Fleet News

‘Steady decline’ in used diesel residuals forecast

ONE of Britain’s biggest leasing companies is predicting a steady decline in the value of thousands of used diesel vehicles.

As demand for the fuel rises among fleets, it is expected to lead to potential oversupply in the used car market, pushing down residual values.

Old non common-rail engines have already suffered the most, while common-rail units have held up, according to figures provided by Lex Vehicle Leasing from its fleet of more than 120,000 vehicles.

Jon Walden, LVL’s managing director, said: ‘We think the diesel RV premium will fall over the next two to three years. There will still be a small premium, but it will not be as significant.’

Lex Vehicles Leasing’s prediction mirrors that of a number of leasing companies, but its reputation for accurately forecasting the market adds weight to its comments.

The leasing firm claims it has seen the values it predicted on vehicles three years ago matched almost exactly in prices it is achieving today.

Walden said: ‘When you look at the values we got for vehicles in 2004, they were absolutely spot-on with the residual values set three years ago. We have now charted how we see residual values falling over the next three years given the increased supply.’

Such accuracy has helped drive the firm to a new high for revenues and profit in the past year, according to results announced last week. In 2004, the company increased its pre-tax profits to £49.5 million from £42.8 million the previous year, a rise of 16%.

Revenues grew from £403m to £495m during the same period at the firm, jointly owned by RAC and HBOS. Walden said the results were a reflection of the work the company put into customer service and its own employees. This provided a stable base of expertise on which to achieve accurate forecasts of residual values, which are at the heart of profitability for leasing companies.

Highlights from 2004 for Lex also included the integration of Business Partner, which effectively outsourced its fleet to Lex last year.

Lex also launched a consultancy service, called Momentum, and made ‘strong progress’ in its focus on the Six Sigma quality programme.

Over the past five years, it has also invested £17 million in IT.

An annual satisfaction survey among employees revealed an 80% rating among a record 96% who responded.

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