Mercedes Ireland has warned that the new car market here is dysfunctional

According to a Mercedes Ireland executive, fake registering and not UK imports, is the greatest threat to the health of the new car market here.

Mercedes Ireland has said that Ireland could be heading for a major financial implosion and has indirectly criticised their major competitors for fanning the flames of what could be serious devaluations in used cars.

Ciaran Allen who is the sales manager of Motor Distributors Limited (MDL), a privately-owned importer for Mercedes-Benz cars in Ireland said that manufacturer-controlled operations are distorting the Irish new car market, and potentially laying the foundations for a major financial crunch for car buyers.

Formerly, MDL was a much bigger operation in Ireland with franchises for Volkswagen, Skoda, Audi, and Mazda but all of these have departed mainly in the past twenty years or so to be controlled by their own factory-backed Irish operations. The Mercedes executive went on to say at a Mercedes event in Wicklow:

“If you had asked most people, they would say that the biggest threat to the Irish car market is the Sterling exchange rate, and the level of imported cars”

“We would say that the greatest threat to the industry is actually the levels of pre-registering and hire-drive sales, which are effectively the major factory-backed operations paying their dealers to inflate the market.”

It would seem that instances of last-day-of-the-month sales are rising, and making up an ever-growing proportion of total market sales. Last-day sales are often inferred to be pre-registered cars, or cars sold by importers and dealers to themselves in order to inflate sales figures, gain market share, and reach sales figures that generate bonus payments for them. Mr Allen went on to say:

“We are a private company, and we have to live in the real world”

“You will not beat the laws of supply and demand, and what you’re looking at are failing businesses - it’s just that they’re kicking the can of that failure down the road.”

Mercedes figures reveal that new car sales are mostly being taken up by pre-registered cars and bulk hire-drive sales, which are cars sold at massive discounts to car hire firms.

Those figures seem to show that in January of this year, usually seen as the key buying month for new cars in Ireland, as much as 22 per cent of the total sales figure was taken up by sales in the last three days of the month. For February, March, and April, that figure seemed to expand to more than 40 per cent of sales.

The figures show the rising tide of cheap UK imports, and on the other hand, dealers and distributors selling cars to themselves to generate volume figures - cars which then have to be sold on at a massive discount, further distorting values.

This further puts pressure on used car values, which could present serious problems for those dealers which have guaranteed the future value of cars sold on Personal Contract Purchase, or PCP plans.

“Five years ago, we spoke of a business model built on a house of cards. Now that house is higher, and more unstable. In the financial crash of 2008, people were wondering how someone with a €30,000 salary could get a €3-million mortgage. Well, this time around they’re going to be asking how you can have some car brands registering 600 to 800 cars on the last day of a month’s trading, and that can be considered normal business. This reckless trading is the most consistent threat to the car industry.”

A collapse in used car values has been predicted for some time now and some even wonder if this will trigger a general economic downturn in the motor sector. In the United States, there is certainly concerns being raised over multi-trillion dollar debt in the car market but Ireland’s credit-based car sales do not really have the sheer volume for that kind of effect.

Individual buyers will most likely take an eventual hit though, as the resale values start to slide, and dealers working on narrow margins may well find the banks from which they have borrowed tapping on the windows.

The larger manufacturer-backed importers can rely on the global muscle of their parent firms to weather any storms but smaller companies. MDL’s smaller, local structure means that it simply cannot compete with the pre-registering power of the big companies.

Mercedes is currently batting above its weight in Ireland, with Allen claiming that, if you strip out the hire-drive element, the brand is outselling both BMW and Audi, and plans further expansion (and some price cuts) in 2018. His biggest worry remains the state of the market in Ireland.

“If a country has a population of four-million people and a car market of, for argument’s sake, 100,000 and you’re trying to artificially push that volume to 150,000 - well, that can’t go on for ever”

“When the market is jumping up at rates of 20 per cent or more, then it can absorb that kind of sales dumping. But now we are starting to see those actions coming home to roost.”

Author

Justin Kavanagh
Justin Kavanagh is a recognised leader in automotive intelligence and vehicle data supply to the entire motor industry. He has almost 20 years experience in building systems from the ground up. As the Managing Director of Vehicle Management System, he understands the need and importance of trustworthy and reliable vehicle history and advice to both the trade and the public.
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