As Gas Prices Slide, Some Car Prices Follow

Last Updated Oct 14, 2011 9:46 AM EDT

Gas prices have finally dropped below $3.50 a gallon, as I have been predicting, and car shoppers are focusing less on high-MPG vehicles. If you are among those still determined to cut your gas bill with your next car, good bargains are likely over the next two months in new and used gas sippers.

The national average price per gallon this week is $3.42, according to the AAA Fuel Gauge Report -- down sharply from the $4 level it hit in the spring. That is still relatively expensive gas: It's 60 cents higher than a year earlier, and some individual states -- such as California, at $3.83 -- are well above the average. But it's enough to make a difference in car buyer behavior.

The impact of lower gas prices, combined with inventory issues, showed up in September sales reports on new and used cars.
  • Used car values dropped sharply for high-MPG small cars and hybrids. According to Kelley Blue Book, hybrid values have fallen nearly 15% since their peak around June 1, after a sharp rise early in the year. Overall used compact and subcompact models are down around 10% since June 1. The best-known gas-electric hybrid, the Toyota Prius (at right), is selling for about $4,000 less than at its peak. For instance, a 2008 model averages $17,720 from a dealership, according to the Kelley web site kbb.com.
  • At the other end of the mileage spectrum, sales of light trucks -- including pickups and SUVs with relatively low gas mileage -- surged in September, up 16 % over a year earlier. Lower gas prices were one of the reasons; in addition, manufacturers were offering large rebates and other incentives as they tried to reduce their inventory of pickups.
  • Despite stronger sales of these large vehicles, overall gas mileage for cars and trucks sold in September rose, according to TrueCar.com. The auto information web site calculated overall mileage at 22 MPG, compared with 21.4 a year earlier. This reflects continuing improvements by automakers as they work to meet tougher federal mileage standards.
While crude oil prices continue to fluctuate -- and it's impossible to predict global energy shocks -- the federal Energy Information Administration predicts that gasoline in 2012 will average around the current level. So if you have decided it is time to upgrade your ride, here's how to look for bargains between now and year-end.

High Mileage for the Holidays
If your target is a high-MPG new or used car, you will find good deals now -- but maybe even cheaper prices in December. Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book, expects used car values in this class to drop another 6 to 8% before year-end. Plus, with Japanese manufacturers like Toyota and Nissan getting back to full new-car production of small cars after the earthquake damage, Gutierrez expects strong discounting and incentives on these models.

Slow December sales always make it a good time to drive away with a good deal if you can focus on shopping for cars instead of holiday gifts.

Pick Up some Big Rebates
If your work or family needs calls for a pickup or large SUV, right now -- the end of the 2011 model year -- is a good time to be shopping.

Gutierrez notes that uncomfortably high inventories (more than 75 days' supply) has led to $2,000 customer rebates on Ford's 2011 F-150 pickup (at left) and its main competitor, the Chevrolet Silverado. General Motors also has put a $1,000 rebate on its Chevrolet Tahoe SUV.

Look at Redesigned Models
If you care more about the biggest bargains rather than the latest design, check out remaining 2011 models that have been substantially redesigned for their 2012 version. Kelley analyst Gutierrez points to the Toyota Camry and Ford Focus: A typical selling price for a 2011 Focus base model sedan is $14,190, according to automotive site Edmunds.com -- about $2,450 below its list price, as Ford is giving incentives to help dealers clear out the older models.

Whatever you are driving, your bills at the gas pump are likely to remain uncomfortably high. So if you are shopping for a different vehicle, at least save yourself some money on the purchase price.

Photos courtesy of the manufacturers
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    Jerry Edgerton, author of Car Shopping Made Easy, has been covering the car beat since Detroit companies dominated the U.S. market. The former car columnist for Money magazine and Washington correspondent for Business Week, Edgerton specializes in finding the best deals on wheels and offering advice on making your car last.

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