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REMARKETING: Used market not prioritising CO2

Date: 12 June 2012

They may be ideal vehicles for business car drivers, but sub-120g/km models still aren't high on used buyers' agendas, as Jack Carfrae reports

It's a given that company car drivers and fleet managers are acutely aware of the impact that a vehicle's CO2 output has.

Company-wide emissions-level caps and the ever-increasing availability of low-CO2 cars prove that be it by carrot or by stick, fleets are shifting toward cleaner modes of transport.

That might be stating the obvious, but it's important to bear in mind that the new end of the business car industry is more at the mercy of CO2 figures than second-hand retail buyers are. The VED taxation system for privately owned vehicles may be governed by emissions, but next to corporate users footing the bill for benefit-in-kind contributions, private car tax payments are, as a rule, a lot easier for individuals to swallow.

And it's that lower cost that makes used car buyers less concerned with low-CO2 vehicles than fleets. While it still has an impact, it's lower down on their agendas when it comes to requirements of a used car, as BCA's communications director, Tony Gannon, explains: "While the focus

for the manufacturers, Government departments, transport planners and fleet managers may be to minimise emissions, the reality for most used car buyers is a lot more pragmatic - it often comes down to 'what's the best car I can buy with the budget I have available?' That decision-making process will encompass everything from make and model, through to condition, age, mileage and colour, as well as running costs and emissions."

BCA's Used Car Market Report 2011 showed that sourcing a used vehicle with better mpg and lower CO2 were the intended highest priorities for second-hand retail buyers (see table below right), so there is still an increasing demand for clean, used vehicles, despite the fact that when it comes to making a purchase buyers are ultimately governed by budget.

Jim Hannah, operations director at Ogilvie Fleet, maintains that vehicles on the used market are still subject to old-fashioned criteria before fuel economy or emissions come into play. "Price, colour, specification and the right engine set-up remain the key criteria for used car buyers," he says. Hannah admits that economy is playing an increasingly important role for used buyers but states that CO2 figures are simply not a buying principle for second-hand cars.

Part of the reason for the relatively modest take-up of sub-120g/km vehicles is that there aren't that many of them on the used market yet. As common as they are on manufacturers' order books, they haven't been on sale in serious numbers for long enough for defleeted models to be dispatched into the market in significant quantities.

Hannah believes, though, that the situation will change soon, with the next two years heralding the benchmark for serious volumes breaking through: "From a sample of more than 2600 ex-company cars sold at auction by Ogilvie Fleet from April 2011 to April 2012, just 288 had emissions of 120g/km or below. However, into 2013 and 2014 that trend will increase, as early fleet adopters of such low-emissions cars begin to replace those vehicles."

Another stumbling block for the establishment of low-CO2 cars in the used market is their price premium. Extra cost from new still filters down to second-hand level, and the industry remains sceptical as to whether most buyers are willing to foot the additional cost when a run-of-the-mill diesel or petrol variant is more affordable and will probably do the job just as well.

Gannon makes the point that most low-CO2 models are still nearly new and therefore out of reach to many: "The technology is relatively recent [so] the cars that do appear tend to be late-plate, higher-valued examples.

"While many motorists may aspire to buying and running a low-CO2 model, if their budget does not stretch to acquiring one they will inevitably choose the car that closest meets their needs from the plentiful supplies of petrol and diesel cars available."

Hannah states that most used buyers are simply not prepared to pay any extra for a low-emissions model because the additional cost outweighs the benefits: "In our experience, used car buyers are typically not prepared to pay a premium for low-emissions cars.

It is unanimously accepted by the remarketing community that buying by CO2 figures isn't something that happens on the used car market at present, but there is an intrinsic link between emissions and fuel economy, and the latter is something that second-hand buyers are beginning to consider in a big way.

Tim Maffey, fleet asset management leader at GE Capital, believes that used buyers are almost subconsciously turning to low-CO2 models because they are choosing vehicles with low fuel consumption: "Because fuel consumption and CO2 figures are intrinsically linked, it is difficult to isolate the latter as a buyer issue. However, our general feeling is that, while there are a relatively small number of people who will look closely at the CO2 output of a particular vehicle for environmental or VED cost reasons, the demand for most low-CO2 models is actually occurring as a direct result of their low fuel consumption."

Maffey believes the latest generation of hybrids can expect strong demand and good values when they eventually make it to the second-hand market, but that will again be a result of good mpg figures as opposed to how low their tailpipe emissions might be.

He also points out that should the general economy improve, buyers' interest in clean and economical vehicles will probably wane: "One factor that should be underlined is that if the economy does start to gradually improve - however unlikely this may currently appear - the importance of consumption will gradually fall away. This is very much a recessionary effect."

Regardless of whether or not used buyers are focussed on low-CO2 and high-mpg vehicles, the trend in the new car market is for ever-cleaner models, so it stands to reason that the used market will be full of them as soon as the majority of fleets begin to despatch them.

According to Maffey, this is something the new company car market is directly responsible for over a short period: "An interesting statistic is the way in which the effect of the company car CO2 taxation regime can be seen clearly affecting the CO2 figures of the cars that we sell. In quarter four of 2010, the average g/km figure for vehicles that we sold was 148g/km, while in quarter one of this year, it had fallen to 125g/km. This is a considerable gain across a relatively short period of time."