business

ANN ARBOR, MICH. - Thinking of trading in the clunker in your garage for something that gets better gas mileage? You may want to wait a little longer.

Small-car prices, which have set record highs this year, are expected to come down this fall.

Lower gas prices will make people comfortable driving something bigger. Honda and Toyota, which were hurt by the Japan earthquake, will crank up production of small cars. And Japan and Detroit will offer big discounts on smaller models as their lots fill up.

The average new compact car cost a record $20,500 in June, but that should fall to about $19,300 by the end of the year, according to figures compiled by the Kelley Blue Book auto pricing service. The average used compact car should fall from a record $11,300 to about $9,600 over the same time, Kelley predicted.

"Values for these vehicles just rose too quickly and got to a level that was really unsustainable," says Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book.

Here are factors pushing down small-car prices:

•Small-car surplus: Carmakers such as Honda and Toyota are boosting production following Japan's March 11 earthquake and tsunami. The disaster essentially shut down that nation's auto industry and slowed Japanese-brand factories in North America. With factories returning to normal, American dealers will have more Civics, Corollas and Priuses. And they won't have to put small-car buyers on waiting lists, like they did this spring.

In fact, some dealers will have more small cars than they need, says George Davis, general manager of a Honda dealership in Ann Arbor, Mich.

"One minute they're going to look out the window and see 50 cars. Two weeks later they'll see 300. Panic sets in," he says. "They pay interest on these cars and they'll have to discount."

•Deals: Honda and Toyota dealers will increase rebates, low-interest financing and other promotions, Gutierrez predicts. "GM and Ford will be right behind them, and Hyundai as well," he says.

Automakers say they won't cut prices even if Toyota and Honda come out with bigger incentives. Instead, they want to sell cars on quality, styling and features.

Dealers and analysts are skeptical, though, saying that once Honda and Toyota restock, prices will fall as rivals try to win customers who need to replace their clunkers. The average age of a car in the United States is 10.6 years, up more than a year from 2008, according to the Polk research firm.

•Lower gas prices: Gasoline prices nationally are down 31 cents from their peak of $3.98 a gallon in May, and although small-car demand is still strong, buyers have started to shift to larger vehicles. Compact and subcompact sales fell to just under 195,000 last month, down from 238,000 in March, according to Autodata Corp.

Pacific Honda near San Diego has about 38 vehicles in stock instead of the usual 350. But they'll be a surplus after July, says Wayne Meyer, president of the chain that owns the dealership. .

"There's going to be so much car availability," Meyer says. Automakers "are going to be defending market share they gained or regaining market share they lost."