Harsh times for the Irish motor industry

Interesting times for the motor trade.

Its not often that people feel much sympathy for the motor industry in Ireland. Forums are often rife with people expressing frustration with their dealer experience. That said, like any industry there are the gents and also the cowboys, so a bit of research on your purchase can work wonders.

As the credit crunch tightens and the banks find themselves scrabbling for funds, dealers find themselves in uncharted territory. Instead of dealers competing with each other, a third entrant has appeared, the banks themselves.

Car consumers find that they cannot access credit from the banks, even with the help of a reputable motor dealer. The dealer then has no means of furnishing the consumer with their car of choice. At the same time banks are repossessing cars at a rapid pace, both from private users and insolvent dealers. Many of these cars are being funneled into the auction system to free up liquid cash to inject into the banks themselves.

There are negatives here for both the consumer and dealer. The consumer who wishes to trade up his 2006 car for a 2009 model finds himself presented with a number of problems:

Getting the finance, essentially the taps are turned off at the moment and any blip on a credit report can result in refusal of credit.

Residual value of the 2006 model has fallen, so the dealer must take this into account, so the trade-up price has risen, which feeds back into the calculations of point 1, increasing the chances of a refusal for credit.

If the customer wishes to sell their car privately prior to the 2009 purchase they will find the market a different place to 2006-2007. The level of repossessed cars going through auction has affected residual values to a large extend, essentially we have more cars than homes for them at the moment.

The private market is flooding with imports, this is one area which has seen no decline. So aside from trying to compete with other private sellers, the banks and motor dealers; the foreign purchase option is one to contend with also. Bottom line is reduction on residual value.

The Central statistics office has issued a number of interesting ( Scary! ) reports. Foremost amongst these is the new car registration data.

The thrust of the report is that new car registrations has plummeted over 63%. Simply put, that for every 3 new cars sold in January 2008 the industry has only sold 1 in January 2009. For the commercial vehicle sector, the figures are much worse, equating to 80% down. Imports have remained steady, but now account for nearly 50% of all vehicles sold. This means that for every new car retailed, a used one is imported.

These figures are unsustainable for the industry, something has to give. A move to a scrappage scheme by the end of the month is the first movement by the government to entice people to buy new cars. This is in the governments interest, as the drop in sales have caused havoc with their vat and vrt predictions.

While I may be a part of the industry, I'm not simply a cheerleader for it. Certain changes are necessary. A Question that I get asked regularly is why the price disparity between Ireland and the UK?.

The sterling fluctuation of late has played its part in pricing differences. Motor Distributors typically place their orders many months in advance and the import prices and currency is fixed. This has resulted in many Irish distributors buying in their vehicles at a price above what a UK dealer can retail at. This is currently changing though, as UK distributors are now paying more to restock due the weakness of sterling.

Wages are higher here, simply put we all get paid more for what we do than our UK counterparts, this however is changing....

Companies in general have much higher operating costs, in terms of council rates, insurance costs, electricity and water....the list is endless.

So what's going to happen?

Well I'm no fortune teller but its not looking good for the industry or the economy as a whole. Its highly probable the government will run out of money before many dealers will. In the current climate there are many high-end cars that offer exceptional value. Its never been a better time to be in the market for a performance car, however many car enthusiasts at the moment have lost their appetite for sports cars.

For those in the market for a car, currently there is a huge amount of choice amongst Irish dealers and sellers alike. The import route will remain strong while sterling remains weak. However, at the moment it might make sense to step back and have a look at that car your neighbour or local dealer is trying to shift. The money stays local and in circulation, which is really what is needed at the moment. The spin-off from the motor industry is massive, a weakness in any area of the economy has a ripple effect. Just look at how the construction industry is viewed now? . The fallout from the bust has impacted every area of our economy and will for years to come.

For more articles in relation to Trucks, vans and the commercial sector in Ireland please take a look at our archive here.

John F Murphy, Murphys Truck Centre, Ballymount, Clondalkin, D22.