Podcast Ep 101: Bank of Ireland head of Motor Sector Stephen Healy on why used car prices have risen.
Irish used car prices have risen and have not devalued over the past year. At the same time the supply of new vehicles has been constrained by supply chain issues.
Nevertheless, in his recent Motor Sector News report motor dealers are reporting strong consumer demand.
“Overall, the sector expects growth of 10% to 15% in 2022, but with a stronger H2”
But why are used cars holding their value? The reason for this, explains Healy is a tightening in supply.
Residual values
In his Outlook report for 2022, he noted how DoneDeal reported “used car prices are now 56% higher on average since the onset of Covid-19 in early 2020.”
This is as result of a number of factors including; increased taxation relating to and lower volumes of used imports, high levels of consumer demand, increased vehicle registration tax (VRT) for new cars and a lower new car market due to Covid.
As a result, these factors have led to tighter used car supply and pushed up used car prices over the course of the year. This is not just an Irish phenomenon but is replicated around the world due to a shortage of used cars. Motor Trade Publishers Ltd provides an example in their January 2022 editorial highlighting a 2019 car has approximately the same value in January 2022 as it did in January 2021.
“The Irish car market was down 25% in 2020 due to the pandemic and, although sales were up 19% in 2021, the market was still down 10% compared with 2019,” Healy explained. “There are less used cars being traded into dealers and so less used cars for sale on forecourts.”
Brexit also resulted in used car imports falling 44% from their peak in 2019 and that means fewer used cars in the market.
“We are seeing the same trend in the UK, the US and across the world. Also, the Government adjusted taxation on new cars and used imports making both more expensive. Higher new car prices translate into fewer sales. As a result used car prices have risen and have not devalued over the past year,” Healy explained.
Electric dreams
A recent report from SIMI warned that Ireland faces a “huge challenge” getting to approximately 1m electric vehicles by 2030 and as a result the country will need to invest in 100,000 fast-charging points as well as incentivising the move away from older polluting cars to new electric vehicles.
Healy believes 2022 will be a crucial year for electric vehicles and building out infrastructure.
“There are almost 45,000 battery and plug-in hybrids on the roads. In 2021 16% of new cars were electric vehicles, split almost 50/50 between battery and plug-in. This compares to an 18% average in the EU.”
Healy predicts that in 2022 battery electric vehicles (BEVs) and plug-in hybrids (PHEVs) will amount to 20% of cars on Irish roads, driven by accelerating consumer demand.
“Manufacturers are building more electric vehicles to meet strict EU emissions standards,” Healy explained.
When it comes to infrastructure Healy said that 80% of charging happens at home and said that while there are various providers of public points for national journeys agreed that more public charging infrastructure will be needed to meet increasing electric vehicle uptake.
“There are 1,350 charging points in Ireland currently and investment here is vital. ESB is investing €20m in upgrades to the network, and the replacement of 264 legacy 22kw chargers is now complete. These are geo-located so drivers are within 35km of the nearest charger with a one-to-six-hour charge time.
“The upgrade will see 52 new 50kw fast chargers which will deliver an 80% charge within 45 minutes and this will be complete by Q1 2022. By 2023 there will be an additional 56 high-powered hubs capable of charging multiple vehicles to give them a range of 100km within six minutes.”
End of the supply chain woes?
Automotive News Europe predicts global vehicle supply shortages will exist for most of 2022 but production volumes will start to improve in Q2.
Healy said that Irish motor dealers are a resourceful and tenacious community who endured four and half months of Covid restrictions. “They met their customers virtually, sold cars remotely and delivered nationwide. The sector adapted and delivered a 22% increase in new car and van sales in 2021.
“That is some achievement in an unprecedented year of shocks. New car sales were still 10% below 2019 levels. This year, 2022, new vehicle sales in January were flat, this was due to supply not demand.
“The issues in the supply chain were a global shortage of microchips that power all kinds of vehicle electrical systems. Manufacturers had to reduce production output as a result. That started to bite in H2 last year in Ireland and will continue to do so for most of 2022.
“Dealers’ order books are fully loaded, they are just waiting for the cars to be built, leading to longer lead times for consumers here.
“Automotive News Europe is reporting increased chip supply from Q2, which should mean a better H2 here in Ireland.
“Overall, the sector expects growth of 10% to 15% in 2022, but with a stronger H2,” Healy forecast.
