Car sales in Estonia surged in the second half of last year, in anticipation of the introduction of a new car tax and registration fee — and then plummeted sharply in January.

While many prospective car buyers, fearing price hikes in the new year, followed through on their plans last year, a look at current showroom prices suggests that their desired vehicle may not have gotten more expensive after all. Some models have even seen their prices drop.

United Motors sales and marketing director Leino Luik told ERR that the current market is a classic buyer's market, as customers have more negotiating power. He noted that it's not entirely accurate to claim that prices have fallen, but car dealers are more willing to compromise.

"In all respects," he confirmed. "Who will pay for the customer's registration fee, other expenses — it depends on the model. But I am utterly convinced that car sales are slow not because of a high registration tax, but because needed purchases were made last year already; cars were bought in advance, so no one needs to buy right now. But that need will return."

That said, Luik noted that showrooms aren't deserted. Activity is picking up again, particularly in terms of people seeking information about cars, taking test drives and requesting quotes. However, these inquiries often aren't translating into actual purchases.

Amserv Auto CEO Rene Varek likewise said that customer interest was lukewarm in January, but is gradually starting to recover.

"We're already seeing more customers moving now in February," Varek said. "The number of test drives has gone up — although it's certainly not at last year's average levels, let alone peak levels — but showrooms aren't empty."

Even so, he admits it would be a major surprise if the overall car market were to turn out stronger this year than last, and considers this unlikely to happen. However, all car dealers have taken into account that last year saw a significant number of advance purchases.

"There's no reason for either pessimism or optimism," the dealership CEO summed up. "The [current] situation is actually as expected, and we'd rather hope for a surprise on the upside than on the downside."

Luik added that predicting when customer interest will fully recover is about as easy as forecasting the weather on September 3 of next year.

"The market will recover again by some logic once all of the cars bought in advance have cycled out of the equation," the United Motors representative explained. "The initial estimate is three to four months from the beginning of the year."

Decline in Euribor offsets car tax impact

According to Varek, car prices haven't dropped this year, and some models have even gotten more expensive, but lower interest rates on financing have helped offset the impact of Estonia's new car tax.

"The car tax is not that frightening: for most models, its impact is relatively small, especially when we show [the customer] their car payments," he noted. "Since interest rates have gone down, the tax-related price increase has little if any impact on monthly payments. The impact of interest rates has been more significant."

The CEO noted that the total asking price including the car tax is currently about the same as what it would have been last year without the tax. Thus, the drop in the Euribor, or Euro Interbank Offered Rate, has helped mitigate and even fully offset the impact of Estonia's car tax.

However, based on conversations with customers, Varek believes that influencing their car-buying decisions more than the car tax itself are broader economic conditions and financial security concerns.

"I'd emphasize the geopolitical situation and the overall economic environment," he said. "Given our government's actions regarding taxes and other things in economic policy, as well as energy prices, people are more worried about those issues than about buying a new car."

Luik pointed out that in the current situation, not all car dealers may be able to withstand this sort of slump. Those for whom sales make up just one area of their business, however, have less reason to worry.

"A traditional car dealership opens in three segments: car sales, servicing and bodywork," he explained. "If the first one drops off, the second and third will still continue, because cars still need maintenance and repairs."

Dealers that focus exclusively on sales have more to consider, Luik added.

According to Association of Estonian Car Dealers and Service Companies (AMTEL) figures, as of the end of December, a total of 3,573 new passenger vehicles were sold in Estonia, marking a 97 percent increase on year. Used car sales saw a significant increase in December as well. This January saw the sale of 531 new passenger vehicles — three times fewer than in January 2024.

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