DoneDeal Car Price Index: Car price inflation continues to defy expectations
Car price inflation continues to rise to unprecedented levels with Q3 inflation at 3.5%, an increase from 3.1% in Q2.
DoneDeal’s Motor Price Index is the result of independent third Party economic analysis of DoneDeal’s data by economist Tom Gillespie.
What's the current inflation situation in Ireland?
As we approach the end of 2022, the used car market in Ireland continues to be affected by an imbalance in the supply and demand for cars. Between the onset of the pandemic and March of this year, the quarterly rate of inflation averaged at 5.6%, and now stands at 67% comparing March 2020 to September 2022. In Q1 of 2022 the quarterly inflation rate for used cars was 7.4%, reflecting strong demand and severely constrained supply. In Q2, this dropped to 3.1% as consumer demand became subdued due to the uncertainty in the macro economy and the onset of the cost-of-living crisis.
The slowdown in price inflation in Q2 would give an expectation that prices of used cars may be peaking. However, this doesn’t seem to be the case as the quarterly price inflation for Q3 stands at 3.5%, a slight increase on Q2. For context, a ‘normal’ rate of inflation – the average rate in the years 2018 and 2019, for example - would be 0.8%. What then is maintaining this level of inflation?
An in-depth analysis of ad view trends on DoneDeal gives an insight into consumer demand over the past two years and sheds light on the reason for the continued growth in prices. Between June and December 2021 growth in demand was significant, increasing by an average of 3% per month. This peaked over the winter and started to fall from March to July of this year.
However, just when it seemed that prices showed signs of peaking at the end of Q2, demand for used cars jumped by 5.8% between July and September. A demand spike leading up to September is typically associated with the return to school/college period and the increased need for modes of transport that comes with it.
However, this time the sharp increase in demand in the past 2 months has been coupled with a slight recovery of stock: total imports and new registrations for August and September are up 36% and 42%, respectively, compared to the same months in 2021 (SIMI). This increase in stock levels is also apparent in the DoneDeal data: The number of active car listings on DoneDeal was up 7.4% when comparing September 1st to July 1st of this year.
As has been the case in previous quarters, the inflation in used car prices has been primarily driven by the lower end of the market. The quarterly rate of inflation for cars below €6,000, is at 6.4%, almost double the 3.3% rate of inflation in the upper end of the market (> €20,000).
The amount of older cars being imported into Ireland has increased
The shortage of new car registrations between 2010 & 2014, means that replenishing the stock of cars in the lower end of the market can only come from overseas. However, this is costly, since older, cheaper cars are generally higher in carbon dioxide emissions and therefore subject to more stringent emissions tariffs. Despite these barriers to imports on older cars, the share of imported cars from the UK greater than 6 years old has grown from 15.7% in Q3 2021 to 24.7% in Q3 2022 (SIMI).
Such is the level of price inflation in the lower end of the used car market in Ireland, the emissions tariffs
are not deterring the importation of older, higher emission cars. In a classic example of the law of unintended consequences, the increased tariffs on imports has led to cars becoming less affordable, and the remaining stock of used cars higher in emissions.
What does this mean for the electric car market?
Despite the increase of older cars being imported into Ireland, when we look at the total amount of stock entering the Irish market (new registrations and imports together), this cohort of cars are lower in emissions on average and as a whole. Analysis of the CO2 classification of cars shows that the total stock of new and imported cars in the first half of 2022 was 17.3% lower in average emissions when compared to the stock of cars that entered the market in the first half of 2021.
The reason for this is that the dramatic rise in new EVs and hybrids is offsetting the older cars that are being imported into the country. Electric vehicles accounted for 16.7% of new car registrations in Q3, compared to 9.5% in Q3 2021 and just 5.5% in Q3 2020.
Despite the encouraging rise in new EV sales, it is unlikely that Ireland will reach its EV targets for 2030 without a significant increase in the number of used EVs in the market. The dramatic increase in the share of new EVs hasn’t translated into the second hand car market yet, with EVs accounting for less than 1% of the used car market, a figure that hasn’t shown much sign of increase in recent months.
This tight supply coupled with strong demand for used EVs has resulted in a quarterly inflation rate of 8.3% in Q3, the highest quarterly rate of inflation for EVs so far seen in the DoneDeal price index.
Car Price inflation - Real world indicative examples
We took a sample of cars with different age and value profiles to better illustrate what car values might look like for buyers and sellers in the market today.
Summary Price inflation by car price cohort
While overall price inflation for mid range cars rose by 3.9%, we can see different levels of inflation in the higher and lower end of the market.
DoneDeal is the largest car marketplace in Ireland, listing 9 out of 10 cars advertised online from car dealerships in Ireland. Economist Tom Gillespie analysed over 5m of DoneDeal’s vehicle listings from 2011-2022 using hedonic regression analysis to isolate pricing inflation associated with vehicles after controlling for mileage, age, and other vehicle attributes.