Used cars are the biggest issue in motoring right now. The country is awash with used cars with stocks having built up to worrying proportions over the past year or so. This is bad for car dealers, importers, and manufacturers, but for motorists it might just be the best opportunity to buy a well priced used car, writes Padraic Deane.
In May the direction in which the market was heading was confirmed in a survey - the GE Money Irish Used Car Index - which claimed prices for second hand cars were declining. Year on year (April 07 - April 08) figures for May showed that used values as a percentage of new prices had shrunk across almost all segments with the biggest fall at the luxury end of the market where three and five-years-old values had on average fallen by €2,000 to €3,000. At the other, and therefore cheaper, end of the market, percentage falls in price were similar, and revealed the first decline in values since the over-supply blip in 2000.
At the time I believed values had fallen further than that as growing numbers of used car imports continued to flood into the market. In fact, slow new car sales were responsible for delaying dealer panic in the used car market in the first four months of the year. However the situation has worsened for dealers in the last five months.
When buying a used car, the motor industry would like you to consider all the relevant issues as well as price. They list some of these as peace of mind, safety, after-sales service, dependability, and convenience as being worthy of consideration as much as price. I say, of course these are advantages, but not at a great price premium. The industry might even lay the load of 50,000 people relying on the Irish motor industry for employment on your shoulders. I say it is a free market - become competitive and we will buy our cars from you.
The tide has turned
The current woes that car dealers are experiencing present great opportunities for used car buyers throughout Ireland.
Since last April the real impact of the credit crunch has become apparent, and with diminishing levels of confidence in the economy now biting deeper, used car values have fallen more rapidly.
In addition, the untimely complications of a changeover to a CO2-based Vehicle Registration Tax has messed up the new car market further and caused on-going confusion that has also reverberated to the used car market.
Add to this continuing used car imports (although now at a much slower level), and nearly 19,000 hire drive vehicles, which are cars supplied for the rental market by new car dealerships, and have now returned to the market to be sold by dealers as used cars.
Another reason for the huge number of used cars available on the market is due to the increase in repossessed vehicles being returned by finance companies as consumers struggle to meet repayments. This will get worse.
Good times for used car buyers
All of the above have served to provide a great used car buying opportunity. Hand on heart, there hasn't been a better time to buy a used car in Ireland in the last 10 to 12 years.
Dealers are genuinely selling many cars below cost, because their cost has been by-passed by prevailing market conditions. They need to turn much of their used car stocks into cash.
While excellent value now exists in the used car market, I must prefix my comments by saying that I believe downward pressures on prices will continue throughout the remaining weeks of this year and in the early months of 2009. The extent to which this will be reflected in used car values will depend on the relative effect on trade-in values being offered by new car dealers for January, and the number of new car sales that will finally take place in the first quarter of next year. It will also be determined by the number of used cars in all car dealer stocks and what level of used car imports we see in the next few months. The level of credit available for car loans and leases will also determine customer demand for used cars.
Irish used cars now much more competitive against imports
Trade and personal imports, primarily from Britain, are losing some of their competitive advantage over Irish used cars.
This is due to dealerships, out of necessity, reducing prices dramatically to move car stock. My investigation leads me to believe that up to half the used cars being sold by dealers in October were sold at a net loss (considerable in many cases).
In addition the Revenue Commissioner, who collects VRT on imported used cars, is very slow to reduce values on imported used cars in line with current market prices, so financially this works against used imports. There is also the costs in time and money of buying in Britain and taking a car back to Ireland.
That said, the fall in the value of the pound sterling rate against the euro has been dramatic. In the past year, it has gone from a £1 sterling being worth in rounded figures €1.50 to about €1.20 today.
However I have been surprised to discover that in the case of a well-speced upper-end family model and and an executive diesel car, both could have easily been bought here at a lower price, if the buyer had shopped around.
In two other cases, an imported family size car was imported for about €500 and €100 less than two similar conditioned (and mileage) petrol cars that I priced here. I'd say with a good bit of haggling or widening the shop-around, the differences in that case could have been bridged.
This would not have been the case three months ago, but it is now. In the final example, a small family car was landed here and re-registered for €700 and €800 less than two similar conditioned (and mileage - circa 22,000 kms equivalent) small family cars I priced here. The imported car certainly in summary looked in good condition.
However on closer examination, some wear and tear indicators would suggest (no more) that the mileage may have been much higher. For instance the set of tyres were half worn but were of a brand not fitted as original equipment on that model and also the wear and tear on the foot-well area beneath a newish rubber mat indicated higher usage than that recorded on the clock. There was no service book with this car.
If current market conditions continue along the path that they are currently on, there will soon be no savings to be had from importing from abroad. Right now, in the majority of cases it seems like it would be hard to make any savings.
Buyer's market - the buyer is king
The current level of low prices for used cars cannot be sustained by main car dealerships unless new car buyers accept considerably less for their trade-in (very doubtful), but right now, the buyer is king.
Shop around for the car you want and fight to get it at a good price - It is a buyer’s market. It is also worth shopping around for finance and insurance - I bet you will be pleasantly surprised.
Try a variable interest rate loan over fixed rate leases or hire purchase because interest rates are dropping. Try to organise this at your bank before buying. Loan approval is the equivalent to cash when you are shopping, and cash is king.
Also car insurance premiums may rise next year after falling for the past few years, so get lots of quotes, comparing like with like as best you can. Then go with the best value.
Other questions you need to ask yourself
In light of the current environment, when you do decide to buy a new or used car, you should ask yourself some some important questions. Do you need to be driving the size or type of car that you have? Should you consider downsizing or switching to a more practical car for your circumstances? Would a more fuel efficient model, possibly lower powered and attracting a lower insurance premium possibly be suitable? At least you should check out the CO2 band your potential car slots into and the resulting annual road tax band that is applicable. While you cannot do anything about motoring taxation in principle, you have options in relation to what level you pay. Today, more environmentally friendly cars attract less VRT (and consequently VAT), less annual motor tax, and probably less fuel duty taxation due to lower fuel usage. Buying a used car has become much less of a tricky business.
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