Sales of Small Cars Surge With Rising Fuel Prices.

Intense demand for compact cars has sent sales volume — and pricing — higher, even on pre-owned inventory. According to ADESA Inc.’s statistics, the wholesale prices of used compact cars increased from May to June of this year by approximately $300 to $7,376. The automotive industry has seen a surge in the compact car market in recent months. Supply is low and demand is high, and four-cylinder fuel-efficient cars are flying off the lots leaving sports utility vehicles and larger vehicles behind.

Within the pre-owned market, dealers are selling compact cars well beyond their blue book assessed values and making great returns. There has been a definite shift in the market. The demand for smaller cars has gone through the roof. Pricing for models are not really age dependent, but rather demand dependent.

Doug Deakin, a salesman at Toyota City, in Mamaroneck, N.Y., said, “In the past 90 days there has been a [buying] frenzy for preowned compact four-cylinder cars. Everything I have gotten in has sold immediately; everything we take in, we sell.” Deakin said the market for four-cylinder cars has increased by about 10% to 15% from last year, with their most popular sellers being the Camry and the Prius Hybrid.

Nick Belli, a salesman at Honda of New Rochelle in New York said “the Blue Book prices on Accords and Civics have gone up $1,000 since last year because of demand.” These prices are less negotiable as a result of such high demand. The 2006 and 2007 Civics and Accords are being sold for the same prices as new ones.

Robert Albert, sales manager of Colorado River Ford in Bullhead City, Ariz., said “older model Focus, Cobalts, Aveos, and Escapes, essentially all the four-cylinder models, that were thousands of dollars behind book are now well over book. Values on preowned small cars have increased 30% to 40% over the past year. These compact cars sales make up about 33% to 40% of the sales per week.”

Negative equity has also become a growing problem as a result of the rush to trade in larger vehicles. Albert said “People are now looking at negative equity due to the fact that they are trading in their large trucks like the F-150 for smaller more fuel-efficient ones. The problem is, that the value of these large trucks has depreciated so much that they owe a substantial amount of money on their trades. Customers end up having to put thousands and thousands of dollars down.”

Many dealers use their respective parent companies for financing. Recently, credit companies have become more lenient. Toyota Auto Finance for example still offers monthly deals on pre-owned compact cars. The four-cylinder Toyota Camry that gives 30 miles to the gallon is currently being offered at a 4.99% finance rate.

Finance companies are more flexible now because people have limited or no credit. Financers want to keep the industry going, and keep the market going so they are more lenient and willing to give loans to less qualified customers.