Small: Next big thing

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DETROIT

The beige 2003 Honda Civic sat on Mike Haile’s used-car lot in Atlanta for only three days before he sold it for $8,200. And that was $300 more than the asking price.

The car, with 62,000 miles on it and equipped with an automatic transmission, sunroof, air conditioning, side airbags and a compact disc player, is a perfect example of what Mr. Haile and other auto-industry experts say is a consequence of nearly $4 per gallon gas: a run-up in the price of used small cars.

“These little cars are very hot, like hot cakes, they sell fast,” said Mr. Haile, who has filled his 15-car lot with smaller vehicles he bought at regional auto auctions in Atlanta and Orlando, Fla.

In the past month, Mr. Haile says, the price of used small cars has risen dramatically as gasoline steadily escalated to a record nationwide average of $3.80 per gallon.

At the auto auctions where dealers get many of their used vehicles, bidding wars are erupting over compacts, he says.

“It’s extremely high right now,” Mr. Haile said. “The small cars are very hard to get right now. The cars that were $5,000 are now $7,000.”

In the past year, the average price of a used compact has increased 2 percent, from $9,278 to $9,470, according to wholesale auto-auction data collected by the National Automobile Dealers Association (NADA). There’s evidence that the prices are accelerating, according to recent data from J.D. Power and Associates.

The increases are in contrast to used full-size sport utility vehicles, whose prices have dropped $1,600 to $2,000 in the past year, said Paul Taylor, the NADA’s chief economist. The average sale price of all used vehicles in the U.S. dropped 2.5 percent in the past year, NADA reported.

The swings are directly related to gasoline prices. For the past three years, small and midsize used-car prices rose with seasonal oil price increases, then dropped when fuel prices moderated, Mr. Taylor said. But gas prices haven’t dropped and continue to rise this year, which has kept the small-car trend going, Mr. Taylor said.

Historically gas prices have risen, then fallen as U.S. demand has dropped, Mr. Taylor said, but this year has been different with demand rising in emerging countries.

“The important question is: Is this actually the end of that long-term 50-year trend, and are we headed for a period in which the real price of gasoline … started an upward trend?” Mr. Taylor asked.

Tom Libby, senior director of industry analysis for the Power Information Network, a division of J.D. Power, said gas prices could drop and demand could once again shift back toward larger vehicles.

“I’m really reluctant to commit to saying this is the way it’s going to be, just because of history,” Mr. Libby said. “We’ve seen prices go up before, and we’ve seen them come down.”

Mr. Libby says his company’s data shows the biggest used-car price increases in the supersmall category, cars such as the Toyota Yaris and Chevrolet Aveo. The average sale price of the dinky cars sold in March and April of last year was $9,355. That rose 7.3 percent to $10,039 for the same period this year, Mr. Libby said.

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