hold true, the current upswing in fuel prices likely will be short lived and relatively modest overall. Yet some dealers have taken the opportunity to buy the most affordable fuel-efficient vehicles at auction, perhaps anticipating an uptick in demand for fuel-sippers from price-sensitive shoppers.
Although we have seen isolated pockets of strength at auction, on average used-car values declined 2.2 percent during the last four weeks, with the most significant declines coming from fuel-efficient subcompact, compact and hybrid cars, which were down between 2 to 4 percent through the same period.
There is a small chance that the price increases we have seen over the past several weeks could signal the beginning of a turnaround in auction values; however, it is far more likely that the isolated gains today are anticipated, rather than actual, increases in consumer demand for fuel-efficient vehicles due to rising fuel prices.
As it stands today, fuel prices remain under $3.50 per gallon nationally and according to the United States Energy Information Administration (EIA), fuel prices will continue to decline through the rest of 2012 and into 2013. According to the EIA’s most recent short-term energy outlook released on July 10, the United States experienced a marked decline in fuel-consumption in 2011 that has continued into 2012.
An increase in the fuel-efficiency ratings of vehicles sold over the past several years, coupled with a high unemployment rate that has kept drivers off the road, sent consumption tumbling by 340,000 barrels per day in 2011, and another 150,000 barrel-per-day decline is expected in 2012. After factoring in rising production levels and record high crude inventories, it is no wonder the EIA has projected fuel prices to average $3.49 per gallon in 2012 and only $3.28 per gallon in 2013, down from an average of $3.52 in 2011. Additionally, 37 percent of consumers during the second quarter believe that gas believe that gas prices will go somewhat higher, compared to 61 percent during the first quarter, according to Kelley Blue Book Market Intelligence. Fifty-five percent of consumers in the same survey believe the at gas prices will either stay the same or head lower.
With fuel prices expected to continue to decline, Kelley Blue Book believes that although we may see isolated pockets of strength in values of fuel-efficient vehicles from time to time, these values will continue to trend downward through the rest of the year.
–Alec Gutierrez, Senior Market Analyst, Industry Insights