Edmunds, the consumer-oriented auto site, has a new report out on why used small cars are a great value at the moment.
That’s great news for car buyers, but it’s actually bad news for small cars.
“If you’re a used car shopper in the market for a small vehicle, this is a great time to buy,” Edmunds senior analyst Ivan Drurys said in a statement.
“Prices are down for these vehicles because there is so much more demand for used trucks and SUVs. There are also lots of smaller cars coming back to the used car market as people trade up into larger vehicles. So not only are prices low on used small cars, but there’s also a wide selection available.”
The key takeaway here is that used small-car values are cratering, which means that new prices are also slipping. Plus, nobody wants a small car in the US, and that lack of desire is flooding the used market with supply. What are those folks trading up to? A bigger and more expensive SUV.
This is familiar dynamic in the US auto market. Automakers have a difficult time making money on small cars, but they can rake it in on pickups and SUVs. Right now, those two segments are booming. Meanwhile, Fiat Chrysler Automobiles is discontinuing all passenger car production in the US, to double down on SUVs.
Left for dead
In the past, Ford, General Motors, and FCA (when it was just Chrysler) left the small-car market for dead. Let Honda and Toyota try to figure out how to achieve a narrow profit margin — we’ll focus on trucks.
The combination of the financial crisis and a spike in gas prices in the 2009 period forced Detroit to rethink its attitude. But are surely as the Sun sets in the West, the US market recovered and the traditional mix of large vehicles came back into favour.
So now automakers are in the awkward position of supporting small cars that provide at best skinny margins and that come back to dealers off leases and as trade-ins with pretty crummy residual values, leading to the fire-sale conditions that Edmunds highlighted.
Give this some time, but not too much. If the truck-and-SUV boom holds up, car makers will likely bail on small cars in the US yet again.