Fleet News

News analysis: is it the end of the road for LPG as a viable fleet fuel?

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FLEET NewsNet's exclusive revelations that grants to help fleets buy LPG-powered cars had run out and that Ford is considering ditching its LPG-powered Focus after just three months have cast a huge cloud over the future of alternative fuels.

The future of liquefied petroleum gas (LPG) as a viable fleet fuel is hanging in the balance. Manufacturers continue to offer support while industry pundits question its sustainability and Government ministers seem to be failing to provide a solid long-term plan.

Last week saw a double blow when the Energy Saving Trust announced it had run out of money and was putting all applications for PowerShift grants on hold until next year, while Ford announced it was considering axing the LPG-powered Focus after poor sales (Fleet NewsNet, November 13).

But even before these revelations, the uncertainty over the future of LPG has been steadily growing over recent months, despite Transport Minister David Jamieson attempting to quash fears of an impending tax hike on LPG duty for next year.

Speaking at the recent Fleet News Industry Conference, Jamieson said the Chancellor of the Exchequer would make a decision on LPG by the end of the year, but the consultation currently under review suggested a gradual increase in duty.

He said: 'We felt that it was sensible to have a look at road fuel gases, LPG and natural gas, to see if the fiscal incentives to get people to use cleaner fuels were still the right ones.

'What people said to us in the consultation was if there were to be changes, that they should be gradual.'

The continuing development of hydrogen fuel-cells has also put the long-term future of LPG in doubt.

Industry experts are predicting that vehicles could be powered with fuel-cells in less than 10 years and several manufacturers have already developed fuel-cell vehicles with fleets in mind.

Hyundai, Ford and General Motors have announced their versions could be ready for testing in fleets as early as next year. In the meantime, many questions are left to be answered:

  • Will fleets looking for alternative fuels decide to stick with low emission petrol or diesel vehicles until fuel-cell become mainstream, or will they decide that LPG is a worthwhile interim investment?
  • Manufacturer investment, Government funding and fleet investment in LPG has amounted to millions over the past few years alone, but has it been enough to secure LPG's future in the fleet market?
  • If duty rise and manufacturers pull out of the market, what will it mean for fleets which have already opted for LPG hoping to save money?
  • What do you think? Email fleetnews@emap.com

    Future is rosy, says LPG Association chief

    THE future for LPG is bright, according to the LP Gas Association's director general, Tom Fidell, who was due to meet Government ministers this week to discuss initiatives.

    The Government is likely to make a statement on the duty for LPG before the end of the year with a view to making plans for the next five to 10 years, which the association hopes will bring stability.

    Fidell has announced the four key topics which will be discussed at the meeting which he is confident that the Government will agree to, at least in part.

    He said: 'There are four things we want from the Government. Two of these are stability of fuel duty and more incentives for company car drivers. Diesel is favoured at the moment, but this still creates an air quality problem.

    'Then we want regulation on conversion standards. Vehicle manufacturers are doing a good job but we need legislation to improve aftermarket standards. And finally we want funding stability to get away from the stop/ start situation we have now.'

    The LP Gas Association recently contested claims that diesel produced less CO2 than LPG, with figures from a pan-European study called the '2003 European Emissions Testing Programme' showing the well-to-wheel CO2 benefits of LPG outweighing those of diesel. The results of the study showed that the well-to-wheel figure for LPG was 1.8% better than diesel.

    Fidell said: 'These independent tests have proved the value of LPG. We are confident that this will enable the Government to continue current levels of support and take away the uncertainty which is currently holding back conversions to LPG.'

    The tests were conducted on 26 vehicles over a three-month period including models such as the Vauxhall Vectra, Peugeot 406, Renault Scenic, Volvo V40 and the Nissan Primera. All the vehicles were chosen in equivalent diesel, petrol and LPG versions with emissions measured over a 30-mile cycle with speeds of up to 80mph.

  • Contact the LP Gas Association on 01425 461612 for a copy of the 2003 European Emissions Testing Programme

    Future is bleak, says residual value expert

    THE future for LPG is bleak, due to struggling residual values, flagging Government support and a lack of awareness across both the motoring industry and the general public.

    This, the view of CAP's national research manager, Martin Ward, is sure to hit hard manufacturers that have pledged their support to the alternative fuel and the LP Gas Association, which is hoping for positive feedback following its meeting with Government ministers this week.

    Ward said: 'If LPG was going to do well, it would have done by now and more Government investment is not going to help the situation. The Government has already put enough money in – it has invested millions and has got nothing back.

    'Residuals are not going to get any better for LPG and if the Government decided to reverse tax on LPG and increase it, then LPG will be even less favourable. The problem is that there is no awareness for the fuel. Have you ever seen an advert on the television or radio for LPG?'

    Ward believes the initial optimism over the success of LPG was short-lived and although manufacturers are continuing to support the fuel, residuals are not holding up against their petrol counterparts.

    One of the underlying problems for LPG is a handful of garages carrying out sub-standard conversions, according to Ward. This has had a negative effect on the reputable garages that are completing conversions to the highest standard.

    Ward explained: 'The problem is, over the past few years, 'under the arches' garages have been offering conversions which are not up to standard and have given LPG a bad name, causing problems for the industry.

    'Factory-based conversions and a handful of those completed in garages are reputable but unfortunately they become tarred with the same brush as the conversions completed in the 'under the arches' establishments'.

    The servicing and maintenance of LPG vehicles is also having a damaging effect on the secondhand values of the vehicles, says Ward, who believes there needs to be more filling stations and clarity over LPG maintenance.

    He said: 'People have problems filling up as there are not enough stations. Also, you can't take LPG through the Channel Tunnel, which restricts business travellers. There are no problems with general servicing on LPG, but LPG fuel tanks need to have a pressure test completed, similar to those for deep sea divers. But there is confusion about when this actually needs to be done, whether its every year or every 10 years, and clearer guidelines are needed.'

    Predicted residual values after 3yrs/60,000 miles

    Model Petrol RV Diesel RV LPG RV
    Ford Focus 1.8 LX hatch: £3,775/29% £4,050/28% (1.8TDCi) £3,625/29%
    Vauxhall Astra 1.6 16v LS: £3,225/26% £3,500/25% (1.7 CDTI) £3,100/21%
    Volvo V70 estate 2.4 140s: £7,800/35% £8,900/37% (D5) £7,500/31%
    Nissan Primera 1.8SE: £4,000/26% £4,250/26% (2.2dCi SE) £3,825/22%
    Source: CAP Monitor

    LPG is no universal solution – ACFO

    LPG is a viable fuel for some city-based fleets, but it cannot be viewed as a universal solution for all fleet needs, according to Stewart Whyte, director of Association of Car Fleet Operators (ACFO).

    Whyte praised the motor manufacturers for developing and introducing LPG vehicles for the fleet industry but claimed the Government had failed to give enough support.

    He said: 'Vauxhall has supported the Government to get an acceptable range of LPG vehicles in the market. If the Government says it is not doing any more, then it is a clear slap in the face for Vauxhall.

    'It would also be a pity if Ford pulled out with the LPG Focus as it has invested significantly in this. All manufacturers have gone as far as they can in the LPG market. They have all done a good job in cleaning up petrol and diesel cars and LPG used to have a clear advantage but now it doesn't.

    Petrol and diesel – especially Euro IV compliant diesel engines – have come on strongly and have caught up in areas such as CO2 emissions.'

    Whyte also voiced concerns over the possibility of a hike in tax on LPG in the next Budget. He said: 'If the Government was to decrease the current level of fuel duty subsidies from next April, then this could signal the final blow for LPG. The 100% discount for vehicles entering the congestion charge zone in London also needs to remain static.

    'The lack of certainty over fuel duty and funding is disappointing for fleet managers trying to clean up their fleets.

    'If fuel duty subsidies change, it will go some way to eroding the benefit of fleet vehicles being converted and make residual values less attractive. If cheap fuel disappears, residual values could suffer further.

    'There is a clear place for good conversions that meet the London congestion charge criteria and give some fleets the continuation of a 100% discount, as long as Ken Livingstone leaves the discount where it is.'

    However, the benefits for fleets switching to LPG can only be maintained with additional support from the Government.

    Whyte added: 'If the Government is keen to promote LPG it must put the money in. If it is serious about the environment it needs to find the money from somewhere. 'The Government is signalling that it doesn't understand fleet activity. Fleets make policy decisions that are supposed to be for the next three to seven years, the Government needs to understand this.'

    Minister rules out massive tax hike

    TRANSPORT minister David Jamieson has urged fleets to keep faith with LPG, despite fears that the Government may reduce its tax benefits at the next Budget.

    Speaking at the recent Fleet News Industry Conference, he said he did not envisage a massive shift in the duty rates of LPG. But he added: 'The advantage of LPG in terms of emissions over petrol or diesel has closed and we felt that it was sensible to have a look at road fuel gases – LPG and natural gas – to see if the fiscal incentives to get people to use cleaner fuels were still the right ones.

    'But we're also mindful of the huge investment people have made in vehicles and engines and the investment that companies have made in the filling stations. So we are now looking at the results of the consultation and the Chancellor of the Exchequer is making a balanced judgement on that before the end of the year.

    'What people said to us in the consultation and nearly everybody agreed, including the LPG industry, was that there had been this narrowing of the gap, but what they were afraid of was a cliff edge. What they said was if there were to be changes, that they should be gradual.'

    Manufacturers call for clarity on fuel

    THE UK's two best-selling vehicle manufacturers have blamed the Government for lack of direction over LPG, which is affecting demand for LPG cars.

    Uncertainty over the future of the alternative fuels is not doing LPG any favours, according to Ford and Vauxhall. The manufacturers have called for more stability across the industry.

    Phil Hobbs, national Dualfuel manager at Vauxhall, heralded its LPG range a success, with figures climbing from 1,880 new registrations last year to 3,580 this year. However, he said the rise in registrations did not mean that the current market was perfect.

    He said: 'We are committed to LPG but the biggest thing for us is the inconsistency. The industry needs stability. We want to continue with LPG, as it has been a success for Vauxhall.'

    Hobbs believes the fact that the Energy Saving Trust has run out of funds for PowerShift grants this financial year proves the success of the programme, but for LPG to continue as a viable fuel, believes fuel duty on LPG should remain static until 2008.

    He said: 'Ideally we want to see duties frozen for the next four to five years. This would be the biggest boost to the industry.'

    A spokesman for Ford also believed that once the inconsistencies were ironed out, demand could increase.

    He said: 'What we do is driven by customer demand, which in turn is driven by tax incentives and legislation. The London congestion charge benefit for LPG is a side benefit but not the sole reason people buy LPG-powered vehicles. The PowerShift grant and low tax at filling stations drive people towards LPG. The future demand will depend on how legislation changes and how tax breaks are continued.

    He added: 'We are very interested in the near future in terms of the Government's attitude to LPG and legislation. When that is in place it is what will determine demand.'

    Ford has had mixed success across its LPG range. The LPG Focus sold fewer than 200 units in September and October, against anticipated sales of 170 units a month. The group's LPG vans are, however, selling well.

    The spokesman said: 'As an alternative fuel, LPG has been a mixed success. We do not have a sizeable demand across the vehicle range and a lot is due to how vehicles are used among fleet customers.

    'At the moment LPG is working in certain areas. We don't have a vast customer base for the LPG Focus. So far we have only sold a couple of hundred. It was intended as a toe-in-the-water exercise for us.'

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