Price Inflation Slows to Pre-Pandemic Levels in Q2
Since the beginning of the pandemic the used car market in Ireland and in many other countries around the world have experienced unprecedented price inflation. Last year we saw tantilising signs that this acute inflationary period might be coming to an end. In the past year quarterly price inflation has ebbed and flowed as a result of macro-economic shocks and typical seasonal fluctuations, but in Q2 2023, quarterly price inflation dropped to 0.9%, its lowest level of since the beginning of the pandemic.
Slowdown in demand pre-registration change is somewhat typical, albeit more pronounced at the end of the year. The second quarter of 2023 price inflation slowed to 0.9% down from a high of 8% in Q3 of 2021. Although quarterly price inflation can be quite cyclical, the rate of annual inflation has slowed to 10.7% Year-on-Year, (down from 26.6% in Q2 2022) the lo
west rate of annual inflation since Q1 2020, just at the onset of the pandemic. For context, the average annual rate of price inflation pre pandemic was just 2.7%. The recent slowdown in inflation notwithstanding, prices are still 79% above pre-pandemic levels.
Using ad view metrics as an indicative measure of demand allows us to look behind the scenes at these price movements. After a 14% spike in demand in Q1 2023, typical at the beginning of the year, a 9.7% decrease in demand was observed in Q2 2023. This was coupled with a 7.7% increase in the stock of used cars on DoneDeal and hence had a stabalising effect on prices. The rebounding of supply and a stabalising of prices is encouraging from an affordability perspective.
The market for new cars in Ireland is also growing. The cooling of supply chain issues in the motor production industry has led to reduced wait times for new models. In Q2 of 2023, 19,440 new cars were registered, representing an increase of 27.4% compared to the same period a year ago (SIMI).
Imports also increased slightly by 0.7% compared to the same period last year to a total of 12,553 in Q2 2023 (the second quarter in a row of year on year increase in imports after a steep decline since the beginning of 2020). The share of used cars being imported from the UK fell to a new low of 28.8%, this is in stark contrast to Q1 of 2020, when the share of all imported used cars coming from the UK was 93.6%. Overall, used car imports to Ireland are down 52.3% in the first 3 months of 2023 when compared to the first three months of 2019.
The share of new EV registrations continues to grow in 2023. In Q2 2023, 5,009 new EVs were registered in Ireland, representing a 127% increase compared to the same period last year.
EVs and hybrid cars now account for 51.3% of new cars registered in Ireland, this compares to just 18% in 2020 and 6.2% in 2018 (SIMI). The number of new EVs has grown considerably in Ireland in the past few years from just 1,233 in 2018, to 4,013 in 2020, and then 15,676 in 2022. This recent increase in EVs is quickly translating into the used car market.
In the first half of 2023, we are beginning to see a larger number of EVs and hybrids entering the secondhand market. Q1 of 2023 saw a tripling of the number of used EVs listed on DoneDeal in comparison to the previous quarter (roughly 1,500 compared to just over 500 in Q4 of 2022), in Q2 this increased again to over 1,700 listings. Whereas still only a small percentage of the share of cars listed on DoneDeal (2.2%), it is a large increase from the same period one year ago when EVs accounted for just 0.7% of used cars listed on DoneDeal. Prices for used EVs dropped sharply by 4.7% in Q2, the largest price drop in any part of the Irish used car market since well before the pandemic. The transitional supply shock of new EVs to the used car market can go some way to explaining this price drop, but also, the grant for new EVs is due to be lowered in July, making a purchase of a new EV more attractive than a secondhand equivalent. As EVs become more plentiful in the used car market they will become more affordable, encouraging more people to switch to a cleaner method of transport.
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 2011-2023 using hedonic regression analysis to isolate pricing inflation associated with vehicles after controlling for mileage, age, and other vehicle attributes.