Driving a hard bargain: used-car prices up 40pc in a single year

Published on 8 August, 2021

Overview

After a year to forget in 2020, the motor trade has come roaring back in 2021. However, Brexit and other supply shocks have sent used-car values soaring while the inexorable rise of electric vehicles will force the sector to completely change the way it does business.

The motor trade won’t forget 2020 in a hurry. The initial lockdown shut the sector down completely. Even later in the year, when restrictions were relaxed, buyers were in no hurry to venture out to dealers’ showrooms.

The result was a pile-up of epic proportions. New-car registrations fell by a quarter to just 84,000 last year. Imports of used cars also fell sharply, down 28pc to 30,000.

The key months for new-car sales are January and July, as buyers jostle for the bragging rights that come with being first to have the new registration plate. Unfortunately for the sector, the renewed restrictions imposed after Christmas meant that January was a disappointment, with new-car sales down 7pc to 20,600.

Things have begun to perk up since, with new-car registrations rising by 21pc to almost 60,000 in the first six months of the year. However, in the first half of 2021 the number of new-car registrations was still down by more than a fifth on the 77,000 new cars registered in the first half of 2019.

July’s official CSO new-car sales figures won’t be released until tomorrow, but provisional numbers from the Society of the Irish Motor Industry (SIMI) released last Tuesday show that almost 26,500 new cars were sold last month. Not alone was this up 25pc on the July 2020 figures, it was more importantly 7pc up on the 24,700 new cars sold in July 2019.

According to SIMI, 90,300 new cars were sold in the first seven months of 2021. While this was up 21pc on the 74,000 new cars sold in the first seven months of last year, it was still more than 14pc down on the 105,400 sold during the same period in 2019.

SIMI director general Brian Cooke reckons the underlying situation for new-car sales is somewhat better than the figures indicate. He says that in a “normal” year, the car-hire companies would buy 17,000-18,000 new cars.

With virtually no tourists since the start of the first lockdown in March 2020, sales of new cars to hire companies have collapsed. Cooke estimates their current purchases are running somewhere between 4,000 and 5,000 new cars a year.

When this distortion is filtered out, sales of new cars are almost back to 2019 levels.

However, most purchasers (up to four out of every five) buy a used rather than a new car. Since lockdown, something odd has been happening in the used-car market. Anecdotal evidence of strong price rises was confirmed by hard data last week.

In a monumental piece of work, which involved analysing 5m listings since 2011 on online marketplace DoneDeal, economist Tom Gillespie has constructed an index of used-car prices. The index shows that, having been flat from 2016 to mid-2019, prices rose rapidly from late 2019.

The onset of the pandemic seems to have turbocharged the rise in used-car prices, with average prices soaring 40pc in the year to the end of June.

What is pushing this sharp increase in used-car values?

“The lack of used-car imports is driving the increase in prices,” says Gillespie. Brexit has made the importation of cars from the UK much more expensive. Used-car imports fell by 28pc to 78,500 last year, while used-car imports for the first six months of 2021 (of just under 40,000) were down by a quarter on the 51,700 imported during the first half of 2019.

The research shows the rise in used-car values has been most pronounced among cars priced under €20,000. While the price of cars under €4,000 has more than doubled over the past year, the price of cars over €20,000 has risen by “only” 15pc over the same period.

This has led to the virtually unprecedented situation where, even when depreciation is taken into account, a car bought 12 months ago and with an extra 20,000km on the clock is now worth more than the original price paid by the buyer.

Gillespie gives the example of a VW Golf bought a year ago. The same car today, complete with extra mileage and depreciation, would now set you back 15pc more. A used BMW 3-Series is 13pc more expensive than it was a year ago; a Ford Focus is 11pc dearer; a C-Class Mercedes is up 8pc.

With the Irish motor trade having consistently failed since 2008 to sell enough new cars to meet used-car demand and Brexit having seemingly reduced permanently the volume of used-car imports from the UK (Cooke reckons used-car imports will recover to about 50,000 or 60,000 in 2022, compared to almost 109,000 in 2019), used-car values will remain strong in the short- to medium-term.

Further out the picture is less clear. Governments everywhere, including our own, are pushing electric vehicles hard. If all goes according to plan, the sale of petrol and diesel cars will be banned in Ireland and UK from 2030. Over 6,200 EVs, almost 7pc of the total car sales, were sold in the first seven months, up from 2,660 for the same period last year.

Motor manufacturers are also preparing for the demise of the internal combustion engine. Ford says it will stop selling fossil-fuel cars in Europe by 2030. VW, Europe’s largest manufacturer, will release its last non-electric platform in 2026, implying a halt to traditional auto production by the early 2030s.

The switch to EVs will deprive the motor trade of most of the after-sales service income upon which it once relied to fatten thin margins. A petrol or diesel engine contains over 100 moving parts, an electric engine just one. Handy earners such as manual gearboxes and exhausts will disappear in the switch to EVs.

Cooke believes that his sector will manage the transition to EVs.

“The motor industry has evolved. In the 1980s the service interval was 5,000-6,000 miles. For some diesels now it is 20,000-25,000km,” he says.

“If something goes wrong with an EV, the consequences could be catastrophic. Modern dealerships are preparing for electrification. The way they do business will be different. The people who service EVs will need to be qualified and use the appropriate equipment.”