Motorists can now make a profit on their used cars, which increase in value the longer you keep them, a surprising new study has found.
Used vehicles are now 67% more expensive than before the pandemic hit in 2020, with prices rising 21% per year.
The old saying that a car loses thousands in value if you drive it off the forecourt is no longer true, according to research by done deal reveals.
Instead, second-hand cars are rising in value thanks to Brexit and a post-pandemic shortage of microchips, hampering vehicle production and limiting the supply of new cars on the market.
A salesperson said: ‘It’s true: we import less. People keep cars longer, so there are fewer second-hand ones. All these things together result in higher prices.’
A 2013 Audi A4, which sold for €11,224 in July last year, would normally fetch €9,136 in July 2022, a decrease of more than €2,000. But they actually sell for €12,443, which represents a capital gain of €1,219 – despite being a year older and doing more mileage.
A motorist revealed how he bought a new Skoda Enyaq for €50,000 last year and recently sold it for exactly the same price, despite a tough 30,000km mileage.
On Monday, AA Ireland’s Paddy Comyn said of the surprising used car price hike: ‘That’s a lot!’ He said Brexit was the main factor in the rising costs, noting: “Once Brexit happened, higher rates on used diesels from another jurisdiction could be raised.
“So the situation where it made financial sense to import a car from the UK has all but evaporated as additional charges may be imposed that were not previously in force,” he said. ‘That’s the main reason. So it didn’t make much sense to import a used vehicle from the UK and the supply of used vehicles in Ireland didn’t increase so it’s harder to get one.
‘There is reason two connected with this, namely the worldwide chip shortage that affected the production of new cars.
“So when it got harder to buy a new car, and if you had to switch cars, you had to buy a used car, so the demand for used cars made them more expensive.”
Mr Comyn added: ‘There are anecdotal stories of dealers asking customers if they want to sell their cars back – that’s happening across the country.’
Tom Gillespie, the author of the report from the University of Galway, said: ‘Cars of the Celtic Tiger era, of which there was once a great abundance, are now rapidly becoming obsolete. Replacing the necessary supply of older cars is difficult, as they generally have higher CO2 emissions and are therefore subject to stricter tariffs. For a cohort of the population that cannot afford cleaner and more expensive cars, there will always be a need for cheaper cars.
“It is therefore likely that prices at the lower end of the market will continue to rise until cheaper car prices in the UK, plus fares, are competitive with the equilibrium level of prices in Ireland.”
As imports from the UK have fallen due to tariffs induced by Brexit, imports from Japan, which is also a right-hand drive country, have soared. Quarterly inflation for cars worth less than €6,000 is 6.4%, almost double the 3.3% at the top end of the market for cars worth more than €20,000.
The DoneDeal report said: ‘The slowdown in price inflation should raise expectations that used car prices could peak.
“However, this does not appear to be the case as quarterly price inflation for the third quarter is 3.5%, up slightly from the second quarter. For context, a ‘normal’ inflation rate – the average over the years, for example – would be 0.8%.’
The situation is expected to ease as new vehicle production returns to normal levels. “It’s slow,” said Mr. Comyn of the AA. “I don’t think we’ll see everything perfectly this year, but it’s getting better. All we can hope for is to clear up the new car supply chain.
That goes back to COVID time; all the chips that were needed went to laptops when everyone was working at home.’
A second-hand dealer said it is now easier to buy right-hand drive cars from Japan than from Britain because of the extra fees and red tape caused by Brexit.
Naas Road Autos in west Dublin has been importing right-hand drive cars from Japan for 30 years and says many other dealers are expanding their trade with the Far East. Car salesman Leigh Hunt said his used car supply has switched to imports from Japan rather than the UK.
He said the cause was the lack of supply from the UK as imports from there have been drawing tariffs since Brexit. The decline in sterling’s value has also led to a higher cost of new imported cars in Britain, meaning people are choosing to keep their current cars so that there are fewer used cars on the market. He commented: ‘We sell 100 Japanese cars a month, whereas previously most of them came from Great Britain. It’s expensive and it takes 12 weeks to get the cars out of Japan, so your money is stuck for 12 weeks. Many more dealers are doing it’ But those looking to thrash their engine to make some easy money to fight the cost of living crisis have been warned that they may struggle to find a replacement.
Mr Comyn said: ‘The difficulty is the range of cars in and around the ‘affordable’ cars from €15,000 to €20,000 are very, very thin on the ground. People might have bought their used car for $19,000 and two years later it’s still worth $18,000. So if you sell it you have to replace it. If you’re transferring to a bus or train, that’s fine, but if you’re planning to replace it, you’ll run into a problem.’