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DoneDeal's Car Price Index: A car losing value as soon as it rolls off the forecourt? Not today.

Is your car worth more now than when you bought it? DoneDeal's Motor Report, authored by economist Dr. Tom Gillespie, has developed a comprehensive used car price index and finds that it could be.

Of the numerous economic phenomena that have emerged in the past year, the behaviour of the used car market is surely one of the strangest. Until the outbreak of covid19, the depreciation of a car's value was as much a certainty as death and taxes. However, in today's Irish market there is a reasonable chance that if you bought a used car this time last year it will be worth more now - even with the increased mileage on the odometer.


According to the newly developed used car price index based on DoneDeal's uniquely large dataset, used car prices have increased by 40% in the year from June to June 2021 – everything else being equal. This increase in prices has out-weighed depreciation rates for many car models.

If you Index back to the 1st January 2017 inflation is higher still at 57%.


As with most economic phenomena, the explanation for this unprecedented price growth boils down to both supply and demand. On the supply side, both the disruption to the production of raw materials and parts and even the Suez Canal blockage has led to longer waiting lists for new cars. In particular, a global shortage of semiconductors, a culmination of cold weather in Texas, droughts in Taiwan, and plant fires in Japan has meant a slowdown in new car production for many brands. As a result, consumers are turning to second-hand cars.

Although the pandemic-induced supply shock has affected most car markets globally, Ireland's case is exacerbated due to the compounding effect of Brexit. New barriers to trade have disrupted the regular flow of UK used cars into the Irish market. Imported used car registrations are declining fast from a peak of 110,000 per year in 2019 to about 80,000 in 2020, and – with only 30,000 registered so far in 2021 – this year may see only half the 2019 number of used cars being imported into Ireland.

On top of this, the boom in new car registrations from the Celtic Tiger years, peaking in 2006 & 2007 is now quite far in the past, and as a result the stock of those cars, at almost 15 years of age, is starting to fall off Irish roads. Nearly 670,000 new cars were registered between 2005 and 2008, compared to just 300,000 in the following four years 2009-2012 and – if 15 years is the life span for the typical car – the retirement of Celtic Tiger-era cars is also putting pressure on overall car market supply.


On the demand side, the pandemic has increased the reliance on cars. For example, people moving out of cities are necessarily more reliant on cars as public transport is less developed and operating at a reduced capacity due to restrictions.


Demand for Car rental reduced significantly when the pandemic began, forcing many car hire firms to sell off their stock sitting idle on their lots. Due to the worldwide shortage of semi-conductors, car manufacturers have been unable to expand production fast enough to meet demand from a reviving car rental business.


But perhaps the more important demand-side factor is the reallocation of income. While unemployment has scarred certain sectors and cohorts of society since March 2020, many others have seen their incomes unscathed. And with fewer options for spending – and almost no foreign travel last year – budgets for big-ticket items like a home or a car have increased. Enquiries on both new and used cars for sale on DoneDeal have increased significantly. Phone calls and emails sent to car dealers and sellers in 2021 grew by 20% vs 11% in 2019.


This report presents, for the first time, a reliable price index for used cars. It does this based on rigorous statistical analysis, using hedonic price regressions, of an extraordinarily rich dataset of over five million used car listings on DoneDeal since 2011.


Controlling for a wide range of car attributes, the year-on-year inflation in the price used cars in Ireland was 40.4% for the 12 months to June 2021. To contextualize how unusual this is, pre-covid, the highest year-on-year inflation was in May 2013 at 11.2%, with the average level of annual inflation since 2012 being just 4.3%. In-depth analysis shows that the average price inflation is being driven by the lower end of the market - with cars under €4,000 experiencing a rate of inflation of 104%. A possible driving factor in this is, as discussed earlier, the obsolescence of the boom-years stock of cars. While the upper end of the market – cars costing more than €20,000 – is experiencing a more modest level of inflation at 15%, it is nonetheless the largest annual price increase seen since 2012 in that price range.



Take for example a Volkswagen Golf bought last year: the same car today, a year older, and with 20,000 extra kilometres on the odometer, is, on average, 15% more expensive. But it’s not just this model. Similar findings apply to a range of household cars – from a BMW 3-series (14% up year-on-year) and a Ford Focus (11%) to a C-class Mercedes (8%).


Looking forward, as normal life resumes in our society, it is possible that the surging demand based on increased spending power may ease somewhat when public transport returns to regular capacity, and there are more opportunities to go on holidays and eat out, etc. However, if supply takes longer to catch up, this growth in prices may not reverse in the near term. In that scenario, cars may hold their value for longer.


Methodology

DoneDeal is the largest car marketplace in Ireland, listing 9 out of 10 cars advertised online from car dealerships in Ireland. Economist Tom Gillespie analyzed over 5m of DoneDeal’s vehicle listings from 2011-2021 using hedonic regression analysis to isolate pricing inflation associated with vehicles after controlling for mileage, age, and other vehicle attributes.


Looking for more consumer insight?

Separately to the economic analysis, we commissioned a survey of over 3,000 people. The insights are available in the full Motor Report PDF.



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