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AUCTIONS: The great fuel debate

Date: 27 March 2008

Which fuel performs best at auction - petrol or diesel? The answer's not as clear-cut as you might think

Fuelled by fleet operators, benefiting from tax incentives for reduced CO2 emissions and more fuel-efficient vehicles, the proportion of new diesel-engined cars supplied into the UK car market has grown significantly.

According to leasing firm Masterlease, diesel's share of the fleet market doubled between 1999 and 2005, and has settled at just over half of annual fleet deliveries, while the official figures put diesel's overall market share of new car sales at just over 40%.

"Because of the nature of the remarketing industry, at BCA used diesel volumes from fleet and lease sources actually reach nearer 62% - a sizeable chunk of that market sector," adds BCA's UK operations director Simon Henstock.

However, the rapid growth of diesel led to fears the used market would be oversupplied with diesel-engined cars, leading to a collapse in their values. "Fortunately," says Robert Redman, senior pricing analyst at Masterlease, "the technology improvements required to meet Euro4 targets resulted in much more 'user-friendly' power units, and used buyers have taken to diesel much better than was feared."

In the past

Historically, diesels have always enjoyed relatively higher resale values on a like-for-like basis with petrol models. This has been based on a higher initial purchase cost, relatively limited numbers and high demand.

But, according to average BCA sales data, the price premium diesel has over petrol in the fleet/lease sector has been eroding, even accepting that the mileage figures remain well apart. While diesel values were roughly 5% ahead of petrol throughout 2006, that differential narrowed, and even disappeared, last year (see top chart).

"Of course, fleet- and lease-sourced diesels come to the market at a much higher average mileage (over 20,000 miles more), and mileage-adjusted values would see a more significant price differential," says Henstock. "However, the price trend clearly seems to indicate a narrowing in values between petrol and diesel."

Henstock continues: "With fleets registering increasing numbers of diesel cars in recent years, it is tempting to suggest that used fleet diesels will continue to get relatively cheaper. But the market dynamics are not that simple. If motorists follow the lead set by fleet operators - as they inevitably do - we could see increased demand for used diesels matching the rising supply of stock available to the market."

Different sectors

Examine specific sectors, though, and the diesel versus petrol debate becomes even less straightforward.

Henstock explains: "Depending on what the used buyer has in mind, performance and torque could be an issue, particularly, say, for off-road, utilitarian and towing vehicles where a bigger diesel option is much favoured."

Masterlease's Redman agrees with this view: "Bigger vehicles such as MPVs or 4x4s tend to favour the diesel option, benefiting from the higher torque and improved fuel efficiency that it brings."

Diesel is also the fuel of choice for upper medium Mondeo-sized vehicles.

"Increasingly price is the defining factor for the used buyer and running costs are being taken into the equation. In the popular and diverse upper medium sector, for example, you should expect more demand for diesel models than petrol with a corresponding increase in value," says Henstock.

"That said, if there are relatively fewer and fewer upper medium petrol models in the marketplace, we might see these rising in value in the future.

"Similarly, in the executive and premium sectors, thirsty petrol engines are generally less favoured by used buyers, with the possible exception of performance and sports cars where petrol remains the fuel of choice."

Henstock also says the diesel mpg benefits largely disappear for city cars and superminis, so petrol values are relatively strong across the board.

Once again, Redman backs up this view: "The diesel-engined supermini offers less clear benefits over the petrol version - both are very economical to run - but the small body mass makes the elimination of noise, vibration and harshness much harder, affecting refinement. Additionally, of course, small cars have small prices, so it is harder to justify a large price step just to go from 50mpg to 55mpg, especially for the much lower annual mileages that these vehicles tend to cover."


The fuel argument also stretches across brands. For example, according to Masterlease, the current range of BMW diesels outshines their petrol equivalents in all the key areas: power, torque, fuel economy and CO2 rating, which is increasingly important for issues such as VED or congestion charging. As a result, they command relatively strong premiums in the used market place.

Redman concludes: "Ultimately, we are seeing a situation where competing engines are judged on their individual merits and the priorities attached to them by the used buyer."