The prices of used cars in Ireland are starting to edge up significantly, with a bellwether Volkswagen Golf hatchback now worth around 9 per cent more this year than it was in 2020.
That is according to a report from second-hand car sales app Sweep, which has been surveying the Irish used car market for 2021, and concluded that values are on the up.
“The Irish automotive marketplace is in a truly unique place right now driven by several factors fuelled by the Covid-19 pandemic, Brexit and a global chip shortage curtailing new vehicle production. Given the circumstances, is it possible that in an industry where depreciation of vehicle value is as certain as death and taxes, are those same used vehicles somehow now appreciating in value? The answer: yes” Conor O’Boyle, Sweep’s chief operating officer told The Irish Times.
According to Sweep’s data, imports of used cars from the UK – which had peaked at 100,000 vehicles in 2018 – has been hit to the tune of a 39 per cent reduction, mostly by the impact of added VAT and import duties thanks to the post-Brexit deal hammered out between the UK and the EU.
Then there is the current global shortage of semiconductor chips, which is causing chaos in the world’s car industry right now. Ford, for example, has said that several of its US factories – including those making high-profile models such as the F-150 pickup and Mustang sports car – will be idled through June as the company simply isn’t getting enough chips to sustain production.
While that shortage directly affects new cars, it’s having knock-on effects in the second hand car market. “The global semiconductor chip shortage is expected to cost the global automotive industry $110 billion in revenue in 2021, according to consulting firm AlixPartners. What this means for Irish new car buyers are lengthy delays or cancellations of their new car purchase – and in turn less trade-in volume being resold in the used car market - another important supply line” said the Sweep report.
Then there’s the lack of supply coming from the rental car sector, which has effectively been on its knees since Covid shut down international travel and tourism.
Double-edged sword
The upshot of all of this, according to Sweep, is that used cars cost on average six per cent more this year than last. Taking the benchmark Golf as an example, Sweep has calculated that, across the board, a second hand model is worth nine per cent more this year than last, and that against an expected 14 per cent annualised depreciation rate, in the past 12 months, an average Golf has depreciated by just two per cent.
If you're trading in a Hyundai Tucson, the effect is even starker. Against expected annualised depreciation of 10 per cent since 2020, a used Tucson has depreciated by just one single solitary per cent. In fact, if you own a one- or two-year old Tucson, then in the past year, its value has actually gone up, by one per cent. That one per cent increase holds true for a Toyota Corolla of up to three-years-old, and a Golf that's as old as eight years.
What does this mean for the average consumer? Well, it’s a double-edged sword. Obviously, if you’re trading in a car, it means that your car’s value has increased, which may be to your benefit when striking a new deal.
However, that’s a pyrrhic victory if you’re coming out of PCP deal – the increase in value will be of no use to you because you’ll be trading in against the originally agreed Guaranteed Minimum Future Value (GMFV) which was part of the original finance agreement you signed. In that case, the extra value is only of use to the dealer who’s going to sell the car on.
Of course, the biggest impact will be on those buying lower down the price scale, middle-to-low income families who just need reliable, basic transport. They will be seeing prices on forecourts harden, potentially rise, and just possibly climb out of their reach.
