According to a specialist advisor to the motor industry, Irish car dealers could be faced with a glut of used cars over the next two years as motorists trade in their old vehicles, and use their SSIA windfalls to splash out on new vehicles.
A sudden flood of used cars onto the market will come as welcome news for those looking to upgrade to a nearly new car, as any glut will force dealers to drop the showroom price of used vehicles. However, it could also put increasing pressure on some non-franchise dealers who sell mainly used cars and are already burdened by ever-tightening margins and increasing overheads.
"The Irish motor industry is extremely buoyant at present, and is facing substantial increases in sales volume from 2007 and beyond due to the effect of SSIAs bringing increased buying power to the Irish consumer," says Pearce Flannery, CEO of Pragmatica Business Solutions. "Sales in excess of 225,000 units are projected for 2007 and this could leave Irish retailers with a major used car problem, even greater than that following the sales boom of the year 2000."
New car sales have remained between 145,000 and 165,000 units per annum since the exceptional millennium year, when a scrappage scheme boosted sales to well over 230,000. Sales this year are expected to be around 160,000 units.
But in 2007, it is predicted that an additional 65,000 new cars will leave the showrooms. As a result, the industry is bracing itself for the inevitable influx of trade-ins, which must be resold quickly in order to turn a profit.
But with the supply of used vehicles expected to substantially increase, residual values will doubtless fall as demand decreases.
Despite Flannery's comments, there are conflicting predictions about the scale of the impending problem. One economic analyst told motor dealers at a recent industry conference that, although there will be a noticeable increase in new car sales, there will also be a boom in quality used car sales, as people use their SSIAs to upgrade to a nearly new car rather than buying a brand new car.
Through 2006 and early 2007, almost €1,000 million a month will be released from the SSIA scheme. By the end of the saving scheme, between €15 and €16 billion will have been released, with savers getting, on average, about €13,600 each - an amount that, according to Bernard Feeney of Goodbody Economic Advisers "screams car purchase".
Current research suggests that €1,130 million of SSIA money will be spent on car purchases - about one-third of the current annual spend on cars. But, as Feeney points out, with 45 per cent of savers earning less than €20,000 per annum, it is expected that many of these lower earning savers will prefer to upgrade to a newer used car rather than pay for a brand new car. "The implications (of the SSIA) are going to be very substantial, both for new and used car sales," says Feeney.
Current statistics suggest that there is already a strong demand for used cars. In order to cater to the demand, over 3,000 used cars have already been imported in this month alone - an increase of 91 per cent compared to May 2004. So far this year, over 20,000 used cars - 77 per cent more than last year - have found their way to Ireland.
"These statistics reveal that there is a significant demand for quality used cars on the Irish market at present," explains Alan Nolan, deputy chief executive of SIMI, the motor industry's representative body. "However, the industry does have concerns that, although our present vehicle registration tax (VRT) system allows for the import of used cars, there is no VRT refund scheme for the export of used cars. This means there is no safety value should there ever be an oversupply. This really needs addressing by the Government."
Despite Flannery's warning, Nolan says the industry is confident that the next few years will not see a glut in the used car market. "We would agree with the view that there will be a strong demand for both new and used cars," notes Nolan.