I am often asked when is the best time to trade cars? That used to be an easy question, but no more. We can usually count on the end of December being a great time, but that timing does not work for everyone. With incentives moving constantly, you can just never tell what is going to happen. Most of the incentives are based on the level of inventory of a particular model, something that changes often and is hard to predict.
The one constant over the years I have been in the auto industry, that is sure to shift a market, is gas prices. Rising and falling gas prices have become a way of life and we are conditioned for it sadly. One of the reasons I put a gas price survey in my free weekly newsletter is so everyone can spot the trends of fuel prices. In 2008, when gas hit $4 per gallon, I saw a ton of “panic trading”. These were people who suffered from severe pump shock and wanted to pull the trigger immediately on a smaller vehicle. Six months later, gas was under $2 per gallon and the majority of those people wish they had never traded. They longed for their big trucks and SUVs and hated their cars.
When gas prices are on the rise, fuel-efficient cars go up in price, get short in supply, and bring a premium price. This is even truer of diesel cars and hybrids. The opposite is also true-less fuel-efficient vehicles drop in value. So those who wait to downsize get hit both ways…they overpay for the new, fuel-efficient vehicle AND they take a bath on their trade-in.
If the thought of downsizing has crossed your mind, I believe the time is now. As I write this early in the second week of February, the national average for a gallon of unleaded fuel is $3.44. A month ago, it was $3.33; two months ago it was $3.22. Do you see a trend there? More interesting, a year ago right now gas was at $3.11.
As you can see, gas prices are now 33 cents higher than a year ago. What most people do not remember, however, is that within that 12 month period going back to February of 2011, we saw a spike to $3.97 early last May. Currently many experts are predicting $4.05 per gallon by this summer. Looking at last year, and looking at the last two month trends, that is not hard to imagine.
Waiting until gas is coming close to $4 per gallon to downsize will cost you a lot of money, so I am advocating that if this is in your thoughts, to do it now. Making a move in advance of gas prices skyrocketing will save you money on the new car, and give you a higher net price on your trade-in. Even with the spike in prices we have seen recently, used truck and SUVs have not yet started to drop, but that is sure to change.
If gas prices continue to rise, the automakers will not be able to keep up with demand for 35+ MPG vehicles, the supply will dry up, and all but minimal incentives will apply. The incentives dollars will be shifted from fuel-efficient cars to vehicles that are not so fuel-efficient.
Savvy buyers will act now instead of putting off the decision. In 2008, I saw cases where smaller new cars went up $3000 in a 60-day period. At that same time, late model large SUVs fell as much as $5000 in that same 60-day period. That is an $8000 swing that is unnecessary if you get in ahead of the storm.
Of course predicting gas prices is as hard as predicting vehicle incentives. However, based on watching gas prices closely over the past 4 years, I can see the shock of $4 gas coming at us once again. If you haven’t shopped for a car in a while, you will be surprised how nice fuel-efficient cars are these days, unlike just a couple of years ago.