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Residual Values of Small Cars to Plummet

December 17, 2009

Small Cars Kelly Blue Book is advising car shoppers to buy big SUVs rather than small cars if you want vehicles that hold their value.

The reason is because car manufacturers are under huge pressure to meet newer fuel economy rules that will force them to produce many more smaller, fuel-efficient cars.

Residual values are important because depreciation is usually the biggest cost of owning a new car. This is especially true if you intend to sell your car within the first five years.

With the huge influx of smaller cars to hit the market over the next several years, the residual values are expected to suffer. It's a simple law of supply and demand. When there is too much supply, prices will tend to head down.

Although residual values of smaller cars will probably head down, it's also likely dealers will be willing to negotiate better deals. If you're a smart car shopper, you can certainly use this to your advantage.

Our recommendation is to always keep a new car for more than 5 years. This will allow you to take advantage of lower depreciation costs later on, will ensure you get a good deal upfront, and limit your loss to low residual values.

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My Recommendation for Car Shoppers

TrueCar No-Haggle, Edmunds Price Promise, and 1-800 Car Show are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.

California Residents - Important:

There is a new online car buying service called Roadster, available only to California residents, which I highly recommend you try - especially if you hate the stress of haggling with a car salesman. They provide an expert concierge who negotiates the price of the car and delivers it to your home with zero hassle - you never have to interact with a dealership. Here is my in-depth review of Roadster and why I recommend it.

- Gregg Fidan

Gregg Fidan

About: Gregg Fidan

Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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