Why are used cars increasing in price?

The cost of living has been steadily increasing over the past year as world economies try to recover from the adverse effects of the pandemic. With inflation at its highest level in over 20 years, many Irish consumers are reviewing their everyday expenses to cut costs. 

Whether it’s switching energy provider or shopping around for cheaper car insurance, there are many ways to save. 

Those looking to purchase a car may be considering a second-hand vehicle in the hope of spending less. However, purchasing a used car may no longer offer the financial relief it once did. 

An unforeseen jump in prices

According to a new report from online marketplace DoneDeal, used car prices have soared by 56% on average over the last two years.

During the final quarter of 2021 used car prices rose by 7.7% alone, marking the second-highest quarterly price rise since 2011. This begs the question - why are used cars increasing so much in price? 

Here we take a look at the main reasons that have resulted in a perfect storm for used car inflation.

1. Increased demand and lack of supply

There’s no doubt that there’s a pent-up demand for used cars, but unfortunately, the supply isn’t there.

There used to be an abundance of used cars on the Irish market due to the surplus left over from the Celtic Tiger years, but this cohort of ageing cars is quickly becoming obsolete.

An earlier DoneDeal report shows that between 2005 and 2008, almost 670,000 new cars were registered. This compares to just 300,000 between 2009 and 2012. If the average car’s lifespan is 15 years, this means that these Celtic Tiger cars are reaching their end-of-life stage. 

A stark contrast to pre-pandemic levels

Since the beginning of the pandemic, there’s been an 83% rate of price inflation in cars below the value of €3,000. More expensive cars, worth at least €13,000, only experienced a 30% rate of price inflation during the same period.

However, the price gap between new and second-hand cars is tightening. According to the DoneDeal report, in some rare cases, used cars are being listed for more than their new counterparts. 

In order to bring prices back to ‘normal’, pre-pandemic levels, there needs to be approximately an additional 110,000 cars in the Irish market.

Due to the shortage, consumers who are looking to trade in their old cars have stronger bargaining chips as car dealers struggle to preserve their depleting inventories.

2. Brexit

The UK's official exit from the EU in January 2020, has had a knock-on effect on Ireland’s second-hand car industry. With Irish consumers now facing new import fees and complicated declaration forms, the ease and appeal of importing a car from Britain has dropped dramatically.

According to Dr Tom Gillespie in the recent DoneDeal report, the figures for used car imports between 2019-2021 stood at: 

• 108,000 cars imported from the UK in 2019, prior to the onset of Brexit and the pandemic
• 74,900 imported from the UK in 2020
• 47,034 imported from the UK in 2021

This staggering 56% decline in used car imports from the UK since 2019, has exacerbated the car shortage in Ireland. It has forced Irish vendors to look further afield in an attempt to make up for the deficit caused by Brexit. 

Is it still worthwhile importing a car from the UK?

Before Brexit, the UK was the first stop for Irish drivers looking to import a car. With no customs duty, or VAT (depending on the age of the car), along with a generous exchange rate, Irish consumers were able to reduce the costs of their used car purchase. 

However, with the onslaught of Brexit, that is no longer the case. Those looking to import a car from the UK will now be subject to:

• VAT at the current standard rate (23%)
• Vehicle Registration Tax (VRT) and NOx
• Customs duty (10% if your car is not classed as UK in origin) 
• A customs declaration
• Shipping costs

These new costs show that the once guaranteed savings previously promised by importing a car from the UK are no longer a reality. 

Unfortunately, as a result of the pandemic, the reliance on car usage has increased and demand has only strengthened. Without a steady stream of used cars arriving from the UK to Ireland, Irish dealerships have opted to import European cars from Japan due to their low price. 

As a result, the number of cars imported from Japan has doubled from 3,243 in 2019 to 9,805 in 2021.

The decline of used cars entering Ireland from our nearest neighbour and increased costs associated with importing have heavily contributed to the inflation in the Irish motor industry. 

3. Shortage of semiconductor microchips

The car shortage isn’t exclusive to Ireland, in fact, it’s a global issue. The production of new cars worldwide has been significantly impacted by an ongoing shortage of semiconductor chips. 

In the technologically advanced cars manufactured today, semiconductors play a huge role by aiding vehicle electrification. They’re used for sensing, safety features and displays.

Despite soaring demand from consumers for new cars, waiting lists have increased due to the slowdown in production due to the knock-on effects of the semiconductor chip shortage.

These longer lead times have resulted in more consumers turning to the used car market, which we know has offered little in the way of relief. Subsequently, this has increased the pressure on the used car market, pushing demand up and further aiding inflation.

This microchip shortage doesn’t just affect the motor industry. You may have noticed the lack of PS5 and Xbox Series X games consoles, or other electronics available recently. Shifting business models in the semiconductor industry have created supply chain bottlenecks.

Why is there a shortage of semiconductor chips?

• Scaling back: At the beginning of the Covid-19 pandemic, many car manufacturers cancelled or cut back on their orders, as they assumed their production would be stunted.
• Focus on electronics: Due to the boom in demand for consumer electronics, such as laptops and tablets, tech companies placed large orders for chips during the pandemic. Chip manufacturers retooled their plants to produce chips for consumer items instead of automobiles. 
• Demand increases: As the demand for high-end cars increased, the production of new cars ramped up again in late 2020. However, there was a lack of semiconductor chips, as they weren’t being manufactured for vehicles. The fact that newer cars with more automation require more chips has further increased the shortage.

Due to the chip shortage, car manufacturers have had to move away from their just-in-time production model and instead focus on prioritising certain models to allocate scarce microchips. 

How long will this shortage last?

It’s difficult to say exactly, but this semiconductor shortage will likely last well into 2022, as chip manufacturers struggle to catch up with this unprecedented demand. 

Save on car insurance on bonkers.ie

If you’re in the market for a used car, you may end up paying more than you would have pre-pandemic. However, that doesn’t mean you have to pay more for your car insurance too.

We recently launched our new car insurance service here at bonkers.ie. You can now save on your annual premium by getting a direct, discount rate from car insurers through our website. 

Head over to our car insurance page to get a quote, or take a look at our guide which outlines how to use our car insurance service in just six simple steps.

Did you know that you can also save on a variety of other bills on bonkers.ie? Our easy-to-use comparison tools let you compare prices and deals for energy, broadband, banking products and other types of insurance. Take control of your bills and see how much you could save today! 

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