Values Drop in Fuel-Efficient Vehicles

Kelley Blue Book forecasts drop in fuel-efficient vehicle values

July 11, 2011 — Kelley Blue Book on Monday predicted a 15-percent drop in values of fuel-efficient vehicles by the end of 2011 as gas prices stabilize and Japanese manufacturers return to normal production.

Values of vehicles with high gas mileage—subcompacts, compacts and hybrids—peaked in May after 20 consecutive weeks of gains, according to Kelley Blue Book. Values of those cars grew 20 to 25 percent from January to May, surpassing the overall used-car market average increase of 5 percent during the same timeframe.

Kelley Blue Book attributed the sharp increase to a nearly $1-per-gallon increase in gas prices From Jan. 1 to May 15, vehicle supply constraints caused by the earthquake and tsunami in Japan, and limited availability of good-condition vehicles because of reduced leasing and trade-ins.

With fuel prices dropping and Japanese manufacturers nearing full strength, dealers are growing reluctant to pay premium prices for fuel-efficient vehicles at auction, according to Kelley Blue Book.

"While depreciation has been relatively mild so far, based on changes in gas prices and issues with supply, Kelley Blue Book believes a significant 15-percent correction is likely by the end of the year," said Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book. "If we take a look back at the auction market in 2008 when gas prices hit $4 per gallon, we can foresee drops during the next few months."

But, unlike the 40-percent decline in values that took place in 2008, this one should be smaller, because of the more stable economy, smaller vehicle supply and a smaller decline in fuel prices compared to 2008.

Kelley Blue Book, founded in 1926, is a vehicle valuation an information source used by both consumers and the automotive industry. For more information, go to kbb.com.