Small car costs are expected to drop in fall

July 19, 2011|By Dee-Ann Durbin and Tom Krisher, Associated Press

The average new compact car, which cost a record $20,500 in June, should… (LENNY IGNELZI/ASSOCIATED…)

ANN ARBOR, Mich. - Thinking of trading in the clunker in your garage for something that gets better gas mileage? Wait a little longer.

Small car prices, which have set record highs this year, are expected to come down this fall.

Lower gas prices will make people comfortable driving something bigger. Honda and Toyota, which were hurt by the Japan earthquake, will crank up production of small cars. And Japan and Detroit will offer big discounts on smaller models as their lots fill up.

The average new compact car, which cost a record $20,500 in June, should fall to about $19,300 by the end of the year. The average used compact car should fall from a record $11,300 to about $9,600 over the same time, according figures compiled by the Kelley Blue Book auto pricing service.

Small-car prices should start falling in September and accelerate through the end of the year.

“Values for these vehicles just rose too quickly and got to a level that was really unsustainable,’’ says Alec Gutierrez, manager of vehicle valuation for the Kelley Blue Book car pricing service.

Here are factors pushing down small-car prices:

■ Small-car surplus: Carmakers such as Honda and Toyota are boosting production following Japan’s March 11 earthquake and tsunami. With factories returning to normal, American dealers will have more Civics, Corollas, and Priuses. And they will not have to put small-car buyers on waiting lists, like they did this spring.

■ Deals: Automakers say they will not cut prices even if Toyota and Honda come out with bigger incentives. Instead, they want to sell cars on quality, styling, and features.

■ Lower gas prices: Gas prices are down 31 cents from their peak of $3.98 a gallon in May, and although small-car demand is still strong, buyers have started to shift to larger vehicles.