Have automakers made a bad call on small cars?
Consumers have a short memory when it comes to gas prices. As soon as they go down, buyers are quick to rush out to trade in their small, economical hatchback for a large, three-row SUV that drinks fuel like a college student drinks Starbucks coffee. That's what happened in 2017 when gas prices dropped and an influx of small cars were traded into dealers on large cars and trucks, causing used values to plummet. Unfortunately, mid-way through 2018, oil prices are rising and Automotive News reports that people want their small cars back.
However due to a lack of supply used prices are currently rising on small cars. Some analysts believe a seasonal uptick is responsible for the increased demand, while others point to industry decisions by major automakers to kill off many of their small models. Ford has recently killed off its sedan models, including the compact Fiesta. Two years ago, FCA made a similar move to kill off the Chrysler 200 and Dodge Dart in order to focus on more profitable trucks and SUVs. Due to the increased demand, dealerships are now struggling to stock affordable used cars. Through the first quarter of 2018, prices for three-year old compact cars rose 3.9% to $13,464 on average (according to Edmunds).
In May, the average price rose by 5.7%, which was faster growth than the SUV and pickup segments. "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. "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." It seems like the industry has been taken aback by the sudden interest in small cars. "Those sedans, those coupes, all of those segments were really pounded by low gas prices," Edmunds senior analyst Ivan Drury said.
It's been years since we've seen anybody look at used sedans as worth something." If anything, this should be a lesson to automakers - just because gas prices are low and consumers are buying big SUVs, doesn't mean you should stop building small, fun, affordable cars.