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Diesel sales rising, but used buyer not yet convinced

"As the New Year approaches, so does that day in April when the new company car taxation system comes into effect. As we know this is leading many user-choosers to opt for a diesel to soften the effect of the new system on their pocket.

Much is being said about the likely effect on used car prices of so many more diesel cars entering the market in future. The great British public will decide their fate, but it is worth looking at the facts and seeing which way it could go.

Ford says that in 2002 around 48% of its cars sold in the UK will be diesel. Volkswagen says it will be around 50% or more if they could increase production. And French manufacturers' diesel sales will probably be much higher than this. Prestige carmakers have also seen demand growing over the last couple of years and this is set to continue.

In 1998, BMW sales were 3% diesel. By 2000 this had risen to 12% and in 2001 they could possibly have a 15% diesel share, rising even further next year with their very efficient and quiet new range of engines. Mercedes-Benz has gone from 20% in 1998 to 28% so far this year. Audi sold over 20,000 diesels in 1998, but around 30,000 this year.

In January last year 13.54% of new car registrations were diesel; this rose to 18.07% in September this year.

So the proof is there, if anyone was in doubt that diesel sales are rising and will continue to do so. There are two main reasons for this. First, the diesel engine is getting much better and more sophisticated. Secondly, people have to choose them to save money, not necessarily because they want to.

But what about used car buyers? Will their needs be the same as those choosing a company car? Buyers of used cars make their selection for different reasons to those of new cars. Do they really need a diesel? After all, they tend to think that they are more costly to repair. And diesel is more expensive than petrol, fact. But more important to many used car owners is the ability to service the car on a Sunday morning. They generally know how to fix a petrol vehicle but with the modern diesel they can't even see the engine, let alone fix it.

So will used car buyers continue to pay a premium for diesel over petrol? Because now it is a case of demand outstripping supply, but in three years time the reverse may happen.

If diesel at the pump was made cheaper than petrol, there is a good case that demand for diesel-engined vehicles will increase. If the public accepts that modern sophisticated diesels are a better bet than petrol, demand will continue.

But while there is a general consensus that they are smelly, noisy and tractor-like, that demand will weaken.

Manufacturers and the new tax system have done a great job of convincing company car drivers of the benefits of diesel. But if a downward effect on residual values is to be averted they will have to convince around a quarter of used car buyers in three years' time – somehow.

Winners and losers
There are currently some noticeable winners and losers in the market. Toyota's Land Cruiser Amazon 4.2 diesel is making strong money. Small automatics with loads of goodies are also sought after. Jaguar's XJ V8s easily find homes if they have the right spec; they do look good value for money. BMW 3 Series Coupes continue to be snapped up and you have to wonder whether the bubble will ever burst on this car.

On the other hand Renault's Megane seems to have gone off as has the Land Rover Freelander. Another 4x4 that is struggling is the Suzuki Vitara but if we get a cold spell things may change. Rover's 600 is about in numbers but if priced right they look extraordinarily good value.

At the heavy end of the market, Aston Martin DB7s have to be V12 as the 'Straight 6' is regarded as old and will only sell at a price. Ferraris went through a blip in mid September but business is back to normal with the exception of the 355 Spyder. Because of the season demand is almost nil, but come Springtime the footballers and pop stars will be out in force as they won't want to wait up to five years for a new 360 Spyder, or whatever it will be called then.

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