Car Buyers Still Want Smaller, Efficient Cars

On the road of SUVs, crossovers, and minivans, buyers still want smaller, efficient cars, at least that’s what recent trends are indicating. According to Automotive News, used car values for small, fuel-efficient cars have started to rise.

“The vehicles that retail under $15,000, and especially those you can retail under $12,000 — there’s not enough of them,” said Brandon Caldwell, retail operations manager at Friendship Ford in Bristol, Tennessee, in an interview with Automotive News. “Dealers know that, so when you go to the auction to buy these cars, dealers are paying much more than they were a year ago because of the demand.”

This trend is a stark contrast to what has been going on in recent months. According to Bloomberg, smaller, mass-market vehicles aren’t the profit engines that their larger counterparts are, which is why the likes of Ford and GM have scaled back production on passenger cars. It was reported that utility vehicles are more lucrative to the Ford Motor Company in the United States versus the conventional vehicles, such as sedans and hatchbacks.

Edmunds reported in its used car report that compact car prices were up by 3.9 percent, which is a backwards trend for non-SUV and truck sales.

The conflicting numbers are confusing at best, and are not because of one common denominator. They are, however, expected.

“You’re in a part of the market where compact car pricing is stronger than the overall industry when just six months ago it was the opposite,” said Zohaib Rahim, manager of economics and industry insights for Cox Automotive, to Automotive News.  “The level was surprising, but we did expect this to happen.”

Contrary to popular belief, the profit margin on most new cars is quite small. Dealerships typically make more money selling more expensive cars, such as SUVs and luxury cars, but high-volume models are strategically priced to compete with other makes and models. Used cars, especially smaller, less expensive (and more fuel efficient) models are clearly still in demand.