Edmunds Recommends Waiting out Fuel Prices

By Jeffrey Bellant June 12, 2018

Strong demand is keeping used-car prices high, but concerns aboust rising fuel prices are growing.

The average transaction price for a used vehicle was $19,657 in the first quarter, according to Edmunds. This reflects a 2.2 percent increase in sales price from the first quarter of 2017 and a 17.6 percent increase from the first quarter of 2013.

Part of the higher demand comes from an increased interested in small vehicles, said Ivan Drury, Edmunds’ senior manager of industry analysis.

"With rising fuel costs breathing fresh air into this segment, subcompact and compact cars are finally retaining value again,” Drury said. 

Fuel costs hit a four-year high in the first quarter.

As a result, the average price for a 3-year-old compact car increased by 3.9 percent and days to turn decreased by 7 percent compared to the first quarter of 2017. The average price for a 3-year-old subcompact car has increased by 3 percent, and DTT has decreased by 8.5 percent.

Despite rising fuel costs, residual values for SUVs and trucks have yet to drop. Edmunds said many consumers remain willing to pay for the function and features of these vehicles despite the higher price to fuel them.

"Newer SUVs and trucks are nothing like their counterparts from 10 years ago during the gas crisis of 2008; however, they still lag behind their car segment counterparts in fuel economy," Drury said.

However, Edmunds analysts caution that a large spike or steady creep past the $4-a-gallon threshold could spell disaster for the resale values of these vehicles. 

Edmunds analysts said the risk to used SUV and truck residual values is further compounded by these vehicles becoming a larger share of lease returns.

Despite the uncertainties of rising fuel costs, Edmunds experts warn against a knee-jerk reaction.

"Gas prices are cyclical, and individuals who react too soon could find themselves deeper in the red, especially considering all of the other costs associated with trading in a vehicle," Drury said. "The best rule of thumb is to wait this out."

 

Last modified on Tuesday, 12 June 2018 23:23