Weak sterling a double-edged sword for used-car dealers

As the pound sterling continues to lose ground against the euro, car dealers are rushing to order cars from the UK as they relish the thought of saving some money, but they are also wary that the cars bought from the UK before Brexit could be difficult to sell at a profit.

The weakening of the pound sterling (GBP) in the wake of the UK’s decision to leave the EU, has come as a mixed blessing for local auto dealers that import used cars from the UK.

Dealers of second-hand cars in Malta source their stock either locally or import them directly, mainly from Japan or the UK.

And while a weak sterling now means paying less (in euros) when buying cars from the UK, it has also resulted in a considerable devaluation of the cars car dealers had already imported from the UK in a pre-Brexit economy.

The fluctuations in the UK financial markets since 24 June, when the results of the UK’s EU referendum were announced, have led to sterling losing 10% of its value against the euro in two weeks, trading at €1.17 on Friday, down from €1.31 on the day of the referendum.

Some analysts expect the pound sterling to weaken against the euro by as much as 25%. The increasing strength of the euro is likely to make the idea of buying a car and importing it from the UK even more appealing to Maltese motorists. 

But this also means that car dealers will have to absorb that loss themselves on UK cars they already had in stock, or risk not being able to sell them on.

Mark at Regina Auto Dealers told MaltaToday that the devaluation of the UK cars they had in stock was their biggest concern following Brexit and the weakening of sterling.

“We have one of Malta’s largest showrooms, and we purchase a lot of cars from the UK, to add to our stock of cars sourced locally or from Japan,” he said.

“With this loss in the value of sterling, we will have to reduce the price of the cars we already had in stock to match the current market prices, and that will mean selling the cars at no, or little, profit.”

He explained that, as a dealership, they did not wait for confirmed orders before purchasing cars from the UK, although they did take custom orders when necessary.

“We import cars from the UK regularly, every month, and although we did not increase our orders since the Brexit vote, we have not yet seen a substantial increase in demand or interest, although it is there.”

But anyone who had been mulling purchasing a UK used car would – or should – be seriously considering acting now while sterling is so weak and before it starts to recoup its loss against the euro.

As to the most common cars in demand, Mark said hatchbacks remained the clear favourites, although it was always difficult to predict demand and momentary trends.

“Just last week, out of the blue, we sold in one morning three seven-seaters that had been on display in our showroom for around three months,” he said, as an example of how unpredictable the market could be.

And as more and more car dealers opened shop and offered UK imports for sale, major players need to keep their head in the game if they are to hold on to their share of the market.

“Besides choosing quality cars that we can sell at a great value, we also pay particular importance to the vehicle’s mileage and only import cars that are guaranteed and confirmed to have a low mileage,” Mark said.

Ron Micallef at Autobahn Limited concurred and said that they had already registered an increase in demand for cars imported from the UK.

“The weak sterling is leading people to order now, and we have already seen an increase in firm orders since the vote in the UK,” he said.

Other car dealers confirmed this trend; people were realising they could be in for a deal if they profited now from a weak sterling to get a car from the UK.

Added to the reduction on the cost of the vehicle itself are also gains to be made on the fees for transport, haulage and any testing needed to ship vehicles purchased from the UK.

These alone could add up to a couple of hundred euros in savings for customers.

So as buyers and, to an extent, dealers consider the weakening of sterling a blessing, many dealers remain worried that the longer sterling takes to recover against the euro, the less chance they’ll have of selling their pre-Brexit stock any time soon.

Used car imports are kings of the road

User car registrations have firmly overtaken new car imports, as Malta’s automotive sector becomes evermore highly competitive.

Data from the National Statistics Office shows that the used car import market has grown substantially over the past decade, inundated with UK imports at the expense of new cars.

In 2015, the registration of used cars totalled 9,656 – up 7.6% over 2015 – while new vehicles totalled 7,121, increasing by 10.4% over a year earlier.

The changing market for car imports has seen more and more automotive importers merging forces. Perhaps most notably is that of Cars International (CIL).

In 2011, the United Group’s car dealership, which had represented the Opel and Saab brands locally since 1982, joined forces with the Tumas Group’s Easyell Kia dealership to form CIL. 

In 2016, CIL merged its operations with the Pater Group, introducing the Alfa Romeo and Fiat brands amongst others, to the joint venture, making it one of the top two car importers on the island.

The other is the GasanZammit group, whose merger was inked back in 2011, to house the Capelli, Chevrolet, Ford, Honda, Isuzu, Jaguar, Mazda, Pirelli, Volvo, and Yamaha brands under one roof.

The number of cars on Maltese roads has gone up slightly with the stock of licensed motor vehicles reaching 349,386 at the end of March – 79.3 per cent were passenger cars, 13.7 per cent commercial vehicles and six per cent motorcycles. 

Newly-licensed ‘new’ motor vehicles during the first quarter of 2016 amounted to 3,002, or 51 per cent of the total, and newly-licensed ‘used’ motor vehicles totalled 2,890.