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CAP trade watch: Diesels hang on to their premium

Diesel car sales continue to grow, partly due to the running-cost advantage, but also the improved consumer perception resulting from advances in technology.

So, with diesels becoming evermore commonplace, what affect has there been on the price premium commanded by used diesels over equivalent petrol vehicles?

New diesels are typically priced higher, but research on a basket of vehicles reveals the premium percentage is notably wider in the used market. However, if the supply of diesels continues to rise, can the growing consumer demand stay ahead of the supply of used vehicles and maintain this disparity between the new and used markets?

CAP’s investigation centred on a basket of 27 petrol and diesel derivatives from a cross-section of sectors. Each vehicle’s valuations were analysed over an 18-month period from January 2003 to June 2004 at four mileage points (20, 40, 60 & 80k) and on five registration plates (01X, 01Y, 0151, 0251 & 0202).

As far as possible all the diesel derivatives were compared with appropriate petrol substitutes, such as the Ford Focus 1.8 TDi Ghia 5dr against the Focus 1.6 Ghia 5dr.

The findings from this analysis included strong evidence of growth in the diesel premium sector since the beginning of 2004. Based on a basket of vehicles from a variety of sectors, the current average diesel premium ranged from 16.5% to 19.5% (dependent on mileage and the particular registration plate considered).

This compares with an average new diesel premium for the same vehicles of approximately 5% (the equivalent of a £750 premium on a £15,000 car). If the current diesel premium for this basket is compared to early 2003, we find that initially the premium ranges from 14.5% to 20.0%, but this drops to between 13.5% and 16.5% by May 2003. Following this drop, the trend was slightly upwards for the rest of the year, before accelerating in early 2004.

Over the course of the 18-month period, the gap narrowed between the higher premiums commanded on high mileage diesels and the lower premiums for low mileage diesels. The results seem to indicate that lower mileage diesels experienced a slightly greater rate of premium growth. This may lend support to a commonly held view that there is a general shortage of low mileage diesels. This aside, it does appear to be the case that despite forecasts of increasing supply, overall used diesel premiums remain strong and show little sign of diminishing.

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