Market for used cars shifts as sterling rates drive UK imports

For the Irish motor trade, the market is as much about currency rates as cars. Dealers watch the latest forex market as closely as the IFSC currency traders.

Kieran Whelton has been importing used cars from the UK for 16 years now. With a dealership in Knock, Co Mayo, he reckons his customers can save as much as €8,000 by opting for a used import.

Whelton says he handles 10 to 15 used imports a month, ranging from mainstream models such as the Ford Focus to recent requests for BMW X3s and Audi Q5 SUVs.

And despite the tendency for the imported cars to be older, last week he sold three arrivals from the UK that were 181 registrations – two Hyundai Tucsons and a Skoda Superb. "One of these customers would have previously been a new car buyer all the time but he couldn't justify the extra cost over an import this time," says Whelton.

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Watching the sterling-euro exchange rate is core to his business. The sweet spot is 85p-89p to the euro. “At about 80p there are still certain models of cars we can bring in and make money on. At this rate, it cuts out the personal imports because we offer warranty and reassurance. When the rate is above 89p, many buyers cut us out altogether and go [to the UK] themselves. They’ll take the chance on something going wrong with the car.”

Whelton has two buyers sourcing cars for him in the UK market, one in the North and one in England. A SIMI-accredited dealer, Whelton's 16 years in business has delivered him a loyal customer base.

Across the State, in Dublin, the scale of operation is much greater, but the business model is largely the same.

Used Cars Direct on the Naas Road is an outlet of the Charles Hurst Group in Northern Ireland. It in turn is part of the Lookers plc, listed on the London stock exchange and with revenues of £4.7 billion (€5.3 billion). Charles Hurst operates 38 dealerships across the North, sourcing used cars for its Dublin operation from these outlets, sister outlets in the UK or through its Audi South franchise in Sandyford.

Six-figure sums

Three trucks of used imports cross the Border every week destined for the Naas Road operation. General manager Brian Walsh estimates they sell about 25 used imports a week, ranging in price from €4,000 to €25,000. There are also special request models for six-figure sums, as Hurst's have the all-Ireland franchises for brands such as Ferrari, Bentley and Aston Martin.

“We constantly buy cars in the North that we know will be good value on the Republic’s market. So we generally will carry 200 used import cars or so in physical stock on the Naas Road. We also have about 2,000 cars in stock in the North so if someone comes into us and they don’t want the hassle of a personal import or they want to finance the deal, we can sell them the car direct. We can deliver on Irish plates and with warranties.”

Whelton and Walsh are feeding a demand for used imports that has led to a record 100,755 used imports being registered in the Republic last year. That compared with total new car sales over the same 12 months of 125,486.

According to Ciaran Allen, sales manager for Mercedes-Benz Ireland passenger cars, "If you look at total car park of two million cars, you'd like to think there's a 10 per cent replacement rate every year. As a very broad logic, if you look at the new car market and used import market for the last three years, you will see it balanced around 220,000 to 225,000. And the way that is divided up between new and used is down to sterling.

“Brexit to us – unless there is a no-deal – is really about sterling value. The UK is a 2.5 million new car market; we are 120,000. So that’s a huge wall that has the potential to fall down on top of us at any time and that’s all driven by sterling.”

If sterling reaches parity with the euro, all bets are off. On average eight million used cars are sold annually in the UK. So the 100,000 that arrived in the Republic last year is a rounding-up exercise for the UK fleet.

Yet the UK market casts a shadow across every car sale in the Republic.

Gavin Hydes is chief executive of Joe Duffy Motors, the largest dealer group in the Republic. "Residual values here are being driven by what cars come in from the UK," he explains. "In fairness, the prices also reflect some of the turmoil in the UK market, which is really struggling for the last two to three years. So when they roll out reduced new car prices over there, that means reduced used car prices and that has an impact here."

According to Skoda Ireland managing director John Donegan, the cost of change is the critical factor in new car deals. With used car values now so strongly influenced by what's on offer in the UK, motorists are finding that, while the new car might seem attractively priced, the deal comes a cropper when they realise how the value of their current car has fallen due to the availability of similar models being offered at a discount in Lisburn or Liverpool.

The surge in imports has led some distributors to call on Government to introduce barriers to entry for these cars. Nissan Ireland says the Government should ban used car imports where registration pre-dates 2014. It claims the move would generate €400 million in new revenue for the exchequer.

It follows a statement from the Department of Finance which said "large-scale importation of used diesel cars" was "undesirable". Simply put, the Government is losing money due to imports.

Toyota Ireland estimates the tax take on a new car is €8,500, from VAT and VRT. On a used import it averages €2,500 in tax because there is no VAT element. "So if the UK becomes a so-called third country due to no-deal Brexit, then the Government will do their sums and very quickly want to close off that situation so they can maximise their revenue," says Steve Tormey, chief executive of Toyota Ireland.

Silver lining

There is also a view held by some in the trade that a hard Brexit harbours a sliver of a silver lining for the motor trade: new tariffs and increased complexity may put a stop to the traffic in used imports.

However, many reckon that silver lining is merely a mirage. According to Ciaran Allen of Mercedes: “If a no-deal situation did severely cut down the used import market it would be a positive for the Republic’s car sales and residual values, but worst-case scenario, Brexit would affect the economy so badly that it overall hit would have such a negative impact on buying cars.”

His doubts are echoed by Tormey. “If there is a crash out, then getting a new car will be the least of people’s concerns.”

And a no-deal Brexit would also put a serious dent in the motor trade's highly-tuned supply chains. Only a handful of companies source new cars manufactured in the UK. However, many Irish distributors source spare parts from warehousing in the UK, or at the very least use it as a land bridge for transporting them from continental Europe.

Twenty years ago, parts took days to arrive and customers could be off the road for a week or more. Today many car companies can offer next-day delivery of common parts to garages across the Republic for parts ordered before 3pm the previous day.

VW Group Ireland – comprising the eponymous brand along with Seat, Skoda, and Audi – sources its parts from a central warehouse for the UK in Durdon, Warwickshire.

Robert Guy, VW Group Ireland's director of aftersales, has been working with teams from the UK and Germany on the car giant's Brexit preparations since June 2016.

“In terms of supply chain, a couple of things have worked in our favour. On December 20th, the UK was granted membership of the Common Transit Convention. This means that goods originating in the EU, entering a third country, like the UK, will not incur duty.” He says VW is also bonding the Durdon warehouse.

“But my problems aren’t completely rectified as I have no control over what’s going to happen at Holyhead or in Dublin port. So I do have a plan B and I’m still considering whether to bring in parts direct from Germany.”

Guy says his dealers currently get ordered parts to dealers within a day and a half. He estimates the delivery time direct from Germany is five days. “So our dealers may increase their stock for a number of months in order to cater for such eventualities, but the reality is it could affect customers.”

Emissions

Aside from a no-deal scenario, one way being mooted for Government to stymie the flow of used imports is by playing the environmental card.

As the UK moves to clean up its air quality with proposed diesel bans, it has meant cheaper used diesel cars on UK forecourts and that has proved a lure for Irish buyers. According to Gavin Hydes: “The value of these older cars is reducing in the UK because people are moving to cleaner alternatives, but that means they look cheaper for Irish buyers. A lot of them have stories with them that buyers don’t investigate because they’re fixated on the price.”

Of the new cars sold in the first 16 days of this month, diesel fell below 50 per cent for the first time in a decade. Yet diesel accounted for 72.5 per cent of used imports over the same period.

While the average emissions on new cars registered in the Republic last year was 113g/km, the average emissions for used imports was 121g/km.

“There is ultimately a price to pay for ‘dirty diesels’ in terms of a clean-up and the only people who end up paying for that is the taxpayer, through either carbon tax or extra taxes on diesel,” says Toyota’s Tormey. “If the total car park of 2.3 million cars is becoming dirtier because of the used imports coming in from the UK, it doesn’t matter how many hybrid or electric cars you sell, the total fleet is getting dirtier.”

According to Allen at Mercedes-Benz: “There are emissions standards that have to be met nationally and, as an industry, if those rules apply to us – that we can only register new cars that meet Euro6 emissions standards – then that should apply to all cars arriving into the State and not just brand-new cars.”

As one of the sectors hardest hit by recession, the motor trade is not in a strong position to withstand the shocks of a no-deal Brexit, while also managing the costly transitions towards online trading, electrification and autonomous driving.

Currently it seem currency fluctuations rather than new tech is driving the market. Amid predictions of between 116,000 and 125,000 new car registrations for 2019, Gavin Hydes says: “I don’t think the motor trade should predict on the market; I think we should predict on sterling, for our market follows sterling.”