Statistics released by car history experts Motorcheck.ie showed new car registrations surged more than 23% (101,248 units) for the first six months of the year compared to 2015 (82,261 units). Similarly light commercial vehicles were up over 25% (18,417 units) compared with 2015 (14,657 units). All seems to be rosy following the hugely positive trends of the last three years for the Irish Motor Industry.
There are however a lot of anxious people in the Irish Motor Trade following the recent Bexit vote in the UK. So can Brexit have a significant negative influence on the new and used car market in Ireland?
Michael Rochford, Managing Director of Motorcheck.ie says: “The most immediate effect will be seen in the used car market as Sterling falls against the Euro and the value of used cars begin to drop due to a rise in cheap imports from the UK coming into the Irish market. This will certainly have knock on effects in the new car market also”.
The primary reason that Irish used car prices have been high of late has been the dearth of good second hand stock from the years 2009 to 2013, caused by the slowdown in new car sales during that period. The strength of Sterling against the Euro prevented UK imports from filling the gap.
Used imports are already up 27% this year (32,498 units) and look like hitting more than 60k units in 2016. This will almost certainly increase and those who are looking at expensive Irish stock will start looking at the cheaper and often better spec’d UK alternatives. As cheaper stock begins to pervade the Irish market, used car prices will slide. This was always expected to happen as the boom in new car sales over the past 2-3 years would inevitably mean a healthy flow of stock starting to hit the used car market in the next 18-36 months. The consequences of Brexit however look set to accelerate this process.
This has serious consequences for the new car market as a sharp drop in used car values may mean that the Irish vehicles coming back off PCP will be overvalued. Hence a glut of overvalued PCP’s will soon be heading for Irish dealerships or distributors. Many dealers are hoping the customer will opt to hold onto the car by refinancing it or buying it out. But consumers will not want to buy a car in negative equity and banks will not finance the negative equity. So who takes the hit?
“PCPs have been the lifeblood of new car sales over the past three years. If used car values are hit then PCPs will not be as affordable as in recent years, since the GMFV (guaranteed minimum future value) of the car is reduced. If there is a sharp drop in used values due to Brexit then this could have a severe effect on the PCP market here” said Rochford.
Many of the PCPs agreed in recent years have been sold to consumers who would have previously bought a nearly new car. A nearly new UK import may soon look like better value than a PCP. It is possible that 2016 will see a peak in new car sales in Ireland and 2017 may actually experience a decline in new car sales if some of the potential consequences of Brexit come to pass.
One thing that is certain is the next six months will be fraught with worry for the Irish motor trade despite the fact that 2016 new car sales are likely to get close to record levels.