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REMARKETING: Hybrids lead the alternative way but auction impact is still limited

Date: 13 September 2011

As alternative fuels including hybrids and electric vehicles, which aren't the conventional petrol and diesel offerings, come into the remarketing arena in increased numbers, how are they faring? Rachel Burgess reports.

Petrol/electric hybrids are the most readily available 'green' cars in the used market according to BCA director Tony Gannon, but still, numbers are very low compared to petrol or diesel.

"It will come as no surprise to anyone involved in used cars that combination of rising motoring costs and the economic downturn has dampened many motorists' enthusiasm for bigger, thirstier, costlier cars. The flipside of this, of course, is that demand for higher mpg is correspondingly high."

According to BCA's Pulse report, remarketing parameters for hybrid vehicles 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.

Research data from residual value expert Cap indicates that the hybrid premium over the petrol equivalent has risen over the last two years to 20-30%.

Chief editor Chris Crow says: "Early hybrids such as the Toyota Prius in the used market were treated with a degree of scepticism in the eyes of the consumer. However, the 'Hollywood effect' has helped raise the profile and standing of hybrids, supported by the Government's environmental stance.

"However, there remains an undercurrent of doubt amongst some consumers towards the benefits of such cars over the conventional alternatives, especially diesel, and the potential reliability (and perceived costly repairs) of hybrids and whether the advertised efficiencies and green credentials match up to the hype in the 'real world'."

He added that premiums for hybrid vehicles tends to be regionalised with areas, in particular inner M25, seeing higher rates of sales in order to benefit from Congestion Charge exemption.

Average annual mileage of hybrid vehicles disposed of through auction is now running at 15,770 compared to 8,271 for petrol and 14,335 for diesel, according to Cap auction data analysis.

"Hybrid annual mileage at auction has risen 19% over the last 5 years reflecting the increased adoption of hybrids into fleet," says Crow. "The increased volume of hybrid vehicles at auction will not adversely affect values in the short term as current volumes remain low at around 1% of the combined petrol and diesel volume."

Another alternative to petrol or diesel, LPG, is making less of a dent in the remarketing world. Gannon says LPG vehicles are rarely seen in the wholesale market - just ten were listed out of nearly 11,000 vehicles set for sale at BCA in mid August and the majority of these were commercial vehicles. "The commercial vehicle market has had a long exposure to LPG and is probably more comfortable with the concept than the car market," comments Gannon. "There are also defined business benefits for low-emission commercial vehicles working in the congestion-charging zone, for example.

"In terms of green motoring, LPG is seen as old technology in many ways and professional buyers cite concerns about the quality of ex-factory conversions when examples do reach the market.

He adds: "Sellers would be wise to invest in a pre-sale mechanical report which would be carried out by their remarketing partner - this will help assure buyers about the vehicle's condition. A full service history - preferably from a recognised LPG specialist - would also be critical in achieving the best values."

The other option, perhaps the talking point of 2011, is electric vehicles. It's early days, so the market is yet to see many examples, making reaction hard to judge. Gannon says there is there a lot of interest - when BCA sold an electric LCV earlier this year, buyers turned out in large numbers.

"Anecdotally, motorists are said to have concerns over the front end costs of electric vehicles, which could mean that examples that do reach the used market will have to be competitively valued if they are to be remarketed successfully, says Gannon. There are also questions often raised over battery life and range anxiety.

Matt Sutherland, chief operating officer at leasing firm Alphabet expects the take-up of electric vehicles to accelerate as improved vehicle technologies appear and the charging infrastructure expands.

"Even so, it will be a gradual process which we anticipate will be far more heavily weighted towards the corporate sector as opposed to retail.

"Most of the early adopters have already made their move and now the rest of the market is happy to wait and see where we go from here.

Sutherland adds: The remarketing of electric vehicles is going to be interesting - as a business we're really excited by the new products and technology that is coming through and whilst it's probably too early to say how the market will perform, we do feel that the resale of vehicles with a separate battery lease will be limiting and could slow the sales process down to the detriment of remarketing results."

Indeed, Cap says there is insufficient evidence at this stage to draw any real conclusions, although it "believes concerns over battery life and replacement costs will curtail the interest in used electric vehicles".

BCA's Gannon concludes that the firm's research suggests motorists like the idea of eco-motoring because it is friendlier on the wallet, but remain unconvinced about how they might obtain it. "Demand for hybrid-fuelled cars is niche at best, while support for traditional fuels - particularly diesels - remains very strong.

Gannon says that while greater numbers of hybrids reaching the market mean that professional buyers are more comfortable with these vehicles, in the final analysis motorists will set the levels of demand for hybrids.

"Common sense suggests it is likely to remain a niche interest sector in the short term, but if motoring costs continue to rise and these environmentally friendly cars remain tax-friendly then demand could climb. The fleet sector really holds the answer to this question - uptake by the fleet and leasing industry will be critical to generating greater volumes of these models into the used market, with vehicles at a variety of price points depending on their age and mileage."