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Russia’s auto revolution

▼ New powertrains, new residual value challenges

▼ Personal leasing: a gamechanger?

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On the right trackPersonal leasing has proved a gamechanger for individual car buyers, and fleets and leasing companies are now looking at how they can build on that momentum, as Ralph Morton explains

If personal leasing was a train, it would certainly be of the high-speed, few stops variety. That doesn’t mean it’s rattling towards any sort of out of control doom; on the contrary, so far it’s all been a runaway success.

Bank-owned leasing companies, independents and captives are all scrambling to get a share of the personal contract hire action.

In the vanguard have been the UK’s entrepreneurial leasing brokers, who search out the best deals - a combination of funder finance underpinned by residual values and dealer discounts - to market compelling offers.

For example, a Land Rover Range Rover Evoque for £258 a month; or stock cars such as the SEAT Leon for £160 per month or a Mercedes-Benz C-Class for £292 a month.

Such deals are certainly eye-catching and effective at drawing customers in, even if some of these deals are based on a nine month initial rental with only 5,000 miles per annum. The devil may be in the detail, but the overall package is very appealing.

And it works well. Leasing brokers, with their national reach and adept local marketing, are driving the growth of personal leasing. The British Vehicle Rental and Leasing Association (BVRLA) reports that personal contract hire (PCH) has grown year on year per quarter an average of 28.25% since Q3 2016.

In contrast, business contract hire (BCH) has declined during the same period from 3% or 4% growth to negative territory from Q4 2017 onwards.

New directionsIn many ways, the brokers are pushing at an open door.

Following the banking crisis of 2008/09, disposable income has become increasingly stretched. The Institute of Fiscal Studies reported in November 2019 that average wages in April 2008 were £13.35 per hour and they subsequently fell for the next six years. Since then there has been upward wage growth, but by April 2019 wages were still only at £13.27 per hour. In other words, pay rates are still no higher than their April 2008 level.

Against such a background, hire purchase (HP) and personal contract purchase (PCP) products with their substantial downpayments looked far less affordable than a three months in advance PCH rental.

IntroductionWelcome to the latest edition of our Asset Finance Pricing Review, published in association with Asset Finance International

Winston Churchill famously referred to Russia as "a riddle, wrapped in a mystery, inside an enigma," in a radio broadcast in 1939, when he was commenting on the approach that country was likely to take and its possible actions once war broke out.

Decades later, and those words still ring true. Russia has been much in the news throughout 2019, and not always in the most flattering light.

The fall-out from the state-sponsored poisoning of a former Russian military officer and double agent and his daughter in Salisbury continues, while many column inches have been devoted to the controversy surrounding potential Russian intervention in the electoral process in both the UK and the US. There has been strong criticism of President Vladimir Putin’s foreign policy, too.

However, other events have cast Russia in a more positive light. The country’s hosting of the 2018 football World Cup, for instance, won plaudits for its organization and its newly built stadiums proved popular with fans and players alike.

Of course, Russia is also a major power in the commercial field, particularly in the oil, gas and natural resources sector. The country is emerging from decades of centralist, communist rule towards a more open, market economy with a stronger emphasis on customer service and personalization.

All this makes the automotive market in Russia a particularly intriguing sector. In our article on page 6, Tom Seymour takes a look at how leasing and the fleet market are developing. Interestingly, while new cars sales have stalled, leasing is gaining popularity. Without the legacy of large company fleets, Russian drivers are showing a strong interest in car sharing services, although support for other new initiatives, such as electric vehicles, is very low.

Given its complex history, it is hard to predict how the Russian auto market will develop. It’s not the only region to be experiencing seismic change, though. As commentator Ralph Morton points out in his opinion piece on page 3, the runaway growth in personal leasing is starting to have an impact on fleet leasing.

On page 15, we have insights into another of the big changes of the moment – the impact of the so-called “death of diesel” on car sales and residual values. Consultant Dean Bowkett takes a look at how new powertrains are taking hold across Europe, and at the factors influencing the rise of electric vehicles.

Do enjoy, and your comments and opinions are always welcome.

Gary JefferiesSales and Marketing Director, Bynx

Introduction

Welcome to the sixth edition of Asset Finance Pricing Review, published incollaboration with Asset Finance International and Professor Colin Tourick.

As in all previous issues, we again put forward a host of articles from industryinsiders that serve to illuminate the more challenging aspects of asset financepricing. The purpose is to bring you valuable insights, knowledge and examples.

In any company, there are different stakeholders involved in pricing policy andexpecting sales and finance to see eye-to-eye on every issue is the stuff of fantasy.This is especially true for businesses that operate internationally and have to takeinto account the cultural, political, financial and regulatory differences within thosemarkets. In Car Wars – reconciling divergent views on manufacturer auto financepricing (pages 3-5), Bryan Marcus, regional director of VWFS Latin America,Canada and Northern Europe, offers an interesting perspective on resolving pricingdisputes – and one that doesn’t involve leather gloves and a boxing ring!

There are many ‘levers to profit’ in every asset finance business but the one thatwill have the greatest impact on the bottom line is changing your pricing policy.This is the advice of Professor Colin Tourick, management consultant and editor ofAsset Finance Pricing Review, in The pricing action plan for profit (pages 6 and 7).

There’s only one topic (other than pricing policy) that can claim joint ownership ofthe most-difficult-aspect-to-get-right-in-asset-finance title and that is settingResidual Values (RVs). But it’s not just a matter for vehicle leasing and daily rentalcompanies, states Dean Bowkett, technical director and chief editor atEurotaxGlass’s. In his article Setting Residual Values (pages 8-10), he examines thepitfalls and best practices and offers a unique perspective on how it matters forOEMs too.

Page 11 presents the results of our last Pricing Survey, which posed questionsaround how to pitch pricing at a level that delivers the most new business andhighest margins. As ever, the results surprised us. They may surprise you too orperhaps confirm your prior thinking. Either way, get in touch and give us yourperspective.

Take part in our next survey

We’re very grateful to everyone who takes part in our surveys (you can do soanonymously if you like) because they always provide us with valuableunderstanding and ideas. This time we’re asking: What is the primary considerationwhen your asset finance business sets its prices/issues a quote? You can take parthere: http://bit.ly/bynxpr5.

It’s always interesting to read how suppliers work successfully with leasingcompanies and Kwik Fit GB is no exception. In an article, Kwik Fit GB fast fitsdeliver service excellence and financial savings (pages 12 and 13) Peter Lambert,fleet director, talks us through how the fast fits concept is delivering tangible resultsfor leasing companies.

We end this Pricing Review with the latest figures on changes in residual valueforecasts, SMR costs and lease rental rates across Europe (to January 2014) frombenchmarking and research specialist Experteye.

And don’t forget to share your feedback with us and tell us what you’d like to seein future Pricing Reviews.

Gary JefferiesSales and Marketing Director, Bynx

Ralph Morton

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bynx.com sales@bynx.com +44 (0) 1789 471600

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“As our figures show, even among large employers, penetration for this type of initiative is still only around the 30% mark, so we expect this to be a major area of growth for leasing companies in the next few years.”

It all points to the personal lease express picking up greater speed. But the lenders need to jump on the PCH train now - before it leaves the station for good.

Ralph Morton is the editorial director of Morton Media Communications. He is the editor of the Broker News and Fleet & Leasing.com websites.

PCH has made vehicles more accessible to a wider sector of the public, including prestige vehicles that would be beyond many customers’ reach using traditional car finance products.

It has also coincided with a cultural shift towards usership based on subscriptions rather than ownership, whether that’s music (such as Spotify) or entertainment (such as Netflix). The idea of access to services, rather than owning them, has been significant. And PCH with its simple-to-understand premise of rent and return is distinctly in tune with this cultural trend.

Meanwhile corporates have been reassessing if they wish to continue supplying company cars to employees, whether that’s due to cost cutting or the rising levels of benefit-in-kind taxation for the employees.

Certainly the number of company car recipients is on a long-term downward trend: company car drivers totalled 1.4 million in 2002-03. This figure has since fallen but stabilized at some 950,000 recipients. Nevertheless, forecasts suggest it might drop below 900,000 in 2017-18, although this has yet to be verified by the HMRC.

Still, it’s put pressure on the fleet leasing companies to reconsider channel strategies. BCH is predictable and stable, plus it also comes with maintenance tacked on in most cases. So it’s nicely profitable.

But as the amount of BCH share decreases, and the PCH segment grows, leasing companies can either face declining incomes or adapt to the new trend of personal leasing.

Some are already there.

It’s no surprise, then, that of the top six leasing companies in the annual FN50 listing – announced in November 2019 - five were funders to the leasing broker market. Of these, all bar one showed growth.

Lex Autolease remains the number one leasing company while LeasePlan (3), Arval (4), ALD Automotive (5) and Alphabet (6) fill out the top six, all with healthy broker programmes. One independent, Zenith, has even launched its own PCH broker-style brand called ZenAuto this year to take advantage of the personal leasing growth.

But other vehicle funders are rapidly introducing personal lease products to satisfy the interests of customers and their staff. Lex Autolease is trialling what it calls personal car leasing. It’s an affinity style product that’s available to all employees, including those who may be considering a company car alternative arrangement.

Arval has a range of PCH, affinity and salary sacrifice schemes for non company car drivers. The head of Arval Mobility Observatory in the UK, Shaun Sadlier, says: “While there has been a marginal fall in the number of company cars generally, the overall fleet leased to employees in the UK has increased.

Meanwhile corporates have been reassessing if they wish to continue supplying company cars to employees, whether that’s due to cost cutting or the rising levels of benefit-in-kind taxation for the employees.

As our figures show, even among large employers, penetration for this type of initiative is still only around the 30% mark, so we expect this to be a major area of growth for leasing companies in the next few years.

“”Shaun Sadlier, head of Arval Mobility Observatory, UK

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Russia steps into auto leasingJournalist Tom Seymour takes an in-depth look at the finance and pricing challenges for the vehicle leasing and fleet market in Russia

Despite its massive land mass and population of 146.3 million, Russia has a relatively small automotive market compared to countries like Germany, the UK, France or Italy.

Total sales of passenger cars and LCVs increased by 12.8% to 1.8 million units in 2018, making it the fifth largest market when looking at European countries. That growth added 204,854 units year-on-year, and marked a big success after a crash in sales between 2013 and 2016.

Lada, Kia, Hyundai and Renault represent more than half of sales, with just one model from a German brand making it into the top 10 most popular last year (the Volkswagen Polo).

Native brand Lada has a big market share in Russia, accounting for 20% of all vehicles. Of those vehicles, the top two selling models Vesta and Granta, account for 60% of Lada sales in Russia. Lada accounts for nearly half of the top 10 models sold in Russia, while Korean brands Kia and Hyundai take three of the top 10 spots too.

The new car sales statistics show that value orientated workman-like small saloons and SUV crossovers are very popular with new car customers in Russia, with the Vesta, Granta and Kia Rio all offering similar size and performance options.

The German premium segment is non-existent in Russia, with BMW, Audi and Mercedes-Benz all missing from the top selling manufacturers. While

VW Group does have a foothold with VW and Czech-based Skoda, their numbers are dwarfed by Russian and Korean competitors.

Ford makes it into the top 10 most popular manufacturers, but it announced early this year that it would be pulling out of the passenger car market, as well as closing two factories in the country. It is still continuing with commercial vehicle sales, however. The US giant said its decision was down to struggling to make a profit with its Ford Sollers joint venture as consumers turned towards more value focussed brands.

Top 10 best selling vehicle manufacturers

Vehicle manufacturer 2018 2017 % change

Lada 360,204 311,588 16%

Kia 227,584 181,947 25%

Hyundai 178,269 157,858 13%

Renault* 137,062 136,682 0%

Toyota* 108,492 94,238 15%

Volkswagen 106,056 89,469 19%

GAZ LCV 60,677 58,617 4%

Nissan 80,925 76,000 6%

Skoda 81,459 62,302 31%

Ford 53,234 50,360 6%

*Manufacturer provides figures with LCV sales combined with passenger car salesSource: Association of European Businesses (AEB)

Top 10 best selling models 2018 2017 % change

1. Lada Vesta 108,364 77,291

2. Lada Granta 106,325 93,686

3. Kia Rio 100,148 96,689

4. Hyundai Creta 67,588 55,305

5. Hyundai Solaris 65,581 68,614

6. Volkswagen Polo 59,450 48,595

7. Lada Largus 44,072 33,601

8. Renault Duster 41,409 43,828

9. Skoda Rapid 35,089 29,445

10. Lada XRAY 34,807 33,319

Source: Association of European Businesses (AEB)

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The increase in the share of leasing is due not only to a decrease in passenger car sales, but also to an increase in the volume of new business in the auto segment in the first half of this year by 24% to RUB 112 billion.

“”

Joerg Schreiber, chairman of the Association of European Businesses’ (AEB) Automobile Manufacturers Committee, said that while 2018 new vehicle sales delivered 12 months of consecutive growth, 2019 has proved more challenging.

The AEB is the main representative body of foreign investors in Russia. According to its figures, new car sales in Russia are down 2.4% to 1.4 million between January and October this year, a fall of 34,408 units.

Schreiber said: “With October underachieving last year’s result by 5.2%, it has firmly kept the market on the path of a slow but continuous erosion of the much-needed volume gains secured in the years 2017-2018.

“This is not the direction the industry wants or needs, of course, but it is hard to see at the moment where a change for the better should be coming from any time soon.’’

He said that consumer tax increases from 18% to 20% and the tightening of US trade sanctions on Russia have created risks and uncertainties for the market.

The AEB’s previous prediction was that the automotive market would grow by 3.6% to 1.87m units this year, but the lack of growth over the last 10 months will make hitting that figure likely impossible in the time left in 2019.

Russian leasing market overviewWhile Russia’s new car market is under pressure this year, there is positivity to be found in the leasing sector. Leasing accounted for 8.9% of the new car market in Russia at around 160,000 units last year.

While it is still a small proportion of the market, leasing is growing more popular, already accounting for nearly 10% of sales in the first six months of the year, according to figures from Russian credit rating company Expert RA.

This follows on from steady consecutive growth from the automotive leasing market in Russia over the last four years.

Russia 2015-H1 2019 automotive leasing figures

2015 2016 2017 2018 H12019

Sales of new cars and light commercial vehicles, thousand units. 1601 1426 1596 1801 829

Number of cars leased out, thousand units 87 114 140 160 81

Leasing share in passenger car sales, % 5.4 8.0 8.8 8.9 9.8

Source: Expert RA

A company which uses leased vehicles in Russia can benefit from a refund of 20% VAT and can offer vehicles to employees to buy outright at the end of the contract, in a similar approach to a personal contract purchase.

The biggest market for corporate leasing is from international companies that have business projects in Russia. However, business from SMEs is where the core of the market is found, with companies much preferring to lease commercial vehicles rather than buy when upgrading or expanding their fleet.

Leasing companies in Russia offer companies a full package of services, including insurance, registration and technical inspection.

Sovetkina Zoya, leasing lead at Expert RA, said: “Amid a decrease in car sales, the penetration of leasing into sales of cars increased from 9% to 10% in the first half of 2019.

“The increase in the share of leasing is due not only to a decrease in passenger car sales, but also to an increase in the volume of new business in the auto segment in the first half of this year by 24% to RUB 112 billion.

Sovetkina Zoya,leasing lead, Expert RA

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Consolidation in recent years means that 85% of the market is concentrated among the top 15 leasing companies in Russia.

“At the same time, leasing companies are actively supporting leasing in the rapidly growing segments such as taxis and car sharing. Despite the growth of leasing in car sales, the main source of financing for the purchase of a car is still through loans, which account for more than half of all cars sold (52%).”

The Russian government does offer subsidies to companies for vehicle procurement but this has been scaled back from RUB 44.5 billion (£540 million) in 2018 to RUB 10 billion (£120 million) this year.

This money can be used by local government agencies and for companies’ expenses for the interest rates on car loans and leases, as well as the repayment of investment loans and small to medium sized business (SME) support programs.

The government has also offered RUB 19 billion (£230 million) in the form of My First Car and Family Car incentive schemes for private buyers from 1 July 2019 to help boost retail sales by up to 75,000 vehicles in 2019.

According to Ernst & Young’s 2019 report on the Russian automotive market, the major banks dominate in the car lending market, accounting for more than 70% of activity.

However, more car manufacturers are setting up captive banks, raising their market share from 15% in 2014 to 28% in 2018. EY is expecting this share to grow further, given captives’ much bigger share in Western countries (up to 75%).

Mitsubishi Bank Rus, Mercedes-Benz Bank Rus, BMW Bank, Toyota Bank and Volkswagen Financial Services Rus are all active in the Russian market.

Consolidation in recent years means that 85% of the market is concentrated among the top 15 leasing companies in Russia.

More established leasing companies are entering the Russian market with Alphabet launching in the country in 2018 through its partnership with Major Profi. Toyota has followed, launching its own leasing division to develop mobility services in August 2019.

Independent company Europlan is by far the market leader in Russia for automotive leasing with a massive 91.9% market share. As of the first half of 2019 it has a leasing portfolio worth €856.6 million (£740 million).

The size of the business means it can negotiate fleet discounts of between 5%-15% by leveraging its buying power. Over two thirds of its customers (67.8%) are made up of small to medium sized businesses and it works with around 88,000 companies.

Nearly half of its business is with passenger cars (47.7%), but it also has a third of its business with heavy goods vehicles. The remaining parts of the business are split between light commercial vehicles, buses, mobile machinery and other equipment.

Europlan’s core product is automotive business leasing, but it also offers insurance products, fuel cards, roadside assistance and maintenance services. Lessees generally put down a deposit of 20% of the cost of the vehicle and then contracts can run from between two to five years. The customer touchpoint for leasing is nearly always through dealer networks and Europlan works with around 4,000 as sales channels.

Alexander Mikhaylov, Europlan chief executive, said that the general need for transport in Russia still exists and acquiring vehicles with minimum financial burden remains vital.

Russia has an aging vehicle parc with an estimated 21 million of its 60.5m vehicle parc over 15 years old. Another 10 million are more than 10 years old.

Mikhaylov said: “The level of wear and age on those vehicles will open up good opportunities for the leasing industry to target those customers.”

Car sharingWhile traditional contract hire is not a target market for key players, both VWFS Rus and Europlan are looking at the growing car and ride sharing market in Russia for leasing growth in the future as mobility services become more popular.

Dmitriy Strashkov, head of corporate finance at VWFS Rus, said: “Car sharing will give VWFS Rus the chance to finance the fleet and to enter a customer segment that has not yet financed a vehicle.”

Strashkov said there are several million car sharing customers in more than 14 cities in Russia, and it is this young industry where he sees the biggest potential for fleet sales.

Mikhaylov also shares the belief that car sharing is one of the most promising segments of the automotive market in Russia. More than 24 million car sharing trips have been taken in Moscow alone over six months of 2019.

Car sharing will give VWFS Rus the chance to finance the fleet and to enter a customer segment that has not yet financed a vehicle.

“”

Dmitriy Strashkov, head of corporate finance, VWFS Rus

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“Expansion of the car sharing fleet and the ability to receive a full package of auto services with insurance, registration and maintenance included are of great importance for the companies operating in this area.

“So there are great development opportunities for leasing entities in this niche,” Mikhaylov predicted.

There is growing evidence that this trend is already developing. Over a four month period in mid-2019, Europlan has leased more than 450 vehicles to a car sharing provider in Russia.

Belka Car is a car sharing business that launched in Moscow in 2016. It has since expanded to Sochi in June 2018 and works by offering short-term car rental through a mobile app. Those booking a vehicle through the Belka app have payment for parking, fuel and insurance included in the price of the service.

The company works with private individuals but has also seen growth from the B2B space.

Corporate car sharing clients can pay for a service for employees to have exclusive access to a shared fleet of vehicles.

Belka first launched with Kia as an exclusive partner but has since expanded with Volkswagen and Mercedes-Benz. It also works with Sberbank to provide discount coupons to be redeemed on Belka rentals for those that use the bank’s Spasibo loyalty programme.

Belka is one of several big players in the car sharing market, alongside Delimobile, Car5, YouDrive and AnyTime.

Moscow city authorities have a target of reaching 10,000 vehicles, but so far the market is around 3,000. Mikhaylov estimates that there are already 20,000 vehicles in the total car sharing market across Russia and this is set to grow further as more drivers switch to new mobility services.

Electric vehiclesUnlike Western Europe, the electric and hybrid vehicle market is extremely small in Russia and there are currently no nationwide tax incentives to boost adoption.

The fact the market is so underdeveloped means the only way is up. Russian Minister of Energy Alexander Novak has said the share of electric vehicles (EVs) in the overall structure of car fleet in Russia should reach between 8%–10% of the new car market, or up to 200,000 vehicles over the next five years.

That is a big jump from the current market of around 11,000 plug-in vehicles on the road in the country so far.

Russian research, development and production of EVs will be key and state funding has been set aside to develop new models and the charging infrastructure needed to boost adoption.

Russian armament manufacturer Kalashnikov has already expanded into EV production with its CV-1 and Lada does have an EL Lada EV model, but would likely launch a next generation version as the government’s ambitions on plug-in vehicles ramp up.

Commentators have warned Lada will have to work hard on economies of scale to make sure it launches a product that is priced at its value-orientated customer demographic.

Without a domestic EV, sales have been hampered by the addition of a 15%-17% additional tax on the import of EVs manufactured outside of Russia. This puts EVs out of reach of all but the most wealthy Russians.

However, the state is planning to abolish these additional custom duties to help with plug-in vehicle demand.

Mikhaylov confirmed that to ensure rapid growth of the plug-in vehicle market comprehensive state support will be required.

He said: “Funding from the state will be needed in the form of subsidies to the creation of the proper infrastructure.

Expansion of the car sharing fleet and the ability to receive a full package of auto services with insurance, registration and maintenance included are of great importance for the companies operating in this area.

“”

Alexander Mikhaylov, Europlan chief executive

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for purchasing EVs, hybrid cars, charging stations and other technical equipment.

“The provision of long-term financing to BNB Leasing demonstrates the recognition of the role that BNB Leasing plays in the implementation of the EV financing programme. The deal opens up an opportunity for BNB Leasing to operate in an environmental context, which is a universally acknowledged standard for an international financial institution like NEFCO,” commented Lasha Akubardia, Deputy CEO of BNB-Bank.

NEFCO has been working with BNB-Bank since 2013 and loan-financed a facility promoting green, environmentally friendly investments in the transport sector prior to the EV facility. This facility provided funding to companies interested in modernizing their machinery and equipment, and purchasing new fuel-efficient lorries and buses.

“Only local initiatives have been implemented in Russia so far. For example, there is free parking for plug-in vehicles in Moscow and in the Moscow region they are exempt from the transport tax. Discussion of introducing similar initiatives at the national level is underway.”

In this respect, Russia is lagging behind some of its immediate neighbours. Nordic Environment Finance Corporation (NEFCO), the Scandinavian financial institution which specializes in loans for environmental projects, announced in October 2019 that it had signed a loan agreement with BNB Leasing in a second phase of support for the development of the EV market in the Republic of Belarus.

NEFCO is to provide €1 million to BNB Leasing, a subsidiary of Belarusky Narodny Bank (BNB-Bank), for leasing EVs to legal entities and private customers. This builds on earlier joint facilities agreed in spring 2017 which saw BNB-Bank lend funds to both legal entities and private customers

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INDICATA, which provides business intelligence and analytics solutions for used car operations to the automotive industry, has highlighted the likely impact of the focus on clean air initiatives in major cities. On 5 November 2019, Bristol became Europe’s first city to approve a ban on all privately-owned diesel cars between the hours of 7am and 3pm every day, as part of an initiative scheduled to come into operation in 2021, subject to approval by the UK government.

Whilst Clean Air Zones are appearing across Europe, the difference here is that the local council has not distinguished the considerable difference between old, high emission diesels of the past and new, clean, Euro 6 engines with little to no NOx and low CO2 emissions, INDICATA states. The full details of the fines and charges have yet to be published but the ban includes parts of the city centre as well as the nearby M32 motorway.

Some cities already have bans or restrictions on older diesel cars, pre-Euro 6, whilst Oslo has legislation in place to ban all diesel cars from certain roads on days with acute levels of air pollution. This progression to a blanket ban on all diesels will impact the new and used diesel car market as INDICATA data is seeing.

Source: Bowkett Auto Consulting

Powertrain challenges With growing consumer and regulatory pressure to reduce the use of conventional fuels, the race to adopt alternative powertrains is accelerating, but take-up is uneven across the EU and the impact on residual values is hard to predict, as Dean Bowkett outlines

The established Big Five European auto markets (UK, Germany, France, Spain and Italy) have all reported a drop in new car sales in recent times. While newer markets, such as Poland, have seen marked growth earlier this decade, they are also experiencing a decline. Along with changes to car ownership patterns, and the rise of shared mobility services, a key factor is the pressure to minimize the environmental impact of car ownership.

The EU’s introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions, marked the first change. This has subsequently been followed by the introduction of a second standard, real driving emissions (RDE). RDE 1 applied to all new registrations from September 2019.

This standard allows a car to emit 2.1 times the amount of NOx during RDE testing, while RDE 2 becomes mandatory for all cars sold from January 2021 and will allow cars to emit 1.5 times the amount of NOx during RDE testing. This is a more complex series of tests than those used previously, covering a number of factors such as driving at low and high altitudes; year-round temperatures; additional vehicle payload; up- and down-hill driving; and driving at variable speeds on urban or rural roads as well as motorways. However, it is worth noting this

is still a simulation and is unlikely to ever exactly match anyone’s typical journey.

Despite this, there is no doubt that the heyday of petrol and diesel engine vehicles is coming to an end. While the introduction of WLTP caused a ramp up in new car sales from June 2018, in anticipation of the changes, sales slumped post introduction and have remained depressed. The introduction of RDE did not repeat the pattern, showing OEMs had learnt a lesson.

It is clear that the war on diesel is impacting new car sales whilst new legislation and Clean Air Zones are leaving consumers concerned about the financial impact of owning conventional cars, resulting in depressed new car sales.

It is clear that the war on diesel is impacting new car sales whilst new legislation and Clean Air Zones are leaving consumers concerned about the financial impact of owning conventional cars, resulting in depressed new car sales.

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Several countries have or have had a beneficial taxation system for company drivers choosing a PHEV over a diesel vehicle, making them a popular choice from a personal perspective. However, fleet operators noticed a significant increase in fuel costs as drivers were commonly not charging them, but just using them as a petrol vehicle. This meant cars were performing worse than a straight petrol version of the car as the PHEV also boasted added battery weight.

Feedback from auction houses like Autorola has confirmed that many PHEVs were coming off fleet having never been charged and with the charging cable still in its original sealed bag.

Future growthAt this stage, predicting how take-up of EVs will develop over the next few years is challenging. According to figures from McKinsey, 1.9 million EVs were produced in 2015, with the consultancy predicting 30.7 million will be in production by 2025 – but in contrast, UBS has global sales forecasts for just 14.2 million by 2025. Adoption will not necessarily be worldwide, with six countries alone forecast to account for 14.6m electric cars being produced by 2021 according to Roland Berger.

Data from the European Automobile Manufacturers’ Association (ACEA) for the third quarter of 2019 confirmed that EU demand for passenger cars running on diesel continued its downward trend to reach a market share of 29.1%. By contrast, registrations of petrol cars further increased, now accounting for 59.5% of the EU market.

During the same period, electrically-chargeable vehicles (ECV) made up 3.1% of total new car sales across the region. All alternatively-powered vehicles (APV) combined had a market share of 11.3% in this quarter.

From July to September 2019, the number of diesel cars registered across the EU declined by 14.1% to one million units. Four of the five largest EU markets recorded double-digit declines, with Spanish diesel sales dropping by 34.7%, Italian demand contracting 24.5%, UK sales down 20.8% and French demand falling 12.6%. Germany, however, recorded a modest increase of 4.7%.

Petrol car sales inevitably benefited from this decline in diesel demand, increasing by 6.1% (or 121,216 units) compared to one year ago. With the exception of Spain, which posted a 2.8% drop, all major EU markets – France, the UK, Germany and Italy – recorded growth in petrol sales. Italy posted the highest percentage gain, up 35.6%. Looking at the entire region, petrol expanded its market share from 57.4% to 59.5% in the third quarter of 2019.

Over the same period, registrations of alternatively-powered cars in the EU saw strong growth, with a 46.2% rise. Some 110,630 EVs were registered, up 51.8% compared to the same period last year. The BEV segment was

Despite reports and data about how clean the latest Euro 6 diesel engines are, the message received by many drivers and consumers is a clear one to “not buy diesel.” INDICATA data suggests that while the high-level view is that drivers would choose electric or hybrid vehicles, the reality is most lost diesel sales have gone to petrol engine cars.

Going electricWhile the fall in new car sales is driven by the drop in new diesel car sales, battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) saw strong growth, but plug-in hybrids (PHEVs) have gone into reverse.

INDICATA has studied the first nine months of 2019 to analyze BEV sales which grew in Europe by 93.1% - but this still equates to just 2.1% of the total new car market. Hybrid vehicles have also grown by a healthy 42.7% in the first half of 2019 and now account for just over 5.5% of new car sales.

Other powertrains such as Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) have seen their market share hold at around 1.6%, mainly due to their popularity in Italy. However, INDICATA notes PHEVs have seen sales drop by 12.7%, accounting for just 1% of the new car market across Europe for the first nine months of 2019. The decline in demand from fleet operators is part of the reason.

Total New Car Sales Q1-3 2019 vs Q1-3 2018EU28 & EFTA3

0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000

Diesel

Petrol

Other

HEV

PHEV

BEV 2018 2019

36.1%, 4,410,69730.7%, 3,686,765

56.3%, 6,878,304

59.0%, 7,093,030

1.5%, 184,321

1.6%, 198,184

3.8%, 466,1265.5%, 665,159

1.2%, 143,585

1.0%, 125,325

1.1%, 133,3642.1%, 257,511

2120

the transition to zero-emission mobility, we need to ensure that no countries and no citizens are left behind.”

Consumer uptake of EVs is particularly low in Central and Eastern Europe, with Poland for instance selling hardly any (0.2% of total passenger car sales). As well as the east-west divide, there is also a marked north-south distinction, with EVs representing less than 1% of total sales in Italy and Spain last year – the third and fourth largest EU economies respectively. In only four EU countries do EVs make up more than 2.5% of the car market.

Indeed, the latest data shows that all countries with an ECV market share of less than 1% also have a GDP per capita below €29,000. This is the case for instance in Bulgaria, Greece and Lithuania, but also in major economies such as Italy and Spain. By contrast, an ECV share of above 3.5% only occurs in rich countries with a GDP of more than €42,000, like Finland, the Netherlands and Sweden.

Given this background, ACEA warns that if the extremely ambitious 2025 and 2030 CO2 targets set by the EU are to be achieved, sales of all types of alternatively-powered vehicles will have to pick up rapidly in all member states.

Putting in place more meaningful and sustainable incentive schemes EU-wide is therefore crucial. Currently, only 12 EU countries offer bonus payments or premiums to buyers of electric vehicles. Moreover, these purchase incentives, and especially their monetary value, differ greatly from country to country.

Used car market trendsINDICATA data shows that in the used car market of Europe’s Big Five plus Belgium, used diesel car sales have been steadily losing market share to petrol cars since July 2019. Used diesel car sales appeared to close the gap a little in September mainly due to used diesel fleet vehicles in the used car market. Petrol has now reversed the move to diesel and shows no sign of losing the top position in the next four to five years.

The gap between used diesel and used petrol car sales was 1:1.01 in October 2018 according to INDICATA. Just one year later and it stands at 1:1.10, or a 9% increase in just 12 months. The ratio is set to continue to widen, driven by the reduced supply from the new car market, but also due to demand changes, particularly amongst buyers of younger used vehicles who are making similar decisions on powertrain to new car buyers, particularly where they live near the growing number of clean air zones.

The total online B2C used car market was up 9.4% in October year-on-year. Despite diesel losing market share it still saw a 4.2% increase in volume with used petrol car sales up 13.1% over the same period.

the main driving force behind this growth, with sales more than doubling (126.3%), while demand for PHEVs declined by 7.6%.

HEVs posted a significant gain (47%), with 223,868 cars registered from July to September. Other alternatively-powered vehicles – which include those running on ethanol (E85), liquid petroleum gas (LPG) and natural gas (NGV) – also noted strong results, and registrations increased by 36%.

Looking at the EU’s five major car markets again, each of them saw a significant increase in total registrations of alternatively-powered vehicles during the third quarter of 2019. Germany posted the highest percentage gain (71.4%), boosted by strong demand for battery and hybrid electric vehicles, followed by the UK (46.5%), France (35.7%), Spain (31.9%) and Italy (28.6%).

Additional research by ACEA shows sales of alternatively-powered vehicles are following a highly uneven pattern across EU member states. For instance, the number of BEVs and PHEVs sold last year ranged from just 93 cars in Latvia (0.6% market share) to 67,504 in Germany (2% market share).

“Although the average EU market share of alternatively-powered vehicles is going up, the huge discrepancies across Europe are extremely worrisome,” stated ACEA Director General, Eric-Mark Huitema. “As we push ahead in

Source: ACEA

2322

Over the last 12 months EVs have not managed to take more than a 0.4% market share. Whilst there is only a relatively small supply of used EVs available, due to limited sales in the new car market, the reality seems to be that demand is also low. In growth terms the volume of EVs sold in the online B2C used car market has risen by 55.5%, but that still equates to just 5,195 cars sold across the six countries in October 2019.

Overall, INDICATA’s data shows demand for used diesel cars remains strong. Used diesel prices were actually outperforming used petrol prices over the last 12 months in Germany, France, Spain and Belgium, and in all six markets reviewed used diesel car stock levels were selling faster than used petrol car stock.

Charging aheadFor real change to happen, and the projected switchover from diesel to EVs to speed up, then the critical issue of providing a comprehensive charging infrastructure will need to be addressed. ACEA calculates Europe’s charging infrastructure has gone up by over 300% since 2014, but starting from an extremely low base. In total there are less than 144,000 charging points available in Europe today, which the association says still falls far short of what is required. Indeed, according to conservative estimates by the European Commission, at least 2.8 million charging points will be needed by 2030. That means there should be roughly a 20-fold increase within the next decade.

However, it is not only the overall lack of infrastructure that poses a problem, but also the huge imbalance in the geographical distribution of charging points. Four countries covering slightly more than one quarter of the EU’s total surface area – the Netherlands, Germany, France and the UK – account for more than three-quarters of all EV charging points.

ACEA points to the correlation between the market uptake of EVs and the number of charging points per 100 kilometre of road. Almost all EU member states with less than one charging point per 100 km of road have an EV market share of under 1%. There are similar issues facing potential owners of fuel-cell and natural gas vehicles. In 2018, there were just 47 hydrogen filling stations available across 11 EU countries, over 25% of which were located in Germany. And while there were some 3,400 natural gas filling points at the end of 2018, almost two-thirds of those were concentrated in two countries alone: Italy and Germany.

Data and analysis supplied by Dean Bowkett, managing director Bowkett Auto Consulting. Contact: dean@bowkettautoconsulting.comAdditional information from

INDICATA: https://www.indicata.com/ ACEA: https://www.acea.be/.

The growth in new hybrid sales over the last few years is also now impacting the used car market according to INDICATA, with hybrid sales up from a 1.6% market share in October 2018 to 2.2% one year later. In volume terms that represents an increase of 50.3% or an additional 8,742 used hybrid cars. With new car sales of PHEVs, it is conceivable used PHEV values may start to rise as increased demand is met with a reduced supply.

Source: INDICATA

Editor: Pat Sweet Editor in Chief: Brian Rogerson

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