Saturday 19 August 2017

Irish car dealers unprepared for slump in diesels

The drop in sales of diesel cars in the UK could impact on car values in Ireland and put the brakes on many PCPs, writes contributing editor Geraldine Herbert

Peugeot 5008
Peugeot 5008
Geraldine Herbert

Geraldine Herbert

Car sales in the UK declined by 8.5pc in May, compared to the same month last year. Diesel car sales have been hit hardest and suffered a 20pc drop.

At a time when car imports from the UK are expected to exceed the 100,000 mark this year, this is likely to result in a deluge of cheap diesel cars being offloaded here as these account for 80pc of all car imports.

The drop in sales has already begun to weaken resale values in the UK. This is likely to continue, given the serious diesel-related health warnings that seem to emerge weekly, the risk of higher taxes, a host of anti-pollution penalties for taking older diesels into many town centres and higher parking charges for diesel vehicles.

After Volkswagen's emissions test cheating scandal, the demand for diesel began to decline across Europe. Paris, Madrid and Athens are all working towards banning diesel-powered cars completely in the next ten years.

Julia Poliscanova, clean vehicles and air quality manager at the European Federation for Transport and Environment, told the Sunday Independent: "Diesel carmakers have for years been fitting cheap and ineffective emission controls that they switch off or down most of the time on the road. This has now backfired.

"The latest research published in Nature shows that 7,000 premature deaths in Europe are caused each year just as a result of this test manipulation - it is no surprise the consumers are turning away from this technology."

It's not so long ago that diesel was the green fuel, promoted and incentivised by governments as a way to save the planet. In 2008 thousands of drivers were persuaded to buy diesel cars by the Fianna Fáil-Green Party coalition when they changed the VRT and motor tax system from one based on engine capacity to the current one based on CO2 emissions. As a result of this change, sales dramatically shifted in favour of diesel and the percentage of new petrol cars fell from 70pc in 2007 to 32pc by the end of 2009, proving that Irish car buyers will switch allegiance if there is an opportunity to save money. With this in mind, and faced with availability of cheaper diesel cars, it's unlikely that the unpopularity of diesel elsewhere will deter Irish buyers.

Motorcheck.ie managing director Michael Rochford said: "Irish buyers tend to vote with their feet when it comes to value for money, so what this will mean in the short to medium term for Ireland is a larger influx of cheap diesel imports on the used car market.

"We are already seeing a drop in overall residual values in the used car market this year due to the availability of stock and the increase in imports, so we would predict that a further influx of diesel vehicles at even lower prices from the UK is bound to lead to a drop in the prices of diesel cars in Ireland over the next 12 months."

If diesel values drop to a point that it puts pressure on resale values, this will in turn undermine carmakers' financing plans, but how are Irish dealers likely to compete with cheap diesel imports?

The Sunday Independent spoke to a number of dealers, all of whom agreed that UK imports are having an effect on car sales this year but not all concede that the issue of resale values for diesel cars was one of concern; those that do, see it as an issue that will be managed in the medium term, over a five- to eight-year period. However, this assumes there will be a gradual slowdown on the sale of diesel cars but a sudden influx of cheap imports could cause values to decline rapidly.

Some are bullish about the prospects for diesel in Ireland and are quick to point out that despite all the concern over the health implications of nitrogen oxide emissions, the sale of new diesels in Ireland has barely been affected as they now make up 66pc of new cars sales compared with 70pc in 2016 and 71pc in 2015.

What of future values in terms of PCPs? Some have expressed concern that the guaranteed future minimum value being quoted to PCP customers currently, may not match the actual value of a diesel car in three years when it returns to the dealer. Cautious dealers may shy away from PCP deals while prudent car buyers may return to more traditional forms of finance or simply hold onto their cars longer.

Alan Nolan, Society of the Irish Motor Industry (SIMI) director general, believes that for thousands of families living in rural Ireland a diesel car is still the only choice and it would be unfair to punish buyers who thought that by choosing diesel they were making an environmentally correct decision.

Julia Poliscanova argues that it is the role of the government to safeguard declining resale values: "The Irish government could require the carmakers of these vehicles to fix them, upgrade emissions systems and require them to be operational in most real driving conditions in use.

"The manufacturers should pay for that and be responsible for any durability or other concerns. Such cleaning up of the fleet would result in improving the image of those vehicles and influence their resale value."

While any change to the cost of diesel, the current motor tax system or the introduction of a scrappage scheme could have a profound effect on the future value of diesel cars, if Ireland becomes the last port of call for the UK's unwanted diesels, the effect on residual values would have a significant impact on the industry and the economy in general. Given this uncertainty, motorists and dealers face a very bumpy road ahead.

Sunday Independent

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