When will diesel residual values stabilise?
High supply, government bans and a negative press are putting heavy pressure on diesel residual values.
A short-term residual value crisis in Germany raises long-term questions about heavy potential losses for fleets and leasing companies that continue with a diesel policy.
Research by ZDK (Deutsches Kraftfahrzeuggewerbe) suggested the worsening situation for diesel was actually threatening the existence of some leasing companies. It calculates that residual value losses could run into the hundreds of millions of Euros due to declining demand for older diesel models.
ZDK said that between May and August 2015, about 73,400 Euro 5 diesel cars were leased, and three years later the same vehicles are now due to return to a market without any appetite for these higher polluting engines.
Diesel RV discount of 10% to 50%
With an average used car price of €15,110 (according to DAT in 2017), these cars would have a total combined value of about €1.1billion. However, a ZDK survey of almost 2,000 used car traders revealed that they could only find buyers for Euro 5 diesels if they offered buyers a discount of between 10% and 50%.
Jürgen Karpinski, president, ZDK said: "If we take the average of 30% deductions as a basis, this means that the trade expects losses of about €330 million between May and August this year."
He added that DAT data already indicated used diesels are taking an average of 100 days to sell at dealerships, the slow turnover adding to financial losses.
Retrofit solutions
ZDK wants to see the retrofitting of emissions hardware to clean the exhaust of Euro 5 diesels and avoid the vehicles facing bans in cities like Stuttgart and Hamburg.
“Only then will diesel vehicles, with their fuel-efficient and climate-friendly power, become valuable again, freeing diesel owners, commercial fleet operators and, above all, the small and medium-sized car dealerships involved in an otherwise hopeless situation,” said Karpinski.
Fleets review diesel RVs
The pressing question for fleets and leasing companies is when the slide in diesel residual values bottoms out, even for Euro 6 models.
Bart Beckers, Arval CCO, said: “Arval has started reviewing its diesel RVs in selected markets since last year to take into account the future expectations with respect to this technology. Simultaneously, we have reviewed upward other types of vehicles since, of course, the whole equation of offer and demand plays a role in a market where clients are in the first place looking for quality second-hand vehicles.”
The spate of driving bans for diesel vehicles in cities across Europe, and the negative press that this generates, has seen sales of new diesel cars slump, although so far residual values have held reasonably firm.
Petrol RVs gain on diesel
One significant change, however, is a closing of the gap between the percentage of retained value between petrol and diesel models. This differential has narrowed for typical three years old, 60,000km diesel cars in three of the five major EU markets (Italy and Spain are the exceptions), according to Autovista Group’s new Residual Value Intelligence platform.
“The values are converging in the markets where pressure on diesels has been particularly intense – the UK, France and Germany,” said Neil King senior data journalist, Autovista.
"Given that diesel models typically cost more than petrol versions of the same car, this means their net depreciation figure will be greater," added King.
The impact is sharpest in the UK, where diesel already costs more than petrol at filling stations, and where petrol cars now retain a greater percentage of their value. In Germany, Autovista forecasts that diesel values will decline by one percentage point in both 2018 and 2019.
The situation is even worse in Spain, where Autovista forecasts a fall in diesel values of typical ex-company cars by 2% in 2018 and 3% in 2019; although in France and Italy it forecasts either parity or very slight declines over the next two years.
Beyond this date, however, diesel residual values may be boosted by the traditional supply-demand equation. As sales of new diesel cars have plummeted, so shortages of stock may appear on the used car market, which should raise demand from 2020 and beyond.
