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Diesel demand to decline as fleets take an ‘open minded approach’ to vehicle choice

Diesel demand to decline as fleets take an ‘open minded approach’ to vehicle choice

The diesel share of the UK new car market is set to gradually decline from 50% to less than one-third in the years to 2025, notably as fleets take a more “open-minded approach” to petrol-engined cars and demand for plug-in and hybrid models increases.

That’s the conclusion of a new ‘Petrol versus Diesel’ report from the consulting arm of motor industry date suppliers and forecasters CAP HPI.   Last year business and fleet sales accounted for 1.5 million new car registrations, 55.2% of total new car volume and almost 60% of diesel models. But, in the private sector petrol-engine new car registrations dominate.  

However, the report highlights three key factors that could undermine demand for diesel vehicles over the next decade: Environmental issues and concerns around air quality particularly with NOx from diesel emissions resulting in the advent of Clean Air Zones; improved petrol-engine technology eliminating the MPG advantages of diesel cars; and the increased range and user-convenience of alternatively-fuelled cars such as hybrids, plug-in hybrids and 100% electric vehicles.  
Furthermore, CAP HPI has already highlighted declining diesel residual values with the premium charged by motor manufacturers for diesel models over their petrol equivalents now being almost completely eroded in the second hand market.

The report says: “We are starting to see saturation of diesels and we have seen some brands effectively flood the market with diesels. Diesels are no longer seen as the only solution for many buyers who are aware that improved petrol engine efficiency and alternatively fuelled vehicle competitors are available as an alternative to a diesel.”  

However, diesel is not “dying”, according to CAP HPI with the fuel being particularly resilient in the fleet and business sector, particularly in the short to medium term.  

The report says: “Whilst some fleets are opening up their ranges to petrol the vast majority remain wedded to diesel, and there is no indication that this will change in the short term.”  

The report adds that vehicle manufacturers will continue to develop diesel technology, focusing on weight improving efficiency and reducing emissions and particulates.  

Nevertheless, the report says: “It is clear that the fleet market is concerned enough about future diesel values to reduce their exposure to them.  As we start to see restrictions in the use of diesel vehicles in our cities, used buyers will become increasingly wary of the technology and this will impact residual values.  

“As these disadvantages begin to outweigh the benefits of diesel vehicles - and the increasing awareness of total cost of ownership is already putting paid to this - we will start to see a vicious circle of declining used demand and declining residual values.”

Simultaneously, there will be the emergence of next-generation electric vehicles delivering battery ranges of 300 miles plus and the installation of thousands of high-speed charging points.  

The report continues: “With declining diesel residual values starting to become apparent, fleets are moving to balance their portfolios to reduce their exposure to falling diesel residuals. Similarly, there is an increased demand for low and zero-emission vehicles from businesses wanting to show themselves as environmentally aware.  

“At the same time, end-users are also looking to shift away from diesel. With benefit-in-kind taxation on company cars planned to increase over the remainder of the decade, more and more company car user-choosers are looking at low and zero-emission alternatives, some of which offer a better deal for company car drivers.”

Consequently, concludes the CAP HPI report:
Diesel residual values will continue to fall across the market as over-supply to the fleet and business sector means supply outstripping demand from used car buyers        
A wider and broader understanding of the true total cost of ownership of diesel vehicles by used buyers will expose the poor value that many offer for typical consumers
Fleet and business buyers will continue to diversify their fleets to decrease their exposure to lower diesel residual values; increase choice for user-choosers seeking non-diesel options and, there will be pressure from both employers and employees seeking lower tax options as the tax burden on diesel cars rises
The attractiveness of diesel cars will be further undermined by local Clear Air Zones           
Motor manufacturers will nurture demand for alternatively fuelled vehicles at the expense of diesel vehicles.

What’s more CAP HPI is forecasting that in sectors where diesel demand is already weak, such as the city car segment, new generation models will not offer a diesel powertrain option.  

Additionally, it predicts that in strong growth segments, such as the SUV sector, motor manufacturers will drive customers towards electric vehicle offerings. Also, in the mainstream sectors, petrol engine models will be promoted.  

The report says: “Fleet-focused segments will see more petrol demand as changes to company car tax, and a more open-minded view of petrol engines makes them a more popular choice for both fleet managers and user-choosers.  

“We can foresee a gradual decline in diesel - from half the market to less than one-third, with growth in petrol engines, hybrids and electric vehicles to compensate.”