REMARKETING: Two tribes go to war
06 July 2017
Author: Jack Carfrae
BusinessCar readers will be well aware of the reputational skirmish facing diesel cars, the culmination of which was a 20% fall in May's SMMT registration figures.
Where the new car market goes, the used car market tends to follow, albeit in the former's wake, and without delving too deeply into the whole air quality/Volkswagen scandal debacle, it begs the question as to whether diesel's recent rough ride has blunted its traditionally stronger values, and if petrol should now be the default choice for those who want a good return come defleet time.
Fortunately for anyone with a vested interest in residual values, diesel prices have weathered the storm, and generally maintained their strength and premium over used petrols.
"In terms of average value, diesel cars historically outperform petrol cars by a substantial margin, despite being marginally older and significantly higher mileage on average when sold," says BCA's chief operating officer, Simon Henstock. "This trend is well established, has not changed over a number of years and is a reflection of the typically higher original purchase cost for diesel product."
Though times are changing, the high-mileage fleet sector still, habitually, favours diesels, and at the moment, ex-fleet examples are still selling for more money than petrols.
"Looking at the fleet and lease sector, average values for petrol and diesel have risen in tandem," adds Henstock. "This year, average values for ex-fleet petrol cars have risen by £222 (2.9%), to £7,896 with mileage and age broadly static.
"Our data shows that average diesel values have also improved this year, rising by £382 (3.4%) to £11,524. Some of this rise may reflect a marginally lower average age and mileage in May 2017, but the underlying demand is clear."
"We've got fewer diesels coming off the fleet than other leasing companies but the values are holding up relatively well; we're not seeing a massive collapse in prices," says Joe Garrood, commercial director at Tusker. "When you look at petrols compared to diesels, and the performance we're getting against the values we've set, against Cap and against the other market benchmarks, we're seeing relative stability versus petrol in the used market. At the end of the day, there are fewer people seeking out diesel on the new car market, but there is still demand for it second-hand."
If there's anywhere that petrols have the edge over diesels, it's at the bottom end of the market. Even before diesel's recent bashing, city cars and superminis were shaking it off, simply because the cheaper prices of new petrol cars and typically lower mileages of such models made more sense.
"We don't see a significant change in the RVs driven by the used car desirability of a lot of diesel product," says Mark Jowsey, manufacturer liaison director at KeeResources. "But for a little while, we've taken the view that supermini diesels made substantially less sense than they may have at one time. You need to be absolutely clear about how it is priced and how the car behaves to be sure that there is any justification for spending more money, either new or used, on a diesel supermini."
"On the small car front, we're seeing a big switch back to petrol," adds, Jon Mitchell UK group sales director at Autorola. "While the smaller cars might be increasing in value or becoming more popular as petrol models, the overall percentage hasn't massively changed when we're selling a lot of Astras, 3 Series, Mondeos, Insignias, rather than Peugeot 107s, or whatever it may be."
Economics aside, one of the reasons for diesels' popularity is that people simply like the way they drive. "I think the challenge in the market generally over the diesel/petrol scenario, is that diesels, a long time ago, were loud, smelly, dirty and didn't perform properly; whereas now, there are some very impressive diesel power units, with loads of torque," says Jowsey. "Even on your average diesel, the level of torque compared with its petrol equivalent means that the driving experience, in some respects, might be more important than any question of fuel cost savings."
BCA's Henstock agrees: "The very reasons that make a diesel attractive to corporate users are equally applicable to the motorist. Many people like the driving characteristics of a diesel, and there are real benefits in fuel consumption, overall reliability and longevity that also appeal to the cost-conscious motorist."
Used diesels are in good shape at the moment, or so the data suggests, but their shakier status on the new car market should not be ignored; companies procuring vehicles now should have one eye on what might be happening three years or more down the line, when they're defleeting their old cars.
"What the fleet drivers drive is what Joe Public drives later," says Mitchell. "That's no secret, but I think now, if people are starting to ask 'should I be buying a diesel next time round?' we are going to see quite a switch, quite quickly, back to petrol."
"The important thing, as a starting point, is that anybody who is continuing to run a diesel-only policy needs to reconsider it," adds Jowsey. "Your average, three year/60,000-mile fleet driver could easily find a vehicle with a modern petrol engine an appropriate car. A lot of people in diesels don't get much more than mid-40s mpg anyway.
"The rules of engagement should say 'do you have a diesel-only policy?' because there are many fleets that do still have them, certainly below exec level. You can only really deal with this properly if you have a whole-life cost policy."
"I think you've got to do two things: you've got to have a view of what is going on real time, what is selling and what the impact is day-to-day," says Tusker's Garrood. "You've also got to have one eye on what is likely to happen and what the implications are for your business.
"At the moment, a potential drop in diesel values is not something that we're worried about because we're not overly exposed to it, but it is something we think about and keep and eye on. There is a huge amount of change coming in the industry, and if you're managing a fleet where you're taking on a vehicle for a three-year period, you've got to have that in your mind, and take a short-term view about where demand is today, but also think ahead in terms of, strategically, where you want the balance of your fleet to be in three, four or five years' time."
Autos versus manuals: carrot or stick?
Transmission is up there with fuel type in terms of its sway over a used vehicle's worth. Though still inferior to manuals in number, automatics are growing rapidly; European fleet market specialist Dataforce reported in March that sales of automatic transmission vehicles in the true fleet sector had more than doubled from 16.3% to 35.3% since 2004, while desirability and improved efficiency often leads to substantial mark-up over manuals, depending on the sector.
"We're selling 25% automatic versus 75% manual - and the former is definitely on the rise," says Autorola's UK group sales director, Jon Mitchell. The company typically sells more expensive cars than your average remarketer, which means a greater comparative premium for automatics, but Mitchell claims they hold their value better and command an additional "three to four grand, on average".
"If we were only selling Nissan Micra automatics we wouldn't see that lift in price, but if you're selling 3 Series BMWs or the odd 5 Series, and it's a manual, it takes a real kicking."
"It does depend on the sector to a degree, and modern automatic powertrains are very efficient in a lot of products," adds Mark Jowsey, manufacturer liaison director at KeeResources. "It's sector-dependent, but there's pretty much always a premium for auto or a penalty for manual. Actually, only the older sports sector can be the other way - MX-5-type cars and maybe a hot hatch where you'd have a manual."