Edmunds.com's 5 trends for carmakers and buyers in 2010

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Not in recent memory have so many been glad one year is over and another has begun. Of course, many bid good riddance to 2008 and looked hopeful to 2009 as well -- and 2009 only got worse. Let's hope 2010 doesn't prove the same.

So what's ahead for the auto industry and the car-buying consumer in 2010? Edmunds.com sees five major trends developing:

More consumers will buy cars

Last year was the worst year in decades for sales and thus, automaker profits.
In 2009, consumers bought a mere 10.4 million vehicles, a disastrous tally for automakers that marked the lowest level of vehicle sales since at least 1970 -- worse in comparison with the higher population today. Consumers, worried about employment, banked their cash, kept old Nelly running and prayed they would keep their job.
Edmunds.com's 2010 forecast for U.S. light-vehicle sales stands at about 11.5 million at the start of the year. That's significantly improved from 2009's 10.4 million but not a number automakers should get exuberant over.

The year of the small car

The year 2010 will see the introduction of a host of new small cars, and most notably, from Detroit automakers.
Ford leads the charge with two new small cars: the Fiesta and the Focus. General Motors introduces the Chevrolet Cruze in the fall.
Question is: If automakers build small cars, will consumers buy them?
At Edmunds.com, we think so. Sales of small cars already have been trending higher in recent years in response to higher gas prices and tighter household budgets.
In 2010, as the economy recovers, gas prices likely will rise and cautious consumers will be careful to keep household budgets in check. In addition, the new small cars are compelling.
The big question -- for another day -- is how automakers will make money on small cars.
More green cars coming

The year 2010 also will be the year of more green cars. Nissan introduces the all-electric Leaf. General Motors finally goes to market with its much-hyped Chevrolet Volt, and the Fisker Karma hits showrooms as well.
At the same time, automakers will continue to make improvements in emissions and fuel economy for their internal combustion gasoline engines.
Again, the question arises: Will consumers buy them. And the answer is less clear than with small cars.

Indeed, sales of hybrids rise with gas prices and government incentives.
Part of the issue is hybrids have a cost premium -- with a recovery cost that fluctuates with gas prices. Low gas prices mean the payback period can extend to years, if not a decade. Higher gas prices shorten the payback period.
So the question of whether consumers will buy is an open one. As with small cars, so too is the question of how automakers will make money on them after vast investments in research and development.

Car prices climb

Last summer's much-hyped cash for clunkers program hid a couple of developing trends that will play out in 2010. Incentives spending by automakers, while high for some and much hyped, fell throughout 2009. The government's cash for clunkers substituted for manufacturer-paid incentives.

At the same time, transaction prices -- the prices that consumers actually pay for vehicles -- edged higher. Both trends will continue in 2010. Why? Manufacturers have rid themselves of a big chunk of factory capacity. Most have done a good job of keeping the supply of vehicles better in line with the number of vehicles they produce. That means they have to spend less on incentives to move the metal.

In addition, virtually every major automaker lost money in 2009. Automakers -- and their dealers -- will make a big push to improve profits in 2010, and some of that will be accomplished by getting higher prices for their vehicles.

Used cars will keep climbing

Used car prices climbed in 2009 and will continue to edge higher in 2010.
In 2009, the average retail True Market Value -- Edmunds.com's proprietary calculation of used car values -- for a 3-year-old vehicle was $16,454, up 4.1% over the 2008 average of $15,812. The average retail True Market Value for a 5-year-old vehicle was $11,226, up 3.8% over the 2008 average of $10,818. The average retail True Market Value for a 10-year-old vehicle was $4,459, up 5% over the 2008 average of $4,248.
Used-car inventory will remain limited because sales of new cars fell the past couple of years and, of course, new cars become used cars. Thousands of used cars that would have gone on used-car lots were crushed under the rules of last summer's cash for clunkers, depleting inventory even further.

Plus, automakers' scaleback of leasing and corporate and rental car fleets' cutbacks in purchases -- all major sources of used cars -- further keep supplies low.
The economic law of supply and demand dictates prices will rise.
For the consumer, that's good news or bad news depending on the situation. It's great news if you are trading in or selling your car. It's lousy news if you are in the hunt for a good late-model used car.

In fact, this past year, many new cars ended up costing less than their 1-year-old used-car equivalent. Consumers intent on buying a used car might want to compare the price for the same vehicle new.

Michelle Krebs is Edmunds.com senior analyst and editor at large.