Rising Fuel Prices

You may be noticing that as fuel prices are increasing, the spreads between 4 & 6 cylinder engines and 6 & 8 cylinder engines have been diminishing or disappearing altogether.

As vehicles age, their original cost differences give way to “the law of supply and demand,” and demand for fuel efficiency over performance has created a situation where the market is definitely favoring fewer cylinders where available.

So a 2005 8 cylinder Mercedes Benz ML 500 that cost almost $8,000 more than the 6 cylinder ML350 when new is worth only $400 more in today’s market. Similar situations exist among vehicles like 4 cylinder vs. 6 cylinder Accords, Camrys, A4s, Sonatas, Mercedes C-class, Jettas, etc., and among 6 cylinder vs. 8 cylinder vehicles like Audi A6s, BMW 5-series, Infiniti M-series, Jaguar X and S-types, Mercedes E-class, Lexus GSs, etc.

In some cases, while we continue to show ADD’s for larger optional engines, it has become necessary for us to remove the dollar amounts on these ADD’s as our way of urging some caution when dealing with these larger, more fuel-thirsty vehicles. The V8 ADD’s on Grand Cherokees and 4Runners are just a couple of examples of this. And while we have not done the same thing in regards to diesel/turbo diesel ADD’s (despite being told by some dealers we actually should) we have been significantly decreasing the ADD amounts on these vehicles over that past couple of issues. We expect these declines to continue unless things change dramatically in the near future.

As you might expect, on the opposite side of the spectrum are the hybrids, compacts and sub-compact cars that have all come to the forefront of the public consciousness lately and this strong demand has of course forced values to increase on most of these vehicles.

In short, when it comes to cylinders these days, less is more.

The Unusual Spring Market Continues

I’m not sure if there are pockets of stability in an unstable market or pockets of instability in a stable market, but the resulting “mixed up” spring market exists no matter which position you take. There are areas of the market that are quite stable: primarily the economical gas sipping vehicle segment, the under $12,000 or thereabouts price segment, the relatively rare domestic car segment, or some combination of the above. Instability and a continued depressed market still exists where there is an over-supply of product or severely diminished demand most often related to fuel consumption or a combination of the two. So European luxury cars and SUVs (and Asian luxury products to a slightly lesser extent because of lesser volumes) and all but the unusual and/or exceptional full-size SUVs and pickups continue to decline in what is typically a stable period for those products. 

An example of the precipitous decline in the European luxury segment is the BMW 525. Normally you expect vehicles to depreciate less as they age, so you would expect a 2005 525 to have depreciated more from April ’06 to April ’07 than from April ’07 to April ’08 as it aged. In fact, that is not the case.
       TOTAL DEPRECIATION
           April 2006 - April 2007: $6600
           April 2007 - April 2008: $7700

This is a highly unusual occurrence and illustrates the weakness in the market for even such generally desirable products as the BMW 5-series. You can find similar examples in the other depressed segments such as full-size SUVs and pickups.

So I guess it is a somewhat stable market in the sense that what has done well for the past few months continues to hold up and what has been weak continues to erode, though at a reduced pace. I suppose there will come a time when those weaker market segments will find their low-water mark, but thus far they do not seem to have reached it. There are definitely some bargains out there and consumers tend eventually to discover them. When an ’05 BMW 325 gets in the same price range as an
’05 Accord EX 6-cyl., as is currently the case, retail buyers often respond by succumbing to their emotional side, and as much as I respect the Accord it doesn’t move me, nor I suspect most consumers, nearly as much as the 3 series Beemer. Even the Jaguar X-Type gains some serious consideration when it can be bought for a couple of thousand less than a comparable Accord (and you get AWD as a throw-in!).

Most convertibles and sport coupes are holding up but not experiencing the kind of hyper-activity that is typical for this time of year. Minivans are experiencing something of resurgence as consumers are reawakening to their more practical aspects. The domestic and import market for 4-cylinder cars has been relatively good all along but seems to have spiked recently and many of those more ordinary, mainstream cars will see an increase in value.