NEWS ANALYSIS: Repossessed and hire drive cars are adding to forecourt congestion, says Paddy Comyn
CAR DEALERS are facing increased congestion on their forecourts as a large number of hire drive vehicles are returning to dealerships at a time when forecourts are creaking with used car stock.
A total of 18,712 hire drive vehicles - which are cars supplied for the rental market - were registered from the period of January to September 2008, and now is the time when these vehicles return to the market to be sold as used cars.
Opel has the largest hire drive fleet in the market with 3,221 vehicles; followed by Toyota with 2,562; Nissan with 2,352; Ford with 2,293; and Volkswagen with 1,571. Together, these five brands account for 64.2 per cent of the hire drive market.
Now car dealers will be forced to add these returning vehicles to forecourts that are full of unused stock. Consultant to the motor industry Leon Wood, managing director of Total Sales Solutions, doesn't have much sympathy.
"In all the time I have been working in Ireland, many dealers have used the hire drives as a crutch for their sales business. They were encouraged to do so by the manufacturers and importers who just wanted vehicle registration figure to massage their egos.
"The way the business was set up it could only exist and be profitable as long as there was a healthy used-car market and credit was easy to acquire - as there are now problems in both these areas their will be concerns from all quarters."
Another reason for the huge amount of used cars available on the market right now is due to the increase in repossessed vehicles being returned by finance companies, as consumers struggle to meet repayments. David Byrne, managing director of Merlin Car Auctions, which sells 10,000 cars annually, has noticed a dramatic increase in the number of such vehicles turning up at auction.
"Up to 2006 repossessions accounted for between seven and 11 per cent of our business. That has increased to between 29 and 34 per cent of our overall business.
"There has been a huge change in the mix of vehicles coming for disposal at auction even between this year and last year.
"The average value last year was from €8,000-€9,000, and this year it has gone up to between €13,000 and €14,500."
Merlin deals with the major finance institutions and the collection departments of the bank arrange collection of the vehicle, be it a surrender or repossession.
The vehicle is then sent to auction and an engineer and a valuer then access the vehicle.
They then liaise with the officials in the bank and ascertain the maximum value than can be got from the sale of the car.
Despite this, is there still good value to be had for the consumer by buying one of these repossessed vehicles?
"We have noticed that the amount of private buyers we have has increased. In 2003, 6 per cent of our total sales were to private buyers; today our private buyers account for 40 per cent of our business. As these cars are still under warranty, there is less risk.
"On something like a 2008 Ford Focus, a customer might pay €23,000 for the car at a main dealer. At a public auction you might pay €18,000 or €19,000," says Byrne. The saving on larger cars can be even more - between €9,000 and €10,000 on executive cars. Auctions take place twice a week and customers are free to inspect cars beforehand with mechanics and even view engineers' reports on the vehicles.
Wood reckons the situation regarding repossession of vehicles will only get worse. "I think this will be a major problem in Ireland in the future as there were so many five-year finance deals taken out over the past few years.
"The banks and lending institutions were so blase about lending money for the purchase of cars and the dealers only ever had their self-interest at heart and were so happy to keep selling without taking into account the long-term problems of low equity.
"It doesn't take a maths genius to work out that any agreement taken out over such a long period to purchase a depreciating asset has to be wrong."
Wood predicts the decline in new car sales and the slowing down of the used-car market will see used-car values drop even lower in the coming months.
On the plus side, this is likely to mean a good deal for anyone buying a used car, as prices drop due to the vast amount of stock.
Organisations such as the Society of the Irish Motor Industry (SIMI) have launched high-profile campaigns to encourage buyers back into showrooms to avail of the bargains. But unless consumers can gain access to credit to buy these cars, dealers will face further financial headaches as they enter 2009.