Black Friday brought record-breaking sales this year, and most retailers are looking forward to the Christmas period to boost their coffers. It’s worth noting, though, that the motoring industry is slowing down at this time, rather than speeding up.
This is not just an Irish phenomenon. December has traditionally been a sluggish month for car sales, more so since the UK moved its car registrations to twice yearly, in March and September of each year.
Most new car dealers will be working overtime trying to secure orders for 181 registrations. Many these will be sold on Personal Contract Plans (PCP).
The PCP has been put forward by the motoring industry in the UK and latterly here in Ireland as the panacea for the painless purchase of cars. You can buy on a PCP using a small deposit, pay low monthly instalments and change every three years without penalty. Sounds great, right?
For those who do their research on this form of financing – for that is what it is – PCP can be the right answer to the question of how to fund their motoring needs for the next three years.
If, however, they sign on the dotted line without being fully aware of what they’re buying into, then disappointment and annoyance may be heading their way at the end of the three-year period.
The Competition and Consumer Protection Commission here in Ireland have a good explanation of what PCP involves. It may be interesting to note that they show four pros and six cons to this form of finance.
PCP was introduced in the UK for high-end sales about a decade ago and spread to the mass market within the last three or four years. It boosted sales enormously and increased the churn rate (i.e., how often customers changed cars) by some 30 percent. According to the Society of Motor Manufacturers and Traders, about 80 percent of new car sales in the UK are financed with a PCP. A lot of these cars are now beginning to come back onto the forecourts of the dealers who retailed them.
One of the main problems with using a PCP is that the dealer must guess or estimate the value of the car when it comes back at the end of the contract term. If the dealer got this wrong and the car is not worth what they expected it to be, then problems arise. This issue is particularly acute at the moment, in the unpredictable Brexit economy.
The buoyant market that helped push PCP in the UK may now be cooling down. Sales are down by almost 5 percent already, and there are indications that they will fall further. PCP itself has been getting a bad rap of late, as the British Financial Conduct Authority recently announced it was investigating the UK motor finance market due to concerns of “irresponsible lending”.
This is all shaping up to suggest a growing UK stock of three-year-old cars. When a glut occurs in the motoring market, resale values tend to fall.
How will these shifting buying patterns in the UK impact the Irish market?
Well, figures released by the Society of the Irish Motor Industry (SIMI) show that 91,189 new cars have been sold so far this year – a fall of 10 percent. Sales in June 2017 alone were down by 14 percent compared to last year.
However, figures for imported used cars are up considerably. According to Irish motor trade firm, Motorcheck.ie, 13,381 cars have been imported from the UK so far this year, a rise of some 41 per cent.
With falling demand and reduced values, we can look forward to seeing cheaper and more plentiful cars being available in the UK for import into Ireland – assuming that the advantageous exchange rate stays the same or even improves. Irish PCPs notwithstanding, this can only hit sales of new cars in Ireland further.
However, it’s not all doom and gloom for the industry, as sales in the fast-growing sector of electric vehicles (EV) are up 56%. Mind you, this still only accounted for 579 units sold.
It is my belief that the Irish motoring industry will have to look to the hybrid/EV models to increase their sales. As I mentioned last week, Toyota Ireland are enjoying a 128 percent sales increase across their hybrid range. Across Europe, Kia have seen a seven-fold increase in their sales of EVs. The public are moving, albeit slowly, in the electric direction.
In the meantime, those with a few bob to invest would do well to look at the ferry companies crossing the Irish sea – I think they’re going to have a busy 2018.