Fall in car sales is blamed on Brexit and used imports
Sales of new vehicles are down by 10% and diesel sales by 17%, writes contributing editor Geraldine Herbert
Used car imports are likely to reach 97,000 by the end of the year, representing an increase of 34.4% on 2016, while registrations of new cars in 2017 are expected to finish at around 130,000, down 10.2% on last year. The decline of sterling and Brexit uncertainty is impacting on car sales.
There is a clear correlation between a drop in sterling and an increase in used car imports. However, the figures from the past decade suggest there is always a core market in Ireland for UK used cars irrespective of prevailing market conditions or the price of sterling. Imports reached a peak in 2008 when more than 64,000 used cars were imported. By 2010 the figure had dropped to 40,000 and remained at this level over the next five years. Used car imports may not be a new challenge for the new car market but the 8,500, on average, coming in monthly is having an effect on the values of used cars.
"In reality the level of used car imports does not directly impact on new car sales. However, they have a significant impact indirectly by driving down trade-in values and increasing the cost to change. This has been reducing the new car market below what we should be seeing given the growth in the economy," SIMI Director General Alan Nolan said. "A survey of car sales businesses indicated that Irish used car values had dropped by 15% in the year up to July and the fall is likely to be even bigger by this stage. This is very good in relation to the purchase price of Irish as well as UK used cars, but of course most consumers have their own car to trade-in and that will also have fallen in value. So the cost to change, which is the key issue for most consumers, will be impacted".
Michael Rochford, MD of Motorcheck.ie, believes that some buyers perceive that there is better value to be had by taking advantage of the low sterling exchange rate and will look to source a used or nearly new car rather than purchasing a new car domestically.
"Consumers may consider that they can afford a larger family car rather than a small new car domestically, or a better-spec car or a premium-brand used car rather than what they can afford if buying new in Ireland," he said.
CSO data also suggests that Irish buyers are opting for premium brands in the UK over more mainstream models available here. The Audi A4, BMW 5 Series, Audi A6 and Mercedes-Benz E-Class are among the top-ten imported models, yet they're outside the top 20 in terms of new car sales.
"The biggest area of increase in used imports is in cars up to three years old. The prevalence of premium models in the newer import numbers is interesting as this appears to be tempting customers away from mainstream new cars," says Paddy Magee, Country Operations Manager for the Renault Group.
The consequences of increased imports are also felt by the exchequer. Nissan Ireland chief executive James McCarthy estimates that "new cars generate on average €8,500 per unit for the exchequer while a UK import generates around €2,500. That's a loss of €6,000 per used import. Assuming that used imports are substituting a minimum of 20,000 new car sales, then the loss to the exchequer is at least €150million."
A more worrying aspect is the fact that 80% of imports into the country are diesel. Ian Corbett of Toyota warns that Ireland is now the dumping ground for the UK's dirty diesel engines. "As the UK government introduces stricter legislation against diesel vehicles, including city bans, this will put further downward pressure on diesel residual values in Ireland."
Michael Rochford believes that the negative impact of the emissions scandal coupled with bad press for diesel cars in the UK seems to be causing a decline specifically in diesel car sales. There has been a fall of almost 17% year on year in diesel car sales, whereas petrol sales are remaining relatively stable.
"Whilst the 77% growth in 'hybrid electric' vehicles has been impressive, it still only accounts for only 4,700 units. The government has not done enough to incentivise sales in the hybrid electric sector."
In the wake of continuing uncertainty and the weakness of sterling values, 2018 looks like another challenging year for the Irish motor sector. The level of used imports coming into Ireland shows no signs of slowing down, while in the UK the increase in levies and restrictions on the use of diesel cars will continue to drive the cost of them down.
PCP finance is expected to be a key driver of new car sales next year. However, such finance works best when used car values remain stable. Dealers and distributors will need to take a cautious approach to residual values as the market in the UK continues to influence used car prices in Ireland while maintaining consumer demand for new cars.