Hello again. Buying a home is by common consent the biggest single investment a person or couple will make in their lives as those fortunate enough to have been able to do so will attest. And anyone who has totted up the cost will no doubt confirm that children come next, followed by investing in a pension for the more sensible among us.
But these are all very long-term investments. When it comes to the repeating costs we need to budget for, buying a car ranks high in the list of stress points. New or used? What model? What year? And how to finance the whole thing?
Coming to a decision is all the harder given that most of us only really engage with the issue every three to five years or more. Inevitably, we need a crash course in market developments since our last purchase. New models come on the market all the time and older ones are phased out, meaning that support and parts can become an issue in the second-hand market.
The passing of time also allows for better assessment of the strengths, weaknesses and durability of one model against another in the used car market.
None of which is helped by the generally low esteem in which car salespeople are held. Gallup does an annual survey of perceived trust and honesty of a wide range of jobs every year. Consistently, car salespeople rank at or close to the bottom of the list, alongside those working in advertising and national politicians. The Gallup poll is US-based but the findings are broadly reflected in surveys closer to home.
If you are parting with tens of thousands of euro, you want to know that you are making the most informed decision and that those selling to you are actively working to the same end. The lack of trust just makes the buying process more difficult.
These days, it is not just the car itself: there are broader issues about climate sustainability and the practical nitty gritty. Can we really be comfortable putting more emissions into the atmosphere from our petrol or diesel driven car? Is the available charging network remotely sufficient to ensure we don’t live in a state of permanent range anxiety? Is an EV viable at all if I am one of the growing number of apartment dwellers?
And while I, for one, generally accept that I will be driving any car purchased to the end of its useful life, second-hand value is a consideration for most purchasers. Will there be a market for that gas guzzler in three to five-years time as taxes on fossil fuels continue to rise? Is the technology of today’s electric vehicle going to be overtaken, making our vehicle redundant in terms of the second-hand value?
New v Used
The toss up between getting a new car or a second-hand vehicle used to be fairly straightforward.
A new car would generally be more environmentally friendly, come with greater promise of reliability (and a decent warranty for peace of mind if problems did arise), have all the latest technologies incorporated and could be customised to your preferences.
It would also generally be safer as you did not have to worry about what the driving style of a previous owner might have done to the expected life of your clutch or other key elements that will prove expensive to replace. Nor did you need to concern yourself about the car’s service or (sometimes undisclosed) crash history.
On the flip side, you would certainly be paying significantly more for a new vehicle and its value would depreciate faster than that of a used car.
Cost was one of the key benefits of looking at the used car market though it could come with unexpected maintenance bills. The model would also have a longer track record so that you could be aware of issues that had arisen with certain makes and models. And it would hold its reduced value better.
But several factors – principally Brexit and the pandemic – have conspired to muddy the waters on the cost debate for Irish motorists.
Dealers and individuals used to import large numbers of cars for the Irish used car market from the UK. An exponentially bigger car market and generally lower prices offered value for dealers and enabled them to pass some of that on to purchasers.
Brexit wiped out a chunk of that advantage with changes in VAT and import duties making it more expensive to bring those vehicles across and re-register them. There has been a big drop in the number of second-hand cars coming into Ireland from the UK as a result.
That was exacerbated by the Covid pandemic which saw a supply chain squeeze that affected the supply of computer chips essential for running an increasing number of functions in the modern motor car. Fewer chips meant fewer new cars rolling off production lines. And that meant people holding on to their existing cars for longer than planned as they could not upgrade to a new model, starving the used car market of supply.
Alongside that, pandemic lockdowns caused chaos with the car rental market as tourism simply dried up. With no customers, companies froze fleet acquisition. Given the nature of car rental, a steady stream of those vehicles feeds into the used market every year but, for a few years, that simply stopped.
The dearth of second-hand vehicles meant prices rose sharply and it has become increasingly hard to find any value in the market. The last time I was in the market for a car, the prices of used vehicles were so high that buying new became the more economically sensible option.
The good news is that things have improved moderately. Data from Done Deal’s half year motor report says the annual rate of inflation in the market for used petrol and diesel cars fell to 4.9 per cent in the second three months of the year, the lowest it has been since 2019.
That’s down from 9 per cent at the end of last year for the market as a whole and an average of over 21 per cent annually across the previous three years, it says.
Tom Gillespie, who compiles the economic analysis of the sector, says this has been down to increased supply. New car sales are up modestly – about 1.8 per cent – providing more trade-ins and the supply of used imports has surged by a quarter – though they are still less than half of the level coming into the market back in 2019.
Using viewing data from the Done Deal site, he found demand for used cars had jumped by 15 per cent in the first half of the year while supply was 19 per cent stronger. That led to prices actually falling by 0.2 per cent in the second three months of the year compared to a rise of 2 per cent in the first quarter.
Another development has been the rapid slide in the price of used electric vehicles. There are a number of reasons for this. Supply has certainly increased as first generation adopters trade up but the falling price of new EVs has clearly affected the resale value. So too has demand which, Done Deal says, remains weak as the wider market continues to have concerns about charging infrastructure and battery life among other issues.
Despite the recent slowdown, Done Deal said used car prices at the end of 2023 were still 85 per cent higher than they were at the start of 2020. That compares with an increase of just over 16 per cent across the wider European market, according to a German listed group called Auto1.
According to the Central Statistics Office’s consumer prices index, the average cost of car purchase in Ireland rose by just 1.4 per cent in the 12 months to September, leaving it 29 per cent more expensive than before Covid at the end of 2019. That compares with a more modest 19 per cent rate of inflation across the full consumer price index over the same period.
Whether you decide to go for a new car or a used version is entirely a personal choice but those opting for the used route should be aware that, unless they have strong familiarity with the workings of cars – or know someone who does – there is much to be said for buying through a dealer rather than a private buyer.
Prices might be more competitive through personal sellers – not least because the latter don’t have the overheads a business would – but it could prove a false saving. You are also more likely to get a warranty through a garage and more assurance that they will stand over it if something does go wrong.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
