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REMARKETING: Second-hand users not charging into auction to purchase hybrids

Date: 03 September 2010

Despite rising sales there's still an air of caution affecting demand for hybrids, Rachel Burgess reports

Despite their growing popularity, hybrids are still being treated with caution by the remarketing world, especially as availability and demand for low-CO2 petrol and diesel cars increase rapidly.

"It's still too early for a definitive outlook on remarketing hybrids," says Paul Hollick, general manager sale development at leasing company Alphabet.

"Over 99% of the cars we've supplied in the last two years are internal combustion engine models and these are rapidly becoming greener too, with around one-in-four already in the sub-120g/km CO2 bracket.

"Although hybrid sales are increasing in the UK as a whole, they still occupy a specific niche in both the fleet and private markets, which has yet to develop sufficiently to provide a firm basis for residual value expectations."

Wary dealers

A spokesman for residual value experts Cap says it "continues to take a generally cautious view on hybrids in general with little or no premium over efficient conventional equivalents until perceptions have shifted more fundamentally".

He adds: "Changing perceptions in the car market takes a long time and it is interesting that independent dealers in particular remain wary of hybrids.

"Despite the fact that Toyota and Lexus have shown a miniscule burn rate on their warranties, there still remains the fear that a battery may fail and wipe out any profit on that and the next several trades."

Consequently, a three-year-old mid-spec Toyota Prius with typical mileage retains 34.5% of its new cost while an equivalent diesel Volkswagen Golf retains 48.5%.

The Prius remains on a par with a comparable Ford Focus, which retains 34.2%, according to Cap.

"It will take some time for larger hybrids to gain really significant momentum because the benefits are not especially tangible. The dominant model from Lexus is seen as more of a statement than offering a significant economic benefit over an efficient diesel," the spokesman says.

Tony Gannon, director at auction company BCA, agrees that perception will largely influence the effect of hybrids and other alternative fuels in the remarketing arena.

"The key issue for alternative fuels is acceptability with the general motoring public, because they will drive the demand in the used market. So it is perhaps less a question of residual values and more about future consumer perceptions."

He continues: "Professional buyers just don't see high numbers of electric hybrid vehicles reaching the used market, which makes it difficult to gauge long-term demand. However, there is a rarity value attached to the best examples which can see values soar, particularly when they are offered in the right part of the country or to the right buyer.

BCA tracks the performance of hybrid cars and says remarketing parameters are similar to diesel in terms of age and mileage, but price performance is "prone to more erratic peaks and troughs than both petrol and diesel models".

Gannon says this is typical of low-volume sectors where model mix has an effect: "Looking at price performances across petrol, diesel and hybrid over the past 30 months highlights this. Hybrid prices spent most of 2008 tracking petrol values, but in 2009 spikes of demand saw average values outstrip diesel at several points, while this year values have generally been above those recorded by diesels."

"There has been a 'changing of guard' taking place, with very few LPG bi-fuel cars and increasing volumes of petrol/electric cars populating the sector."

Indeed, Alphabet's Hollick says the firm "almost never receives enquiries about LPG cars these days".

"Out of 30 million registered vehicles in the UK, only around 150,000 run on LPG, which means you're looking at a very small specialised niche in the overall used vehicle market.

"For fleets, the running cost and CO2 advantages of LPG over typical diesels are now negligible, due to the reduced tax break for LPG and improvements in diesel fuel efficiency. In fact, the latest environmentally friendly diesels significantly outperform LPG on both cost and CO2 emissions."

Gannon adds that LPG use remains in the light commercial vehicle sector although volumes are now fairly low. "A number of aftermarket conversion specialists supply the marketplace, as the vehicle manufacturers now focus on hybrid electrics and low CO2 alternatives.

Van sector

"In terms of the used van market, LPG remains in demand - largely due to the smaller numbers actually reaching the open market and the continued benefit these vehicles gain when driving in congestion charging and low-emissions zones."

He concludes: "LPG as a choice for motorists was always fairly marginal at best and, with the limited availability of both product and refuelling points across the UK, has reduced significantly in recent years."

The normal rules of remarketing apply when considering hybrids says Gannon: "Presentation and condition is vital and a good specification will help attract the bidders.

"Buyers generally prefer younger, lower mileage examples, mainly because of perceived worries about the reliability of hybrid vehicles as they get older.

"Fleet managers should make sure their hybrids are serviced at correct intervals and provide a complete service history at the time of sale."