Small Cars Getting Big Price Hikes Soon

By Bengt Halvorson

Bengt Halvorson

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2011 Honda Fit Sport

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2011 Mazda3

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If you're planning to replace your current vehicle with a new one at any point this calendar year—especially a small car—you might want to step up the timeframe and consider heading out to the showroom. Now.

Why? Because if price matters—as it should—you'll probably have to pay a lot more later this year for many models. And in a few cases, you might find yourself unable to get the exact model (or trim, or build) that you really want.

New-car prices are rising—and in some cases, they've already risen ten percent or more.

The NADA had already observed a price spike on used small cars and hybrids last month, before even considering Japan's production and supply issues. But earlier this week, Adesa, which is a major wholesaler for used cars, reported that prices on four-cylinder vehicles have risen by 16 percent just over the past six weeks. 

Already a short supply of fuel-efficient cars—all the way through the market

And what's been happening in the used-car market is filtering up to new-car showrooms. "The factory for used cars is new-car sales, and the factory hasn't worked so well in the last few years," says analyst Jesse Toprak, of the pricing-intelligence firm TrueCar.

The average new-vehicle transaction price, across the entire market, actually went down a bit from February to March of this year in some segments. But according to Toprak, you shouldn't take that at face value. While individual trims of models might be selling for more now than they were just a few months ago, shoppers are increasingly opting for cheaper trims of popular models (for instance a Toyota Prius II instead of a Prius III), and that's tugging averages downward as vehicles are truly becoming pricier.

Although transaction prices didn't yet reflect supply issues due to the earthquake, they were already on the rise for small cars. In March, the average price of a small car was $20,327, up about $70 from February and up $811—or more than four percent—versus last year. And looking at the first three months of 2011 versus the same period in 2010, prices on subcompacts are up about six percent, to $18,691.

A 'perfect storm' for small cars

"It's almost a perfect storm for small cars now," says Toprak, adding that in addition to the increased interest in smaller cars for their typically better fuel economy, the number of shoppers looking at small-car models normally rises in May and June.

"And on top of that all, we're dealing with the 'x factor' of supply from Japan," Toprak adds. While it's early to see the full effects, as supply hasn't yet become strained, TrueCar is already seeing alarmingly higher prices on a range of small-car models in tight supply—including the Mazda3, Honda Fit, and Honda Insight. Deals on Lexus vehicles will also become a thing of the past, Toprak says, because of the company's very well-maintained state on the verge of short supply.

"So because of all of this, we're seeing some 'limited hysteria,' depending on the gas mileage," says Toprak.