Is The Time Right To Downsize? Car Pro Commentary

Big car vs Small carI am often asked when is the best time to buy a new car? 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. 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. Seems safe to say that the new standard for low gas prices is $3 per gallon, perhaps even $3.25.
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. 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 in Mid-April, the national average for a gallon of regular fuel is $3.50. A month ago, it was $3.65. More interesting, a year ago right now gas was at $3.85. As gas prices fall, the time to get a fuel-efficient vehicle is ripe. We have already seen a drop in hybrid sales.
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 rising will save you money on the new car, and give you a higher net price on your trade-in. With the drop in gas prices we have seen recently, used truck and SUVs prices are on the rise.
If gas prices 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. It happens every time, and there is plenty of history to back this up.
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, we just don’t know when. 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.


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