Sales of diesel vehicles to fleets rocketed by more than 60 per cent during October compared with the same month last year, as company car drivers look to reduce their benefit-in-kind tax bills.
From next April, company car tax will be based on a formula which combines the price of a car with its carbon dioxide emissions. Diesel-powered cars produce significantly lower emissions of CO2 than their petrol equivalents, and will therefore generally incur lower tax bills (despite suffering a 3 per cent penalty).
Experts predict that the fleet exodus from petrol will continue, prompting fears of oversupply of diesel cars in the used car market in three to four years.
This could damage residual values, with industry insiders questioning whether the current premium for diesel cars will continue, given that private buyers with limited annual mileages are unlikely to reap the same fuel economy benefits from diesel as a high mileage company car driver.
Manufacturers such as Ford, Peugeot, Renault, Vauxhall and Volkswagen currently charge between £1,000 - £1,500 more for new diesel cars over their petrol equivalents to reflect the additional cost of diesel technology. And in many instances these premiums are retained in the used car market. But a flood of diesel cars could see this premium disappear, accelerating depreciation and damaging fleet budgets.
At the Fleet News UK Congress last week, Jeff Knight, editor of CAP New Car Monitor, warned there could be 150,000 diesel ex-fleet cars hitting the used car market by 2004/05.
'With diesel being the current choice of many company car drivers, there will be an increase in the number of diesel disposals and manufacturers need to make sure dealers are fully aware of how to sell used diesel vehicles,' he said.
However, Adrian Rushmore, chief car editor for Glass's Guide, warned against panic over a residual value collapse, claiming the used car market would adapt with time.