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CAP Trade Watch: Can premiums for used diesels last?

Diesel is re-shaping the new and used car markets – its share of the European Union new car parc has doubled from around 20% in recent years. And although the UK diesels have continually underperformed that level of growth it is has now reached nearly one in three new registrations.

Drilling into individual models our researchers found that during the first quarter of this year private demand for new diesels reached half or more of all new registrations from Peugeot, Citroen, Audi, Volkswagen, BMW and Mercedes-Benz.

On the used market, diesels continue to command premiums over petrol but a question remains over how long this may continue. Clearly, with the growth in new diesel largely driven by benefit-in-kind taxation, a major incentive to choose diesel is lost in the used car market. We have researched used car dealers across the UK and found a near 50-50 split between dealers who are experiencing an upturn in demand for used diesels and those who have seen no change. This kind of split is insufficient to guarantee premiums in the long term and, indeed, our CAP Monitor – Future Residual Values team is forecasting an average 7% decline in premiums for diesel over petrol during the next three years.

Dealer research confirms that while many are happy with the level of retail demand for diesel there is concern over the fervour with which traders bid for such cars. There is a limit to the retail price premium a customer finds acceptable and margins can be unsatisfactorily low.

As well as 48% of dealers reporting a rise in private interest in used diesels and 46% experiencing no change, 5% actually detect a decrease. Regional variations are also becoming identifiable, with the strongest demand in the North-east of England, Northern Ireland – prompted no doubt in part by the availability of cheap fuel over the border – and the lowest in Scotland. Fuel economy is the key driver for any stepping up of demand.

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