Demand, Prices for Used Hybrid Vehicles Fade as Gas Costs Less

By dancurranjr On March 12th, 2009

gas-prices-1Consumers have lost their appetite for pricey hybrids, two industry experts say, leading to a drop in used hybrid values and an oversupply of new ones.

Used hybrid values are down 23.5% since their peak last summer, says Juan Flores, director of vehicle valuation for Kelley Blue Book. Just since the beginning of 2009, they’ve fallen 4.5%, while used vehicle prices overall are going up as more buyers opt for used over new.

Last summer, when gas prices topped $4 a gallon, demand for hybrid cars skyrocketed. Used hybrids were selling for as much as a new hybrid’s sticker price, Flores says, and new hybrids had waiting lists and sold for well above sticker.

Now, Flores says, a one-two punch of the recession and low gas prices are hurting used hybrid sales. “The premium between a hybrid and a non-hybrid is probably not justifiable in the minds of the consumer during this recessionary period, because you’re not going to make your money back,” he says.

Consumers have become much more price-sensitive, Flores says, and if they can’t justify the extra cost upfront of a hybrid, they won’t buy one. Many new hybrid cars cost about $3,000 more than their non-hybrid equivalent.

When gas costs more, the math makes more sense. If gas costs around $3.50 a gallon, it takes about 3.5 years to recoup the extra cost of a Toyota (TM) Prius. When gas gets more expensive, it takes less time to make up that extra cost; when the price falls, it can take a decade to make up that money.

Mike Jackson, CEO of auto retailer AutoNation, says demand for hybrids and other very fuel-efficient cars has fallen off a cliff.

“The industry switched over to producing fuel-efficient cars all summer, and now, all those vehicles are in stock,” Jackson says. “Now, we have fuel-efficient cars as far as the eye can see.”

Jackson has favored increasing the gasoline tax, bringing the price of gas to about $4 a gallon to stimulate consumer demand for more fuel-efficient cars and trucks. As gas prices have fallen, he says, “the great migration” in demand for trucks and SUVs is rising. He says now is not the time to raise fuel taxes, but the government could say it will.

“The situation with the economy trumps every other concern,” he says. “But (the government) could certainly announce that there will be higher gas taxes in 2011 or 2012, and send the message that these $2-a-gallon prices are temporary.”

Flores says weaker demand for used hybrids also is affecting consumers who are looking to buy new cars. Dealers may not accept a hybrid on trade-in right now, because of the oversupply.

“It’s a bit of a domino effect between the new car side and the used car side,” he says.


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