Flood of second-hand cars slashing resale values

The influx of bargain second-hand imported cars has caused new cars purchased locally to lose up to half their value in just two years.

Car agents told The Times Business that owners attempting to trade in their old cars for new models were shocked when they or their affiliate dealers informed them that cars only 24 months old have depreciated by 18 to 50 per cent.

The new registration tax regime which came into force in January coupled with a weakened sterling has spurred a flood of second-hand, mostly high value, bargain imports from the UK. Second-hand car dealers and individual buyers are now venturing across northern Europe in search of a good buy.

The rush for second-hand imports has kept clients away from showrooms and agents say new car sales are currently only being driven by brand loyalty. Meanwhile, one agent said the slowdown has forced it to lay off some workshop staff and to review associate operations.

Malta's car agents employ around 800 people.

"Depreciation is calculated at actual cost," an agent explained. "Second-hand cars are only valued at what they will fetch on the market in this new scenario. High value cars are being brought to Malta at a fraction of what they used to be worth on the local market. That has dented the value of cars at the lower end of the scale."

Describing the new car business environment as "challenging", the importer said that unless the ‘haemorrhage' that has been created by the authorities when the new legislation was enacted is addressed, there could be serious consequences.

"Measures need to be taken quickly," he warned. "Everywhere else in the world, governments have implemented eco-incentives or scrappage schemes to motivate consumers to buy new cars. Maltese agents and the manufacturers would support a well-devised government initiative by offering incentives."

His sentiments were echoed by another car importer who said his company would willingly support a "buy new" scheme. The importer confirmed that his company was seeing CVs submitted by workshop staff looking for work increase over the past few weeks. Many clients enquiring about trade-ins were opting to keep their cars for longer rather than losing thousands of euros.

"We are not seeing a bright future for the new car market," he said. "On the whole, our sales have thankfully kept last year's pace only because of the badge we represent. Our closest competitor has fallen behind by 300 new car sales. It is not healthy. We have lost sales on the saloons, but we are starting to see second-hand hatchbacks and MPVs being imported, which is worrying."

Admittedly, consumers do stand to gain from the new scenario as agents slash prices on entire ranges by thousands and attractive offers on new cars are launched more often than ever before. The agents the situation is unsustainable.

"The new car market is managing by crisis," the importer warned. "Agents have to adhere to legislation and stringent manufacturer standards in every aspect of their operation. That's besides the millions of euros invested in new showrooms to offer better customer care. Fewer new car sales affect a workshop. Typically, owners only have their cars serviced at agents' workshop until the warranty expires. Workshop staff is being affected, but sales staff could be let go by some agents if the situation worsens."

Meanwhile, the second-hand imports issue has also affected insurers who have been faced with a challenging balancing act: establishing the value of second-hand luxury cars bought for a song which still incur expensive repair costs.