The word ‘residual value’ is not very often mentioned in a positive context. The buyer of a new car is losing money because although he may appreciate his vehicle more and more while driving it, it is depreciating. These days however, the residual values are under pressure throughout continental Europe and things seem to be getting worse. It is difficult to identify any single cause for this phenomenon, and the same applies to just railing against the high rebates one more time.

Nevertheless, a main driver for decreasing residual values is the shrinking demand, especially for new cars in the different European countries. Whilst the German market is still more or less stable, the French are suffering from economic difficulties. Similar problems, keep the consumers in Italy away from their dealerships, with high fuel prices increasing the pressure. In Spain, the new car market is still down and more and more older used cars are being traded, instead of younger or new ones. Even in Poland, the successful trend that we have seen in new car sales is affected by the high number of used cars, mainly coming from Germany.

As a result, the car manufacturers are facing a difficult situation. Their production capacities cannot be reduced from one day to the next. Far from it! The car makers are interested in running their factories at full capacity. The alternative would be to work short time or make a significant number of employees redundant. Therefore, many manufacturers favour selling their cars at discounted prices over financing expensive redundancy programmes, which can lead to labour conflicts and eventually  negative media coverage for many months.

As I pointed out earlier, the overcapacity is certainly not the only factor causing the current negative residual value trend. There are more developments putting pressure on both current and future used car values. Let us have a closer look at one of them: the continuing popularity of the diesel engine!

For the buyer of a new car who is strongly focussed on the Total Cost of Ownership and with regard to high mileages, the diesel engine is the favourable choice. The used car buyer, however, prefers a petrol engine – the taxes are often lower, the insurance costs less, diesel and petrol prices are equalizing, and not forgetting the regulations on pollutants that are to be introduced.

Only by using expensive additive technologies could used diesel cars be modified to lower the emission of such pollutants and meet future standards. With a B2B-share between 50 and 60%, the new car buyers simply have different needs from those buying used vehicles (around 5% B2B), especially in one, two or three years time from now. As yet, the French used car buyer is still focussed on low consumption.

Here we indeed recognise a sustained demand for used cars with a diesel engine, but this is an exception to the rule. As a European trend, used car buyers are turning their backs on the diesel, whereas new car buyers are having a hard time turning away from ‘the oil burners’. The TCO-calculation will get mixed up if the depreciation turns out to be higher than foreseen. However, the forecasted depreciation clearly forms the biggest bulk of costs related to running a car. And ultimately a residual forecast should always aim at the demand of the future used car buyer.