Avoid Overpriced Prius, Yaris, Cruze, Corolla and Soul
There are five fuel-efficient used cars you might want to put the brakes on purchasing because their prices are predicted to drop.
KBB.com, according to an article at AutoRemarketing.com, has advised dealers that these five specific fuel-efficient models that could be in line for a significant price correction. The reason is softening fuel prices.
The models that made the KBB list are the 2010 Toyota Prius, 2011 Toyota Yaris, 2011 Chevrolet Cruze, 2011 Toyota Corolla and 2011 Kia Soul. The instant advice to take away from this new is in two month's time there are going to be some good bargains on these models as dealers become desperate to move these vehicles off their lots.
Why is that? It's expensive to finance unsold vehicles for a long time. No savvy buyer in his or her right mind is going to pay a dealership what it needs to make a profit on a used car listed above.
Their loss is your gain. That's a little cold hearted to say, because I want the used car industry to thrive, especially at the independent dealer level. However, there's nothing wrong with taking advantages of changing scenarios and that is what will happen with used car dealerships that bought high. They're going to have to sell low.
As has been reported elsewhere, the bloom is off the rose, so to speak, because Americans have horrific short-term memory. Once gas prices start to drop they become less concerned with fuel economy and more concerned with comfort. That's why less fuel-efficient SUVs and crossover utility vehicles are starting to see their sales increase.
KBB's senior market analyst for automotive insights, Alec Gutierrez, told AutoRemarketing.com that his company believes there will be "steep declines" for vehicles that increased in value significantly since the beginning of 2012. Expect the most adjustment in used vehicles selling near the cost of a new car.
The prime example, according to the article, is the 2010 Toyota Prius. Its value, in the last four months has increased $3,000. Used cars just don't increase in value during normal times. They decrease in value.
According to KBB.com figures, as of May 16, the 2010 Toyota Prius has a current auction value equal to 90 percent of its original price. A two-year old vehicle at this point should be worth, at best, 75 percent of its original value.
Buy Low, not High
Let's say, for argument's sake, that a 2010 Toyota Prius was worth $26,000 brand new. At 90% of its value, it's now worth $23,400. It should be more realistically price at $19,500 and below. By that simple estimation, the 2010 Toyota Prius is overvalued right now by almost $4000.
I'm not necessarily a fan of not buying a particular model because it is going to depreciate quickly because most people hold onto used cars beyond their effective depreciation life cycles. (After five years, cars only really depreciate by small amounts annually.)
The 2010 Toyota Prius, if bought right now, is going to fall off a cliff when it comes to depreciation. As KBB has warned dealers, its prices are going to adjust and soon. In a typical scenario, a good used car retains about 50% of its value after five years. That means a 2010 Toyota Prius is going to be worth about $13,000 in three years.
But, let's say you just paid the obscenely high price of $23,000 for one. In three years time, it could have lost $10,000 of its value. That's a huge number if you are financing payments.
It's also a huge concern for insurance reasons. Say, for example, something horrible happens to your 2010 Toyota Prius and it is deemed a total loss after a collision. In three years time, on a five-year loan, you would still have a substantial chunk of money left to pay but a car that is worth a lot less.
Here is what you can do as a smart consumer if you want to buy one of those cars. Instantly assume they are overvalued. Ask the Dealer how long has this car been sitting on your lot?
An honest dealer will tell you. A less scrupulous one may want to mask that fact to avoid looking desperate. (Never let the customer see you sweat!) However, you can sometimes determine from reading a Carfax Report when the dealership acquired the vehicle. If it was an Auction vehicle, it will be listed as being sold at auction in the title history.
Has the car been on the lot more than 60 days? There's no reason to pay what the dealer wants. If you have your financing arranged ahead of time, go in with an offer 10% below the asking price. The dealer might just cave to your wishes and, with your financing already arranged, might get you an even better interest rate.
Keep your eyes on used 2010 Toyota Prius, 2011 Toyota Yaris, 2011 Chevrolet Cruze, 2011 Toyota Corolla and 2011 Kia Soul models. They're priced high now but should be dropping soon. By the way, all are good cars. The Yaris may be yawn inducing but it's still a good car.
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