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Used cars’ low supply, high demand drive up prices

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San Francisco Chronicle
Published:
The used-car market has been going strong since the recession began, but high gasoline prices, shrinking inventories and seasonal factors are pushing some models' prices through the roof this year.
Kbb.com, the Kelley Blue Book site, reports that values for fuel-efficient cars are up almost 20 percent since January.
The trade-in value of a 2008 Toyota Prius has increased $3,800 since Jan. 1, while the value of the Ford Escape hybrid is up about $1,950.
Sam Godreau, used-car manager at Toyota of Berkeley, Calif., says some later-model used Priuses are selling at auction for more than their original sticker price.
Midsize cars, such as the Ford Fusion, are also doing well as people trade down from sport utility vehicles, says Paul Seredynski, senior editor of Edmunds Auto Observer.
Over the past year, the average retail price for a 3-year-old used car is up 4.5 percent, according to Edmunds.com. The strongest category is premium compact (up 20 percent), followed by full-size vans (19 percent), standard sports cars (17 percent), midsize cars (15 percent), minivans (14 percent), standard compacts (12.5 percent) and premium sports cars (8.4 percent).
"These are the largest percentage price gains, especially in compact and premium compact, that we have ever seen," Seredynski says.
Of 16 categories tracked by Edmunds, only full-size SUVs dropped in price over the past year, by 1.4 percent.
SUVs and other low-mileage cars have taken a bigger hit as gasoline prices have hit $4 a gallon.
Supply and demand is driving up used-car prices.
When the recession hit, new-car production fell off a cliff. From 1998 through 2007, new-car sales and leases ranged between 16 million and 17.8 million vehicles per year. That number dropped to around 13.5 million in 2008 and 10.6 million in 2009. It recovered slightly, to around 11.6 million in 2010.
That slowdown means fewer recent models are coming onto the used-car market. The government's Cash for Clunkers program also took about 680,000 older cars off the market for good.
"At the same time, you had people keeping their cars longer. Inventories became tighter," says Marc Cannon, senior vice president of AutoNation, which franchises new- and used-car dealerships nationwide.
When gas hit $4 a gallon, the shortage of fuel-efficient cars became especially severe. At the moment, used-car prices in general are buoyed by a seasonal increase in demand that occurs as summer approaches.
Cannon says used-car inventories at AutoNation "are tight across all makes and models."
Things are likely to get worse for buyers before they get better. Most Japanese automakers have had major production slowdowns since the earthquake and tsunami hit, but new-car dealers generally had enough inventory to satisfy demand. But the supply of those cars is running out, and Japan's production capacity is expected to be limited for at least 30 to 90 more days, according to Kbb.com.
"If like most people you are considering something fuel efficient, you will have to pay a premium," says Alec Gutierrez, manager of vehicle valuation at Kbb.com. "If you absolutely have to replace your vehicle, get to a dealership as soon as possible; you have to act while supplies last, as cheesy as that sounds. There are still some (new-car) incentives available in the marketplace."

Prices for used cars
Higher gas prices and shrinking inventory have pushed up the cost of fuel efficient used cars.
Some Toyota Priuses are selling for more than their original price. The price of a 2008 Prius has gone up by $3,800 since January, according to Kelley Blue Book.
During the past year, the average price of a three-year-old car has risen by 4.5 percent.
Prices for used compacts are up 20 percent from a year ago.
Conversely, used SUVs have dropped in price.

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