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Booming diesel sales prompts warning of RV collapse

Booming fleet diesel sales have led senior industry figures to make an unprecedented call for co-operation between manufacturers, fleets and dealers to fend off fears of a collapse in diesel residual values.

Sales of diesel vehicles to fleets rocketed by more than 60% during October compared with the same month last year, as company car drivers look to reduce their benefit-in-kind tax bills in advance of the new formula which will see BIK charged on a combination of a car's price and its carbon dioxide emissions.

Diesel-powered cars produce significantly lower emissions of CO2 than their petrol equivalents, and will therefore generally incur lower tax bills (despite suffering a 3% penalty).

Experts predict that the fleet exodus from petrol will continue, prompting fears of oversupply of diesel cars in the used car market in three to four years.

This could damage residual values, with industry insiders questioning whether the current premium for diesel cars will continue, given that private buyers with limited annual mileages are unlikely to reap the same fuel economy benefits from diesel as a high mileage company car driver.

Manufacturers such as Ford, Peugeot, Renault, Vauxhall and Volkswagen currently charge between £1,000 - £1,500 more for new diesel cars over their petrol equivalents to reflect the additional cost of diesel technology. And in many instances these premiums are retained in the used car market. But a flood of diesel cars could see this premium disappear, accelerating depreciation and damaging fleet budgets.

Jeff Knight, editor of Cap New Car Monitor, warned there could be 150,000 diesel ex-fleet cars hitting the used car market by 2004/05.

'With diesel being the current choice of many company car drivers, there will be an increase in the number of diesel disposals and manufacturers need to make sure dealers are fully aware of how to sell used diesel vehicles,' he said. However, Adrian Rushmore, chief car editor for Glass's Guide, warned against panic over a residual value collapse, claiming the used car market would adapt with time.”

Maurice Howkins, Vauxhall fleet director, said: “We have seen an uplift in demand for diesel production to cater for demand. We work very hard with fleet specialist retailers and residual value management is on the agenda.

But, Adrian Rushmore, chief car editor for Glass's Guide, said: “Residual values for diesels will fall, but not catastrophically. RVs will ease because of the additional volumes, but there has never been a successful relationship between fleets, contract hire firms and manufacturers to repatriate used cars back to the franchise they came from.” (November 15, 2001)

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