UK diesel sales slump could spell disaster for Irish car values

The car buyers of the UK are turning their backs on diesel almost as quickly as voters turned their backs on the EU. A combination of uncertainty surrounding the country’s economic performance, plus looming penalties for diesel cars and extra charges and bans being proposed by major urban centres is driving British car buyers away from DERV and towards petrol and hybrids.

According to figures from the Society of Motor Manufacturer and Traders (SMMT - the UK equivalent of Ireland’s SIMI) sales overall in the market fell from 203,585 to 186,265, a fall of 8.5 per cent. Diesel sales underlying that number fell much harder though, and are down by 20 per cent compared to May of 2016. Diesel sales now account for just 43.7 per cent of the UK car market.

The segment for hybrid, electric, and hydrogen cars grew in the same period by 46 per cent, and now accounts for 4.4 per cent of the market, the most that it ever has.

Simon Benson from the AA said that "diesel still accounts for a large share of the market, with more than half a million new diesel cars registered since the start of the year. These changing trends suggest that consumers are now thinking more carefully about buying the fuel that's most appropriate for their needs. The continuing slowdown experienced across the new car market as a whole could in turn lead to considerable opportunities for dealers in the second hand market."

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It’s those falling second hand values which could have a significant knock-on effect here at home, as an ever-increasing number of Irish buyers are shunning local dealers and shopping in the UK for bargains.

Buyers are ditching diesels in their droves and it's hard to see how diesel can recover from what feels like a mortal blow.

According to the Society of the Irish Motor Industry (SIMI), imports of used cars into Ireland have risen by 44.4 per cent, to 38,702 cars so far this year, and of those, 30,724 were diesel-powered. The influx of these cheaper UK imports is already having a depressing effect on residual values here, and falling values in the UK will exacerbate that issue. Alex Buttle, Director of car sales website Motorway.co.uk said that "falling demand for 'dirty diesels' means a price drop is inevitable. This has already happened in Germany, where stringent diesel regulations led to a 19 per cent drop in the average price of diesel cars this year. As car buyers opt for cleaner, 'punishment-free' fuel options, we believe there will be an increase in the share of petrol, hybrid and electric vehicle sales in the months ahead."

Shaun Armstrong, managing director, car finance provider Creditplus.co.uk told The Irish Times that "buyers are ditching diesels in their droves and it's hard to see how diesel can recover from what feels like a mortal blow. There is so much negative press around diesel at the moment - with proposals to introduce a toxin tax and the Government planning to launch a car scrappage scheme - it's difficult to see anyone choosing diesel over petrol and Alternative Fuel Vehicles (AFVs) right now. We'd expect to see AFVs sales continue to rise steadily while diesel sale drop off. The question now is, can diesel recover from a terrible few months or has the death knell already been sounded?

“It’s too early to give a figure on what percentage the residual values on diesel cars will fall and which models will be hardest hit. As for the impact on buyers who took out PCP finance deals, the issue will be around the value of their vehicles at the end of the PCP agreement. If residual values do fall significantly we could see more people handing back their cars at the end of the term, because the guaranteed future market value confirmed at the start of the agreement will be higher than the current market value - and they won’t see any point in buying the car.”

Irish dealers have already noted a softening of the used values of one-year old cars in our market, although this has been partially ascribed to the explosion of low monthly rate PCP deals for new cars currently available.