End of Honeymoon for used car values?

We were all much buoyed up by the recent figures showing that the Irish motor industry had a good January. Ever since first the credit crunch and then the recession bit deep into all of our pockets back in 2008, sales of new cars fell off to a level not since the mid-eighties (another time when most of us didn’t have two coins to rub together). It was a deeply troubling and harsh time for the industry and the trade and, sadly, a great many in the car game lost their jobs because of it.
Which is why it’s so good to see things getting back on their feet. A 33% rise in the sales of new cars, coupled with an even greater 42% climb in the sales of commercial vehicles (itself an even better barometer of the health of the overall economy) is really something to cheer about. With the average age of the Irish vehicle fleet heading towards nine years old, there is no doubt that a great many of us were in need of upgrading our cars, and it’s a real pleasure to see so many new 141 number plates running about.

Where's the downside?

Sometimes UK imports are referred to as "swimmers" - now you know why!
Sometimes UK imports are referred to as "swimmers" - now you know why!

There is a potential sting in the tail though, and it’s to do with second hand values. For the past five years, we have not been selling very many new cars. It’s a simple fact of supply and demand then that there has concurrently not been very many 09, 10, 11 and 12-plate cars around to feed the ever-hungry second hand market. That has created two effects. On the one hand, it has seen many private buyers, car dealers and even major importers heading to the UK to find and import stock from those years. Even with the boom in new car sales this past month, used imports are continuing to climb, and their numbers were up by 39% compared to January 2013 (4,857 cars imported compared to 3,492). The second effect has been a hardening of second hand values for those years. With scarcity on the ground and many people not keen on the thought of trekking to the UK to find the car they want, it has meant that cars from 2009 to 2012 have held on better to their resale value. It’s economics at its most simple – if there’s less of something, it’s going to cost you more.
While that is not likely to change for a while, at least until those cars reach an age whereby they simply become less desirable, the sudden boom in 141 plate cars means that it’s less likely that they will hold on to their value as strongly as their predecessors. Again, it’s economics at its most basic – if there’s more of it then you pay less.
The waters are further muddied by the amount of pre-registering going on. Pre-registering is when car makers and importers effectively sell cars to themselves, in order to bump up their overall sales figures. It’s a practice often decried by many, but actually it’s as standard an industry practice as offering better deals on finance packages or giving away free metallic paint. The upside for the consumer is that it means more ‘delivery mileage’ specials – cars that already have a number-plate and are being sold at a discount as an ex-demo. Some are also flogged off at a discount to the car rental companies for hire-drive use.
Now, these discounted cars have a small but noticeable effect on second hand values, as the fact that they’ve been sold off at a discount means that they exert a slight downward pressure on the resale values of that particular model. Again, economics.
All the signs are though that there is much less pre-registering going on in the past few weeks as it’s simply not necessary – real, genuine buyers are coming in the door with ready cheque books, so what would be the point? Ireland Motor Inc. is apparently now operating a level of pre-registering that’s far below European averages, and even the old hire-drive trick represented less than 1,000 units out of the 22,000-odd new car sales in January.

Used car values

So, what have we got here? More new cars being sold equals lower resale values down the line for 141-plate models, but fewer pre-registered cars means slightly better values for specific models. Will the two effects balance out? Yes, quite likely they will. It’s probably the end of the line for rock-hard second hand values (assuming new car sales keep up their current pace) but equally a more buoyant overall market will ensure that there’s a greater likelihood of finding a buyer for that second hand car. A rising tide lifting all boats.
With that in mind, it only remains to remind you to exercise the greatest of care when buying second hand. Get a Motorcheck.ie history check, especially if the car is an import from the UK, and make utterly sure that the vendor isn’t using the continuing rarity of 2-3-year old cars to gloss over any defects, any clocking or any dodgy history.