IRVINE, Calif. -

If you thought managing your used-vehicle inventory was difficult during the 2008 gas-price spike, Alec Gutierrez, manager of vehicle valuation at Kelley Blue Book, is advising dealers they should be even more aware of current rising fuel costs when considering what to choose at auction.

By looking at recent and historical data contained in the April Kelley Blue Book Market Report, Gutierrez insists the firm has the ability to measure the impact of rising gas prices on the most fuel-sensitive segments. That’s why Gutierrez went into extensive analysis of trends and offered dealers some advice on how to navigate the challenges without filling lot inventory with units that won’t turn quickly.

As dealers readily know, values for fuel-efficient vehicles increased across the board as gas prices grew by 60 cents per gallon during the first quarter of this year. Analysts determined values for hybrid models increased 10 percent, while values for subcompact and compact units increased a healthy 12 to 13 percent.

“One might expect values of trucks and SUVs to have dropped, however thus far they have managed to remain relatively flat with full-size SUVs up 2 percent and full-size trucks up a scant 0.5 percent on the year,” Gutierrez noted.

“As gas prices continue on their march toward a national $4 per-gallon average, we must look back at what occurred in 2008 to fully appreciate the potential impact to used-vehicle values as gas prices continue to increase,” he continued.

KBB calculated gas prices are currently 30 cents per gallon more expensive than at the end of the first quarter in 2008. While both 2008 and 2011 started the year with gas prices hovering right around the $3 per gallon mark, analysts determined the increases so far this year have been far more pronounced than the increases in 2008.

So far this year, gas prices have increased 18 percent versus 7.5 percent in the first quarter of 2008, according to KBB.

From the data, analysts ascertained that values for fuel efficient vehicles have increased far more aggressively this year when compared to the average appreciation during the same time frame in 2008.

As an example, KBB indicated the Toyota Prius — what it called the perennial poster child of fuel efficiency — has increased nearly 20 percent this year in response to rising gas prices. Three years ago, the model posted a 12-percent increase during the gas spike of 2008.

Conversely, Gutierrez pointed out values for SUVs and trucks have remained far more resilient this time around compared to the steep drop-offs that occurred during the first quarter of 2008.

“Given the significantly slowing sales of new trucks and SUVs over the last few years, the stable values of these vehicles is not surprising as they are even harder to find today versus three years ago,” Gutierrez explained.

If gas prices continue to rise at the current pace, KBB told dealers they could look at data from 2008 as an indicator of what is to come.

As gas prices continued to rise through the second quarter of 2008, KBB recollected that values for fuel efficient vehicles increased, while values for trucks and SUVs dropped aggressively. As the year progressed, the firm recounted fuel-efficient values increased, while truck and SUV values plummeted.

“This continued until gas prices peaked in July with a national average price of $4.11 per gallon,” Gutierrez reminded dealers. “By year end, gas had dropped down to an average low of $1.60 per gallon and in response, the market performed a complete 180.”

With gas prices no longer a concern by the fourth quarter of 2008, KBB stressed that fuel-efficient vehicles had lost their luster, while trucks and SUVs had at least “stopped the bleeding.”

After all of the turmoil values among fuel sensitive vehicle segments, KBB indicated these models ended the year down nearly 30 percent, which offset any of the gains that occurred earlier in 2008.

“Values didn’t correct back to their pre-gas spike levels until well into 2009,” Gutierrez interjected.

What Should Dealers Do Now?

Fast forward to today and KBB said dealers are finding themselves in a similar situation.

“With gas prices continuing their meteoric rise due to the instability in the Middle East, many are wondering how high gas prices can go this year,” Gutierrez surmised. “We have already established that fuel-efficient vehicles have increased while trucks and SUVs have remained flat, at least so far. So, what does it all mean?”

To answer that question, Gutierrez emphasized that dealers should be very cautious in their purchases over the next several months.

“When buying a high-demand, fuel-efficient vehicle, dealers should focus on maintaining a lean-day supply, if at all possible,” Gutierrez recommended.

“While these vehicles may be hot today, the market has shown its ability to turn around very quickly, especially if gas prices drop 50 percent in a single quarter, as they did in late 2008,” he continued.

“If history repeats itself once again, dealers should be prepared to a take a significant loss on that inventory if caught with a 60-day supply of subcompacts and hybrids that nobody wants to buy,” Gutierrez cautioned.

Instead of filling lots with the Toyota Prius, KBB thinks dealers looking to make a safer purchase should consider compact crossovers since analysts believe these vehicles present a low risk of fluctuating dramatically based on the price of fuel.

KBB insisted vehicles such as the Toyota RAV4, Honda CR-V, Ford Escape and Hyundai Tucson should always be available on a dealer’s lot. These vehicles have appreciated 5.3 percent so far this year, only slightly outpacing the market average increase of 4.25 percent, according to analysts.

Overall, Gutierrez thinks truck and SUV values will not fluctuate as wildly as they did in 2008 for a number of reasons.

“In 2008, the level of uncertainty in the market far surpassed the level of uncertainty in the market today,” Gutierrez asserted. “Many significant problems were emerging such as the collapse of the housing industry, a crumbling financial sector and rising unemployment.

“Given the uncertainty at the time, many consumers overreacted to rising gas prices and sold their SUVs at a significant loss,” he continued. “Now that the full extent of these developments is better understood, the market is in a better position to adjust to the fluctuations in the price of gasoline.

“Finally and most importantly, due to a reduced supply of these vehicles in the market today, we expect the downside risk of trucks and SUVs to be relatively low,” Gutierrez stressed.

Earthquake in Japan Shakes Up Used-Vehicle Values

If dealers didn’t have enough to think about, KBB pointed out they also need to be aware of how the disasters in Japan are affecting used-vehicle values.

“We are now more than month removed from the earthquake and ensuing tsunami that devastated Japan on March 11,” Gutierrez began. “As time passes, some questions are answered while others still remain unclear.

“What is clear is the growing concern over parts and vehicle shortages in the coming months,” he declared. “Many Japanese parts and vehicle production facilities have been shut down, at least intermittently since the quake hit. While vehicle supplies have remained generally healthy thus far, within 30 to 60 days we expect to begin experiencing shortages of high in-demand models either produced in Japan or that rely on parts from Japan.”

KBB indicated nearly all major manufacturers have been impacted in one way or another by the devastation in Japan. While inventory levels appear to be sufficient to pull most manufacturers through April, analysts think May could bring challenges as the pipeline of vehicles and parts from Japan begin to dry up.

“In fact, American Honda Motor Co. executive vice president John Mendel has gone so far as to say parts shortages could affect North American plants for the next 60 to 90 days,” Gutierrez pointed out.

“This couldn’t come at a more critical time given the elevated demand for fuel-efficient vehicles predominantly produced in Japan,” he added. “As supplies shrink, we expect that the demand for fuel-sipping cars to spill over to used vehicles, as consumers look to hedge against rising gasoline prices.”

KBB is expecting to see values of late-model, fuel-efficient, good-condition, CPO-eligible vehicles increase over the next several months.

“As gas prices continue to rise and new vehicle supplies become stressed, there will be more demand than ever cars in these segments,” Gutierrez predicted.

“The Prius, Yaris, Versa, and Fit are just a few examples of vehicles we expect to be very strong in the short term,” he surmised. “We would advise dealers to buy these vehicles whenever available for a good price. Keep in mind though, prices will be inflated so dealers should be cautious not to overpay as they bid on these vehicles at auction.”

KBB Touches on Fuel Prices in Latest Residual Value Analysis

Overall, Eric Ibara, director of residual value consulting at Kelley Blue Book, thinks the average 36-month residual value for all vehicles across the industry remained fairly constant with values from last year, moving downward by only 0.5 percentage points.

However, Ibara pointed out the result occurred because many of the car segments declined while most of the truck segments rose. The average change across all cars was a drop of 1.2 percentage points while the average gain for trucks was 2.1 percentage points.

KBB went on to note that further analysis into the car segments shows significant year-over-year declines in the near luxury car segment, the hybrid/alternative energy car segment and in the wagon segment.

Ibara noticed the drop in the near luxury segment was due to major declines in the BMW 1-Series and 3-Series cars, as well as a big decline in the Volvo C70. He said the hybrid/alternative energy car segment experienced large drops with the BMW 335d, the Toyota Prius and with the Honda Insight. He also found the Audi A3, BMW 3-Series, and the Cadillac CTS Wagon pulled the segment’s performance down, mitigated somewhat by the Audi A4 which experienced a year-over-year increase.

Among the truck segment, KBB determined the full-size pickups achieved an average year-over-year gain more than twice the average across all trucks. This was led by major improvements in heavy duty trucks from Ram, Ford (Super Duty), and Chevrolet/GMC due to redesigns in 2011.

Ibara found the only truck segment that did not gain ground was the full-size utility segment, dragged down by weakness in the Chevrolet Tahoe and the Honda Pilot.

“With the rise in fuel prices, much attention has been directed towards hybrid cars once again. The consumer reaction to bad news at the pump is becoming as predictable as the spring thaw,” Ibara explained.

“However at Kelley Blue Book, we’ve categorized the few diesel cars on the market today along with hybrid cars into a segment called hybrid/alternative energy cars. This grouping has revealed an interesting pattern,” he continued.

Ibara discovered the 36-month residual value for all cars in this segment compared with the segment average shows diesels maintaining their value best in comparison to the other vehicles in the hybrid/alternative energy car segment.

“The story that emerges is that diesel cars are projected to retain their value better than the conventional hybrids on the market,” Ibara emphasized.

Of the 21 cars in this segment, KBB said only eight have average 36-month residual values that exceed the segment average. The top four spots are occupied by diesel-powered units, while the only diesel to not exceed the segment average, the BMW 335d, just barely missed the mark.

“Another interesting note is that the four hybrids that retain above-average residual values are all dedicated hybrids,” Ibara mentioned. “The only remaining dedicated hybrid that isn’t above average is only about a percentage point below the segment average.

“We realize this comparison is not without flaws,” Ibara conceded. “Still, we conclude that the offering of diesel cars has not yet saturated the market, causing the relatively few diesel cars to enjoy strong demand as used cars.”

Unfortunately, KBB thinks the same is not true for hybrid models.

“While higher gas prices, such as $5 a gallon, would undoubtedly turbo-charge hybrid sales, it will also have a very negative impact to the economic situation,” Ibara projected. “Historically, all spikes in gas prices were followed by significant declines brought about by a recession. In other words, high gas prices could afflict the country for a few months but the ensuing drop in economic activity would significantly reduce demand for fuel, leading to softer fuel prices.

“As residual values are being forecast two to three years down the road, a spike in gas price today is only relevant if it will be sustained long-term,” Ibara emphasized. “We feel this is not possible given the current state of the economy. In the absence of high gas prices in three years, combined with the onslaught of new hybrid and electric vehicles entering the market, we conclude that future hybrid values will be soft.”