Although diesel continues to be the dominant fuel among fleet customers, its share is even waning in this domain. The VED increase announced in the Autumn Budget further adds to its woes, writes Neil King, senior data journalist at Glass’s
According to the latest figures from the Society of Motor Manufacturers and Traders (SMMT), registrations of new passenger cars declined by 4.6% year-on-year in the first 10 months of 2017, whereas demand for diesel cars plummeted by 14.9%.
Go deeper with GlobalData
Accordingly, the diesel share of the new car market has fallen further to 42.5% in the first 10 months of 2017, and even dipped below 40% in the months of August and October.
The notable decline in diesel demand in 2017 can be attributed in part to new vehicle excise duty (VED) rates introduced by the UK government in April 2017, which is when the slide in the figures took hold.
Fleet customers
Although diesel continues to be the dominant fuel among fleet customers, its share is even waning in this domain. Analysis of detailed registrations data provided by the SMMT reveals that the diesel share of fleet registrations has fallen below 60% every month since November 2016, and its demise is accelerating. The diesel share among fleet buyers even fell to 50% in August, and only recovered to 51% in September.
Although diesel demand is falling more rapidly among private consumers than fleet buyers, this trend is worrying as fleet users naturally cover higher mileage.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAs it is, there are already concerns that CO2 levels could rise in the UK this year for the first time since average CO2 emissions were recorded, and a continuation of this trend will only increase the likelihood of that.
This only adds to the woes of manufacturers, who are facing large fines for potentially missing CO2 targets in Europe by 2021.
UK petrol car residual values are already stronger than for diesels as a percentage of list price. Diesel cars used to retain more of their value after 36 months and 60,000 miles than their petrol counterparts, but values had converged by the time the Dieselgate emissions scandal broke in September 2015.
Fast-forward to the latest Glass’s valuations data, and petrol-driven cars have widened the gap with diesel to six percentage points, achieving 44% and 38% respectively of their original list price after three years and 60,000 miles.
Residual values of diesels will continue to underperform compared to their petrol counterparts, as much due to the ‘diesel-bashing’ media frenzy that has been whipped up than to any actual measures.
Pressure on values is expected to be greatest in the larger car segments, with more expensive used offerings already showing signs of struggling.
These segments are also naturally more susceptible to the impact of a shift away from diesel, whereas small car segments are dominated by petrol vehicles, with few diesel variants available.
The higher VED rates introduced in April 2017, albeit only for the car’s first year of registration, will also continue to drive more buyers into petrol or electrified cars, even though it is, of course, only older diesel cars that are dirty, and not the latest versions.
Given this and the rise in CO2 emissions, the government is facing criticism for further discouraging people from taking the latest Euro 6 diesels with the measures announced in its Autumn 2017 Budget.
It was announced in the Autumn 2017 Budget that new diesel cars registered in the UK will be moved up one band of VED for the first year, effective from April 2018. This could add as little as £20 to the first year of tax, but as much as £500 depending on the amount of CO2 released under official figures. In addition, the existing supplement in company car tax will also rise by 1% on diesel cars.
These rates will apply, Chancellor Philip Hammond said, until vehicle manufacturers release the next generation of cleaner diesel engines, meeting Euro 7 standards. While there is no official date for these standards, it makes sense that they will be implemented when the current CO2 targets, regulated by the European Commission, expire and manufacturers are required to work to new rules in 2021.
Downward pressure
Although the higher taxes will only apply to new diesel cars in their first year of registration, this adds further downward pressure to diesel demand in the UK, although residual values and total cost of ownership are not expected to be dramatically impacted.
As far as diesel new car sales are concerned though, a spike can be expected in the first quarter of 2018 ahead of the implementation of the higher VED rates but a payback will undoubtedly ensue, as has happened since April 2017.
