DoneDeal Car Price Index: Prices are now 63.7% more than they were before the pandemic
Car price Inflation still happening but the rate of inflation is slowing, showing signs of price stabilisation in the market.
Since the start of the pandemic in March 2020, both supply and demand for cars in Ireland has been hit with numerous and unprecedented shocks. Brexit and global component shortages hit supply hard, coupled with increased demand from pandemic savings, both acted to make prices rise at rates never before documented in Ireland.
"Although price increases are slowing down for more expensive combustion engine cars, EVs and hybrids (both accounting for 12.5% of cars in the upper end of the market), which are generally positioned in that price range, are still experiencing unwavering price growth."
Dr. Tom Gillespie, DoneDeal's Car Price Index.
In the 2 years since the pandemic began, prices rose consecutively by an average of 5.9% per quarter. In the 2 years prior to the pandemic, the average quarterly rate of inflation was just 0.8%. As of Q2 2022, prices are now 63.7% more than they were just before the onset of Covid-19.
If the used car market can be thought of as a sign of things to come, then it surely acted as the canary in the coalmine for inflation in the wider economy. As inflation bites in the wider economy, the cost of living coupled with increased interest rates has subdued demand.
An analysis of demand related metrics on DoneDeal indicates that car demand is down 2.4% year on year but still 12.4% above pre pandemic levels. On the supply side, although the deficit for new cars is still very acute when compared to pre-pandemic levels (-19% vs 2019 for the first 6 months of the year), year-on-year it is up slightly at 2.1% for the first 6 months.
However, used car imports are down 32.6% for the year to date, compared to the same time period last year (SIMI). This new balance between supply and demand has meant that the rate of price inflation has slowed somewhat to 3.9% in Q2 2022, thus giving signs that the price volatility in the overall market for used cars might at last be stabilising.
This absolute average rate of inflation masks the dichotomy between the two ends of the car market. When we look at the equivalent figures for the lower end of the market, cars worth €6,000 or less, the quarterly rate of inflation is 7.3%, broadly in line with the average quarterly inflation of 8% over the past two years.
This consistent and considerable post-pandemic quarterly inflation in cheaper cars means that prices are now 96.9% higher than just before the pandemic. On the other end of the spectrum, quarterly inflation for higher priced cars (cars more than €19,000), has slowed to 1.5% in the second quarter of 2022. This is down from a quarterly average of 4.5% in the past two years. The resulting post-pandemic inflation rate in the upper end of the market is now at 43.8%.
The contrast in rates of inflation come down to several factors. In the lower end of the market, supply has been really stretched. Celtic tiger year cars (2003 - 2008), of which there was once a major glut, are now quickly becoming obsolete. Replacing the needed supply of older cars is difficult, as they are generally higher in carbon dioxide emissions and therefore subject to more stringent emissions tariffs.
For a cohort of the population who can’t afford cleaner and more expensive cars, there will always be a necessity for cheaper cars. It is therefore likely that prices in the lower end of the market will continue to rise until cheaper car prices in the UK, plus tariffs, are competitive with the equilibrium level of prices in Ireland. From an emissions reduction perspective, this is problematic, as older cars generally emit considerably greater levels of CO2 and harmful particulates.
In the upper end of the market, there is a different story. Although price increases are slowing down for more expensive combustion engine cars, EVs and hybrids (both accounting for 12.5% of cars in the upper end of the market), which are generally positioned in that price range, are still experiencing unwavering price growth.
"The resale value of Electric Vehicles is no longer in doubt." Dr. Tom Gillespie, DoneDeal's Car Price Index.
Prices for used hybrid cars rose by 2.8% in Q2 2022, this is in line with the average quarterly rate of inflation since the pandemic of 2.8% also. EVs on the other hand experienced a quarterly rate of inflation in Q2 2022 of 6.6%, well above the post-pandemic quarterly average of 2.4%.
The strong demand and hence price growth in used EVs and hybrids is also reflected in the share of new car registrations. In the first half of 2021, EVs accounted for 6.8% of new cars in Ireland; in the first half of 2022, that figure almost doubled to 13%. Similarly with hybrids, where 25.2% of new cars in H1 2021 were hybrids, in the year to end of June 2022: 31%.