While the Irish car market suffers the turmoils of Brexit-induced imports, dealers and importers can assuage themselves with one fact; we’re now prepared to pay more for the cars that we do buy. In fact, we’re prepared to pay around €2,000 more per car, on average, than we were at the peak of pre-2008-financial-meltdown prices.
According to car history expert Cartell, Irish car buyers are now spending, on average, €30,130 on a car purchase, in the first six months of 2018. That number is based on the recommended open market selling price (OMSP) of each car, totalled, and divided by the number of vehicles sold. Imponderables such as discounts and sale events, optional extras, and rebates on VRT for electric and hybrid cars are stripped out.
The number is up from last year’s figures, which were €29,391 for the first six months, and €29,481 for 2017 as a whole.
By comparison, back in 2007, the last full year of sales before the banking crisis, the credit crunch, and the shrinking of the Irish car market down to Ant-Man proportions, we were spending an average of €28,106 on our cars. That fell, significantly, to €23,940 in 2010, which was the nadir for new car sales.
So why are we paying more, now?
Well, an economy that’s generally on the up helps (your mileage may vary, etc), but probably the biggest driver is the availability of cheap PCP credit. Personal Contract Purchase plans, in spite of the various warnings about them from such as the CCPC (Competition and Consumer Protection Commission) are hugely tempting because they defray part of the cost, and make the monthly repayments much cheaper, even if you’re buying quite a pricey car with lots of extras.
Other factors, such as the fact that a growth in population (from 4.23-million in 2006 to 4.76-million in 2016), could be playing into the rise. After all, if we’re having more kids, then we need bigger cars with more seats, reflected in growing sales for seven-seat SUV models, none of which are what you’d call cheap. The huge growth in SUV sales, and sales of premium cars, also affects the average.
On top of which, cars are becoming more expensive, in general. Not a lot more, perhaps, and car makers always keep an unloved basic model on hand to be able to display a more affordable base price, but the fact is that prices are swelling. A decade ago, a mid-spec VW Golf, for example, cost €22,000. That figure is now more like €25,000. Equally, the likes of a Ford Mondeo, which once retailed for €25,000 now start much closer to, or above, that €30,000 mark. Part of that is down to higher standard levels of equipment, especially when it comes to safety kit and touch-screen technology.
John Byrne of Cartell.ie said: "The buyer may be opting for more expensive cars owing to more readily available lines of credit or simply because buyers are keen to buy a larger car when fuel economy and motor taxation figures have dropped so significantly across the board."
This inflation in the average price paid, or more accurately the average price financed, will doubtless redouble calls for more prudence when it comes to car loans. According to Fergal O'Leary, member of the Competition and Consumer Protection Commission (CCPC): "PCPs are significant long-term financial commitments. Our recent report into the market showed that the average PCP agreement, in 2016, was valued at €25,000. The complexity of PCP products, coupled with the value of these agreements, means that it is extremely important that consumers are able to understand what they are signing up to. This can only happen when consumers understand their options and how the product works. Our campaign helps consumers in this regard and makes it easier to understand PCP agreements and to choose a financial agreement that is right for their circumstances."
According to the CCPC, many buyers looking at PCP as a finance option intend to roll the deal over when the time is up, and buy another car. Theoretically, every PCP deal leaves value in a car, over and above the cost of meeting the final payment, to act as a deposit for the next purchase, but; “the CCPC cautions consumers to be aware that there may not always be equity in an older car to cover the deposit on a new one.”
Equally, the Commission points out that if you intend to own the car outright at the end of the finance period, you need to pay as much attention to the cost of the final balancing payment, and how you will meet that, as you do to the monthly repayment amount. Equally, those thinking of handing back the car at the end of the loan, and walking away scott-free, need to remember that there are strict mileage and condition limits to which to stick.
“When you are buying a car there are many considerations to take into account such as makes, models and new versus second hand. For most consumers there is also an added question of what car finance to use. This decision requires careful consideration, however, our research shows that consumers spend less time researching finance options compared to the time spent choosing a car; on average four-and-a-half times longer” said O’Leary.
Similar warnings have been sounded in the UK market, where car sales are also significantly down this year, in spite of a temporary uptick in sales in April. Alex Buttle, director of car buying comparison website Motorway.co.uk, told The Irish Times that: "If households are in too deep with their borrowing and piling up a mountain of debt, then the car finance industry could end up being held responsible.
“We have seen an explosion in PCP car finance deals in the last few years, which has allowed consumers to buy more expensive cars with a small downpayment and low monthly payments. Due to attractive rates, consumers have been tempted to stretch themselves because unlike mortgages, a few hundreds pounds on a monthly car finance deal may not feel that much. But all these debts mount up, and although the car finance industry will be quick to point out that the boom in car finance is not the same as the irresponsible mortgage lending that triggered the 2008 credit crunch, the amount that has been lent in such a short space of time is concerning.”