Diesel: the outlook is painful but not lethal

New car buyers turn to petrol, but diesel has not fallen from grace entirely on the used car market. The RV evolution and outlook are very market dependent, as Autovista explains.

On average, diesel RVs are falling, while petrol is on the rise. The difference between the two will continue to level out. Still, as new diesel sales are dropping, the supply on the used car market will decrease, which will support resale prices. On the other hand, OEMs are bound to provide larger discounts on new diesels to keep production utilisation high and to hit CO2 targets.  This will slightly increase the pressure on resale values in turn.

Germany: a good indicator

New car registrations in Germany increased by 2.7% in 2017. At 3.4 million units, demand was at its highest level since 2009. The used car market contracted by 1.4% last year, after six years of continued growth.

“Oversupply of diesel used vehicles meets a substantially reduced demand and the trend for diesel is downward,” explains Autovista’s Managing Director Consulting and TCO Solutions, Christof Engelskirchen. “For the D-segment at 36m/60,000 km a c. 5 point gap between petrol and diesel has now built, for the C-segment c. 3 points, both in favour of petrol”. Autovista expects that diesel RVs will decrease for the D-segment (C-segment) by about 2% (1.5%) in 2018 and 2% (1.5%) in 2019.

Spain: riding high

After three consecutive years of double-digit growth, the new car market expansion slowed to 7.7% in 2017. Just 48% of new cars sold in Spain in 2017 were diesels, down from over 70% at the start of the decade and under 57% in 2016. As to used cars: Spanish sales have risen steadily since 2012, with a year-on-year rise of 11.9% to 2.8 million cars. 

“RVs in Spain have been riding high for several years, as the weak supply struggled to satisfy the recovery in used car demand,” highlights Christof Engelskirchen. “However, with the rapid growth in the new car market since 2015, used car supplies are now catching up. In general, 2018 and 2019 should be relatively stable as far as residual values are concerned. Still, as used car buyers are moving away from diesel as well, their RVs are expected to drop by c. 2% in 2018 and 2% in 2019 in C- and D-segments.” 

France: healthy outlook

New car registrations in France increased by 4.7% in 2017, exceeding 2.1 million units for the first time since 2011. The used car market has been thriving since 2014 but decelerating to just 0.6% in 2017. Residual value performance has been strongest at the lower end of the market, which is dominated by petrol cars. 

“The RV outlook for France is the healthiest among the EU5, with growth of over 1% forecast for both 12 and 36-month-old cars in 2018 and 2019,” explains Mr Engelskirchen. “However, diesel is suffering from both taxation and a negative public perception and will be further impacted by higher taxes on the fuel itself. The forecast is therefore stable in both the 12 and 36-month scenarios in 2018 and 2019, whereas petrol values will continue to rise.”

Italy: diesel va bene

Last year, the Italians bought 7.9% more new cars (2 million). Interestingly, the diesel share increased every year from 2012-2016, with some 57% of new cars sold in 2016 powered by diesel. Used car sales averaged a modest growth rate of 3.1% between 2012 and 2017. 

“The weakness in used car supply is expected to have a positive effect on resale values, which should rise by 1% in 2018 and 2019,” says Autovista. Diesel is far less demonised in Italy than in other major European markets. Nevertheless, stricter regulations for diesel, continued interest in CNG and improved fuel efficiency for petrol cars is likely to close the gap between the diesel and petrol.

UK: things are complicated

After 2.3% of growth in 2016, new car registrations declined by 5.7% in 2017. 2.5 million new cars registered is still firmly ahead of pre-crisis levels. The diesel share fell from nearly 48% in 2016 to 42% in 2017 and has been below 40% every month since October. The used car market outperformed new car sales the last two years, expanding by 7.3% in 2016 and falling slightly by 1.1% last year.

Registrations of new cars in recent years have caused sizeable overcapacity in the used car market. Add to that large volumes of used car returns and major discounting on new cars and there is only one way prices could go: down. RVs of 36-month old cars are forecast to fall by 1% in both 2018 and 2019, regardless their fuel type. Although the sharp decline in new diesel sales will reduce supply, demand in the used car market remains robust. Used diesel transactions increased by 3.3% in 2017 compared to a 14.7% decline in registrations of new diesels.

This is an article from the Fleet Europe Remarketing Special. Read the full issue on Issu.