With the first of the SSIAs maturing in May, car dealerships, along with other businesses, are licking their lips. But what sorts of cars will people be spending their money on? Catherine Cronin reports
Few things are as exciting as getting a new car and especially your first new car. And if predictions on the use of the SSIA windfalls are anything to go by, the number of new cars per household and the number of younger car owners should grow more quickly in the next few years.With the first of the SSIAs maturing in May, car dealerships, travel agents, and retailers such as Woodies, are licking their lips over the prospect of picking the SSIA pocket.
The five-year risk-free savings event enticed over 1.2 million of teh State's 2.7m adults.
From May, under €1 billion a month is set to mature with the highest payout of €6 billion in April 2007. Some €15 billion is due to be released over the 12-month period with an average payout of €13,800, according to Goodbody Stockbrokers.
It estimates that more than half of the €15 billion will be re-invested in property and equities, but that leaves some 40 per cent hard-wired for spending, with potentially €1.2 billion destined for cars.
"At the moment, consumer confidence is high and car buying is hugely influenced by discretionary income. It is the single most important determinant of demand for new cars, much more important than price, or interest rates," says Bernard Feeney, managing director of Goodbody Economic Consultants.
"For those funding cars through hire purchase or loans, there is confidence about meeting repayments, and SSIAs will feed into this. These savings will soon mature and then the money that's being committed to the SSIA will also be freed up," says Feeney.
Given the size of the average payout, all car sectors should benefit believes Fiat/Alfa managing director Geoff Smyth, but compacts and smaller cars should see the strongest impact.
The motor industry is anticipating a big 'small-car effect' - households may upgrade the second car to new or purchase new third cars for sons or daughters, both typically smaller or compact cars of 1.4-litre or less.
Interestingly, Revenue Commissioners data from last year suggests that nearly 30 per cent of SSIA savers earn less than €20,000 plus a further 50 per cent earn between €20,000 and €50,000. Some speculate that the lower band possibly included SSIAs indirectly funded by parents for young adults who may well use it for car purchase.
Moreover, with females typically making up more than 50 per cent of small car buyers, it would be a folly to ignore the woman motorist, says Pearce Flannery of Pragmatica Business Solutions.
But the action is not likely to be confined to compacts. Owners in the next segment up (1.6-litre or more) may use SSIAs to trade in earlier than planned, maybe after two years, or alternatively to trade-up and buy larger new cars, says Cyril McHugh of the Society of the Irish Motor Industry (Simi).
Further impetus could come from a sizeable body of car drivers who tend to hold onto their smaller cars for seven or more years, many of whom last changed in 2000, he says.
Simi estimates total car sales will round off at 173,000 this year, rising by 10 per cent to 190,000 in 2006, and potentially by a further 10 per cent to some 210,000 in 2007, still shy of the record-breaking millennium sales.
Still, these forecasts will put pressure on the industry, but it is welcome pressure as it will prolong the car-buying period and so the industry is gearing up for it, says Eddie Murphy, managing director of Ford Ireland.
Typically, car buyers find themselves tripping over each other in the first quarter of the year. The timing of the SSIA payouts may mean that quieter showrooms and less frazzled salesmen could be rare enough until the late summer.
There's likely to be lots of offers to direct interest towards car buying, says John Dennis of HB Dennis Airside. Significantly, as savers won't necessarily spend all of the windfall on cars, the used car market will also benefit, he points out.
Pragmatica's Flannery predicts that better quality second-hands will be in demand and buyers may use SSIAs in part or whole to trade up to the bigger more glamorous used or nearly new cars rather than buying new.
And while the lure of the millennium plate and scrappage led to a glut of trade-ins after 2000, when 230,000 new cars were sold, Bernard Feeney of Goodbody believes the impact on today's used-car market will be much more balanced. This market is also currently underpinned by surprisingly high levels of population growth on foot of immigration, he says.
But the SSIA windfall should only have a very slight knock-on effect on the larger/luxury side of the market, contends Flannery.
This sector appears to be doing nicely anyway. Research by Permanent TSB Finance shows a drift towards SUVs, MPVs and more luxury vehicles, according to managing director Chris Hanlon.
He sees the maturity of SSIAs as an opportunity - it frees up €254 a month which could fund €13,000 worth of borrowing over five years. After all, he estimates that about 80 per cent of new cars bought by personal car buyers (around 55,000 in the current market) are financed in some form or another.