Threat to car sales from no-deal Brexit

By Pádraig Hoare

A no-deal Brexit scenario would add further pressure to car sales which are already seeing a huge rise in imports from the UK due to the fall in sterling.

That is according to foreign exchange firm Fexco, who said Irish car dealers increased their spending on vehicles imported from the UK by a fifth during the first half of 2018 compared with the same time in 2017.

Fexco head of dealing, David Lamb said: “A no-deal Brexit would likely see a significant weakening in sterling, potentially back towards last year’s highs.

“That’s going to make UK goods, including cars, cheaper for people in Ireland and so could mean we see an increase in this trend of Irish car dealers importing from the UK.”

Sterling weakened to beyond 93p against the euro in August last year, the lowest level since 2009.

Spending on UK imports by Irish car dealers and individuals combined rose 14% in the first six months of 2018 compared to the same period last year.

Compared to the six months before the Brexit vote, the combined spend of individual motorists and Irish car dealers is up by two thirds, Fexco said.

Figures from the Society of the Irish Motor Industry (SIMI) show 49,971 used cars were imported from the UK in the first half of 2018, a 12% increase on the same period last year — while they are up 64% from the months before the 2016 referendum.

Mr Lamb said that sterling could rise in the coming weeks with the UK widely expected to raise interest rates in August.

“That means Irish buyers planning to import a car from the UK may want to lock in the current favourable exchange rate by using a forward contract,” he said.

The increase of cars imported from the UK has also put the personal contract plan (PCP) market into focus.

Central Bank economists have warned of the potential for some PCP cars to enter negative equity as second-hand values are dragged down by the influx of UK cars.

Banks are exposed to the €1.5bn PCP car market if prices in the second-hand market were to dive further, a report from the watchdog’s Martina Sherman, Tiernan Heffernan, and Bryan Cullen said earlier this year.

Negative equity may be of particular concern in the Irish market, given the post-Brexit fall in the value of sterling, the report said — potentially reducing the prices of used cars in the future and pushing existing PCP contracts towards negative equity.

At the end of 2017, there were 126,249 PCP agreements worth €1.5bn — that is up from around 14,000 six years ago.

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