Let me give you my reasoning why this word is an ethnic slur in Ireland.
The verb to knacker, the noun knacker’s yard, the adjective knackered all refer specifically, or obliquely, to the act of slaughtering horses. The noun knacker (as used in the UK) referring to one who slaughters words, and the noun knackers to refer to one’s balls (I have no idea why) - none of these words are insulting.
In Ireland, the noun knackers was also used to describe people who picked up old horses for slaughter. Presumably, this was a common trade of the Travellers, and eventually the word came to describe all members of the travelling community.
However now in Ireland, the word knacker is completely interchangeable with Travellers, criminals, drug addicts, vandals, beggars, violent people, and various other reprobates. Thus someone might say “some knacker broke into my house”, or someone might say “some knackers have parked their caravans in that field”. There is the same implication, and no differentiation. This is a common term, and is used by nearly everyone in the entire country in the same way. But it is still a slur by association.
Are Irish Travellers a separate ethnicity? Well, yes they are. By dictionary.com: “Ethnic: Of or relating to a sizable group of people sharing a common and distinctive racial, national, religious, linguistic, or cultural heritage.”
Thus, I think I’m justified in calling it an ethnic slur.
This might seem a petty issue, but the anti-Traveller prejudice over here must be seen to be believed. Any little that one can do to alleviate this surely helps. The word, which I hear daily from almost everyone I know, makes me feel very uncomfortable. Personally, I use the word “scumbags” for the criminals and vandals, and “Travellers” for the Travellers.