25 Mar 16

2016: static year for green Residual Values

Which European countries have established second-hand markets for 'green cars'? “The definition of 'green cars' is very wide. We are talking ethanol, natural gas, hybrids, battery electric (BEV) and fuel-cell vehicles (FCV)”, says Michael Kleber of EurotaxGlass's. “Their adoption on used car markets differs vastly across countries. Let’s focus our attention on plug-in hybrids (PHEV) for a start”. 

“PHEVs perform pretty close to what consumers are used to, due to the combination of electric and 'traditional' powertrains. Several brands and models have a very long and successful track record and adoption is therefore high – subject to the economic personal advantage, it is higher in some countries than in others”, says Michael Kleber, Product Manager Consulting at EurotaxGlass’s. The Netherlands stand out in Europe: “Due to fiscal measures by the Dutch government specifically aimed at promoting alternative powertrains, PHEVs are very well established both on new and used car markets”.

A rare sports car
So volume is a factor, and that's exactly what's lacking for pure electrics. “Absolutely. Compare it to selling a rare sports car. There is demand on the used car market for them, but very little transparency on prices. We are getting a lot of requests from customers on used car market reports – both for sports cars and electric vehicles and it represents a challenge with very few transactions to build this up.”

“There is one notable exception: in Norway, battery-powered vehicles are very well established (c. 14% market share) due to strong financial benefits associated to driving one.”

“Across Europe, PHEVs face a similar challenge as battery electric vehicles. But they have accumulated considerable market share when the conditions are right commercially, e.g., in the Netherlands (c. 3% market share)”.

The end of Diesel?
Could 'Dieselgate' initiate a significant change with industry, regulators and consumers all moving towards renewables? Because that would bring green cars to market in the numbers necessary to kick start a healthy, structured second-hand market.

“We see essentially three possible scenarios is this situation: first, a straw fire with limited, temporary effect, second, a Diesel sell-out with that massive move away from Diesel you described. We actually think we are going to see a third scenario in between these two. In a negative outlook scenario, the public interest remains high and increasingly stricter regulation leads to OEMs to decide against some investments in future diesel engine i.e., a gradual phase-out”, Kleber explains.

Diesel has been under pressure across Europe for some time now. In several markets of historical Diesel dominance other powertrain types have made gains. “It will increasingly become commercially inviable to offer Diesel engines in smaller cars because the investment case will be negative. But this will not change the market overnight.”

As for the current market situation, “we do notice the clear effects on Diesel residual values in the moment but they are limited to Volkswagen brands”, says Michael Kleber. “We monitored this closely. The size of the car park affected, almost 10 million cars, leads to a massive monetary value at risk if only 1% in residual value decline solidifies.”

Predictions 2016
With neither of the aforementioned shifts likely – at least not soon – the predictions for 2016 are of a static second-hand market: “We do not expect any kind of major shift in the residual values of green cars over the next year”, says Michael Kleber. “Residual value potential is currently limited by high prices and – in case of BEVs and FCVs – limited infrastructure. Used-car buyers are price-sensitive, so we will see changes only in line with the price development.”

The Netherlands are again an exception: “Changes in taxation from new year will raise the price of PHEVs. This will put new car sales under pressure. With used car supply going down, prices will go up.” And the PHEV market in the Netherlands is the largest in Europe.

How to help green cars
Considering the second-hand market is an essential element in the overall life-cycle and total cost of a vehicle is there any way OEMs and governments can act to support its viability?

“Well, it comes down to price and risk. Considering the price-consciousness of used car buyers, lower prices for BEVs or PHEVs fuel new car sales and develop the used car market”. This is what happened in Norway or the Netherlands to BEVs and PHEVs, respectively. As of the risk, “we already see a very good strategy applied by the industry. OEMs offer long warranties, for instance on the batteries of BEVs. This eliminates any concern on the new technology which a used car buyer would otherwise price in. These warranties need to be transferrable, qualified and simple.”

Image credit: Volvo Cars

Authored by: Frank Jacobs