More people are investing in smaller, cost-effective, second-hand cars in the face of the economic downturn, reveals Donal Byrne
WHILE MOST car dealers concede that the value of second-hand cars has fallen by between 15 and 20 per cent in the last few months, many also acknowledge that it is not just the top end of the market that has suffered.
Those segments of the market with over-supply, such as the medium/family segment, are also in a state of flux. "Most of the action we are seeing now is in the smaller car market, with values between €5,000 and €10,000," says Dublin Fiat and Kia dealer, Michael Barrable.
Mick Corless of Airport Used Cars, which normally sells about 1,250 used cars a year on Dublin's northside, says people have lost confidence. "I don't see anyone eating Marieta biscuits these days, but all the bad news that is coming out means people are less inclined to spend." The difficulties in selling many popular medium-sized cars include over-supply of cars, the economic downturn, a drift towards diesel models and, often, the replacement of highly successful models with new versions.
One optimistic private owner is currently hoping to sell an old model Ford Mondeo 2-litre diesel with 60,000 kilometres on the clock for €18,500.
In the trade, a car like that is worth about €12,000, according to one dealer. Even allowing for a €2,000 profit on re-sale, it shows the asking price is about €4,500 over the actual worth of the car.
In our latest Merrion Fleet Management analysis, the move towards diesel engines is reflected in the assessment of residual values. "Diesel vehicles have lower maintenance costs and are more fuel-efficient. Some companies are now moving over exclusively to diesel because with the majority of the cars we looked at, the diesel is more cost-effective to run. The difference is even greater for companies that can re-claim VAT on fuel," says Merrion's David Wilkinson.
When a new model of a popular car is due out, the effect on second-hand values is almost instantaneous. In what is known in the trade as a "run-out" period for a model to be replaced, heavy discounting is common and there are usually lots of offers from dealers. Toyota is currently discounting its Avensis model, which is due to be replaced next year, and the value of Opel Vectras have fallen significantly because the car has been discontinued and will be replaced later this year by the Insignia.
"The impact of a new model can have varying impacts. If you buy a run-out model, you will be trying to sell a very old model in a few years time. But if you intend to keep it for several years, then you might be getting a bargain. All cars do go down in the run-up to a replacement, some more than others. It can be difficult to gauge. For instance, the new Opel will not be a Vectra but a totally new car, we understand," says Wilkinson.
Residual values, as reflected in these figures from Merrion, are, according to Merrion, a market forecast. "We base our residuals on current market information and our experience of the used-car market. Our figures show the residual value, after three years, can have the biggest impact on the whole life cost of the vehicle. Residual values are at their strongest when a new car has just been launched and then they reduce based on the car's lifecycle," says Wilkinson.
Merrion has not included the Opel Vectra in these figures on the basis that production has finished. One final word of warning: fleet cars are sold back into the trade and sold on again, so don't expect to pick up a car for the residual values quoted here.
The figures do, however, give a good indication of what a car is worth after three years and therefore what value your dealer places on it.