Success breeds problems for car trade

Never in their wildest dreams could Ireland's car salesmen have foreseen the boom in their industry in recent years.

New car sales have risen in spectacular fashion since 1994 as Irish motorists took advantage of low interest rates to play catch-up with their European counterparts.

Last year alone, some 230,000 new cars were driven off the forecourts. Waiting lists for even the most ordinary marques of car grew as consumers chased the coveted 2000 registration, while the introduction of national car testing (NCT) led to an estimated 40,000 cars being taken off the road.

But success has bred its own problems.

As more and more people plumped for a brand new motor, the queue of secondhand cars for sale has grown, while the increased volume of lending to finance such purchases has inevitably left some by the wayside.

The stellar growth seen last year is also proving difficult for repeat and car sales for January; these usually account for 18 per cent to 19 per cent of the full-year tally, but are down on last year.

However, the industry remains optimistic that, even if it doesn't match last year's bumper levels, 2001 will be another good year.

Mr Cyril McHugh, chief executive of the Society of the Irish Motor Industry (SIMI), says he expects the industry to enjoy its second-best year to date.

"It's going very well, things are looking good," he says, dismissing the year-on-year drop of more than 20 per cent in the number of cars sold over the first 20 days of 2001 as due to exceptional circumstances. "Last year was an aberration. We should measure performance against 1999."

The view from the forecourt is equally upbeat. "We've sold 40 second-hand cars already this month," says one car dealer. "The NCT is doing wonders for used car trades with a lot of people looking for 1997, 1998, 1999 and 2000 family cars."

City runabouts, or the smaller one-litre cars, are also proving popular, while there is no shortage of demand for the more expensive marques, such as Mercedes and BMW.

However, industry sources say there was a serious build-up of second-hand stocks toward the end of last year, traditionally a slow time for the industry, and that some garages still have significant numbers on their books.

The car auction houses, which sell on fleet, company, repossessed and hire cars, are now getting an increased amount of business from the motor trade itself.

As garages are lumbered with large numbers of second-hand cars and the cost of having them sitting around depreciating rises, they are increasingly viewing the auction houses as another outlet to sell them.

Mr Sean Boland, managing director of Windsor Car Auctions, says that the company has been so busy with Irish-registered cars that it has cut back on its Japanese import business.

Meanwhile, the other big player in this area, Gunne Car Auctions, is now holding an auction once a fortnight compared with this time last year when it held just one a month.

The glut of second-hand cars is also good news for consumers as it has led to a sharp writedown in their value and there are some good bargains to be had. On the downside, customers who already own a car will not get such good value for trade-ins, with some garages reported to be reluctant to take in any more second-hand cars.

Another problem that is surfacing in the industry is a marked increase in the number of cars being repossessed. Invariably, many of these cars also end up passing through the car auction houses.

Windsor's Mr Boland says the company is carrying out around double the number of repossessions of six months ago.

He suggests that a lot of people who would have ordinarily stayed in the second-hand car market may have pushed themselves a bit harder financially in order to buy a new car and then ended up in trouble.

Younger people buying their first car are believed to be particularly vulnerable to losing their new set of wheels.

"Many are young people starting off, forgetting they also have to tax and insure the vehicle, and who find they can't afford all this, says one source.

Others suggest that some would-be buyers do not fully understand the terms of their contract. Enticed in by cut-price offers - with some cars available for as little as £29 a week - they do not read the fine print carefully and run into trouble when hit with large "balloon" payments at a later date.

The financial institutions are unperturbed, however. AIB, which claims a 15 to 18 per cent share of the car finance market, says it has experienced no increase in repossessions. "It doesn't stack up with our experience," says Mr Mike Mansfield of AIB Finance and Leasing.

Others maintain that the increased number of repossessions simply reflects the increased volume of business they have been doing, and say there has been no underlying deterioration in their loan books.

"It might look like repossessions are up, but it's linked to the volumes of business being done at the moment," a Bank of Ireland spokesman said. "There are no blips in the system. Lending is buoyant and strong."

GE Woodchester, the largest player in the car finance market, is also sanguine. "We don't have a particular problem with the level of repossessions. They have gone up, but in proportion with sales," a spokesman said.