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REMARKETING: Diesel maintains air of authority for fleet values

Date: 31 March 2015   |   Author:

It may be facing something of an air quality image problem, but diesel is still the dominant force when its comes to used values, reports Tom Seymour

While the car industry is championing the latest diesel technology amid growing public concern about the fuel's impact on air quality, fleet diesel values at auction continue to outperform petrol by a considerable margin.

It's a position that hasn't changed for years, with diesel cars commanding a higher P11D price when bought new and, in turn, commanding a higher used price too. The average diesel fleet and lease car achieved a £2827 premium over the average petrol equivalent in February this year, according to remarketing firm BCA.

The fleet market is massively exposed to diesel due to the company car taxation system being based around CO2. This is an area diesels excel at due to having lower carbon outputs than petrol cars (although some modern petrols are catching up).

Screen Shot 2015-03-30 At 16.05.46Diesel dominates fleet volumes going to auction, accounting for 60% of BCA's fleet stock sold in February. This is despite diesel cars being marginally older and having significantly higher mileage on average when sold compared with petrol vehicles.

Simon Henstock, BCA's UK operations director, says: "Typically, these diesels will be well-specified models in an attractive colour, which is a very attractive and desirable proposition for professional buyers for onward retail."

While there has been a gulf between diesel and petrol values for a while, price isn't everything.
Henstock explains: "BCA's data for February 2015 showed that on average, petrol cars sold by fleet and lease operators retained a higher percentage of their original cost new at 44.4% than diesels at 41.5%. Performance against Cap Clean [the second-hand cars in the best condition] is remarkably similar across the fuel types."

According to Henstock, fleet and lease petrol cars will often be more economical smaller hatchbacks, superminis and city cars, and are very desirable for professional buyers. This is the reason behind retaining a higher percentage of their original cost versus new.

The fact there is a less plentiful supply of the smaller petrol cars typically means demand is high, while average price performance against both Cap value and original cost new usually outperforms diesel cars.

Screen Shot 2015-03-30 At 16.32.49While petrol values are performing well for those vehicles that fleetsare taking on, the industry is still not seeing a shift away from diesel in the light of its supposed image problem. Recent falls in the price of fuel have also had no impact when it comes to the used market.

Andy Brown, CD Auction Group managing director, says: "Any changes in demand would be rapidly reflected in prices paid by trade buyers and, at the moment, we are seeing no drop-off in demand for good, ex-fleet diesel vehicles.

"In fact, values achieved by CD Fleet Services have gone up in the first couple of months of the year and we are seeing more buyers in the market."

Future trends

Dylan Setterfield, Cap senior editor for vehicle forecasting, argues for petrol gaining more market share in fleet, purely on a cost per mile basis.

He says: "For a typical upper or lower medium car the threshold for annual mileage has tended to be around 14,000 to 16,000 miles, but diesel cars also tend to be slightly more expensive to service and maintain, so even high-mileage drivers may not actually be generating any financial benefit when the increased purchase price is taken into account.

"It takes a long time to change such deeply entrenched consumer perceptions and it would be no surprise if many drivers were still operating under the same misapprehensions in 10 years' time."

In Brown's view, the fuel type in fleet will be driven be what is best for high-mileage usage, and at the moment, that generally means diesel.

While information from Cap shows diesel premiums over petrol starting to slowly decrease, diesel will continue to retain a premium over petrol.

Setterfield says: "Aside from any perceived financial benefits, many drivers much prefer the increased torque and responsiveness typically generated by diesel powertrains." He also plays down any idea of a current of future Government penalising drivers who were driving diesel cars that were encouraged by a previous taxation regime.

"The days of the old-fashioned dirty, smelly, noisy diesel engines are almost over," he continues. "NOx is an issue the industry should have tackled sooner, but the priorities were effectively set by local governments and the EU focussing on CO2 emissions.

"It is highly unlikely that the focus on CO2 will change in the medium term, given that everyone is still working towards aggressive emissions reduction targets which extend out to 2021."

Setterfield admits it is impossible to rule out a switch of focus in the future, but the impact of modern passenger cars on air quality may well take a back seat to other environmental considerations following the significant improvements in CO2 emissions (and in reducing other pollutants) over the past few years.

The residual value expert's view

Rupert Pontin, Glass's head of valuations, echoes views from the industry with the expectation there will be no specific change in the value or desirability of diesel cars in the used market.

He says: "There is a lot of talk about a future drop in demand for diesel, but the used buyer still wants all cars of all sizes and all fuels, so values have not been negatively impacted."

Pontin says future residual values for diesel products are currently unlikely to be adversely affected because, for fleets, modern technology and Euro6 compliance means that cars are meeting all legislative requirements within their ownership window.

However, Pontin can't rule out how legislation will change to affect second and third owners of diesel vehicles.

While predicting policy changes is close to impossible, Pontin does think electric and hybrid vehicles could start scratching away at diesel's powerful grip on UK fleets.

He says: "The UK has a commitment to meet a 95g/km CO2 rating target by 2020 and this is necessitating the development of electric and hybrid technology.

"It is this new technology that will have a specific and wide-ranging impact on the fleet market as battery life on electric vehicles becomes more robust, and therefore these cars become more relevant to everyday use in the market."

Electric vehicle residual value forecasts are moving closer to conventionally powered vehicles as the market becomes used to the technology. Glass's has recently given Nissan Leaf values a boost thanks to the manufacturer's announcement that a battery pack for the car would cost £3500.

Pontin says: "Removing the mystery surrounding the battery pack pricing took away a large degree of uncertainty from forecasting RVs. While £3500 is expensive, it is something that can be planned into a budget when you are making a residual value forecast."