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Remarketing: The power struggle

Date: 07 August 2014   |   Author: Jack Carfrae

The whole alternative-fuel thing can be a bit daunting. Electric this, hydrogen that and the constant need to cut your CO2 and go green - if we're honest, it gets rather overwhelming.  

BusinessCar would never tell you to ignore the environmental movement, or the chance to shave some CO2 emissions, but when you're dealing with the used car market, the plug-in scene is still minimal at best. Diesels, petrols and hybrids rule the roost, and they're the three drivetrains you need to know about before you come to defleet.

Obviously, the answer for procuring vehicles with the right drivetrain lies in what you need them for in the first place, but petrols, diesels and hybrids all carry their own sensitivities. According to BCA's operations director, Simon Henstock, it's the newest of those three that is the safest place to put your money.

"In terms of value, hybrids usually outperform diesel cars with both powertrains sold at a similar age and mileage," he says, adding that the smaller number of hybrids on the used market compared with petrol- and diesel-engined vehicles does have a bearing on their price performance.

"However," he continues, "with volumes of hybrids so low compared to the more traditional sectors, model mix has an important role in defining average value,"

Jim McNally, chairman of the BVRLA's residual value and remarketing committee, agrees that hybrids hang onto their value the best, but says they have to be viewed proportionately because of the much smaller volumes involved: "Hybrid technology has proven itself to be reliable over time. There appears to be little opposition to hybrid drivetrains, which are fit for purpose for some buyers.

Given there are still very few hybrids in the marketplace, it would be unwise to compare a Toyota Prius to another drivetrain type. However, the Prius holds its value exceedingly well, and outperforms petrol equivalents."

He adds that they've been around long enough for the maintenance concerns, which used to be a problem, to have dried up: "SMR is not a concern for buyers of vehicles with hybrid drivetrains.
In fact, SMR costs are lower on hybrid vehicles compared to petrol or diesel equivalents."

Henstock points out just how few hybrids there are on the market, and says their scarcity makes them all the more attractive: "While hybrids are a well-established sector of the used car market, volumes remain very low, usually less than 1% of fleet and lease entered stock. There is a steady demand for younger, one-owner hybrids."  

As much as specialists are willing to sing their praises, hybrids pale in comparison to the availability and preference of diesel-engined vehicles on the used market. That might sound obvious, but it's something that isn't likely to change even with the onset of alternative-fuel vehicles and cleaner petrol engines.
Neal Francis, managing director of leasing firm Pendragon Contracts, explains: "Diesel is the most consistent fuel type regardless of engine size. While lower-powered petrol engines are faring well, higher-powered petrol engines are less sought after and attractive to the used car buyer.

"We expect this to continue in the foreseeable future. Company car drivers are reticent to embrace new technology, but fleet managers are embracing the new technologies and are realising their benefits. Hybrids are very slowly increasing their market share from a small base."

McNally adds: "Diesel is still the dominant company car choice, and I don't see that changing anytime soon. Diesel is the most consistent in terms of performance and predictability.

"The improvements in other drivetrains and any potential change in volume would need to be significant before diesel's dominance wanes. The only risk is if the price of fuel radically changes its differential, though even with some concerns over diesel refinery capacity in Europe, there is not likely to be any change big enough in the price differential to affect diesel's dominance."

This all makes petrol engines look like the unloved option in the used car market, and it's true that they do sell for less. Henstock says they go for lower prices despite being younger and having lower mileages: "Petrol cars also tend to be a similar age when sold - around 40 months - but at a lower mileage: around 30,000 compared to 50,000-plus for diesel and hybrid cars. On average, petrol cars sell for significantly lower values than either diesel or hybrids."

That said, petrol business cars have a habit of retaining a better share of their residual values in percentage terms.

Henstock adds: "Price alone isn't everything, and data for February 2014 showed that on average, petrol cars sold by fleet-and-lease operators retained a higher percentage of their original cost new at 45.0% than either diesels (42.3%) or hybrids (43.8%). Performance against Cap Clean is remarkably similar across the three fuel types."

There is also a school of thought that suggests there is a demand for petrol-engined models on the used-car market, even though they're still unlikely to usurp diesels.

Francis explains: "The market would like to see more small petrol engine-sized vehicles, particularly in the 18-month to three-year old category." Meanwhile, McNally adds: "Improvement in petrol drivetrain efficiency may turn some diesel converts back to petrol, but it will take years before we see a turnaround in the ratio of diesels to petrols."