Fleet News

Will biofuel values take a hammering?

The motor industry is increasingly looking for alternatives to fossil fuels and, of the emerging technologies, biofuel power has been one of the leading contenders for the near future.

As with all new technologies, the risk of investing is high. Will those that trust in biofuel have their faith rewarded when they come to sell the vehicles on?

THE BACKGROUND

The use of biofuels, and the production of the raw material it is made from, has been mired in controversy.

Many fear that the environmental effects of large-scale biofuel production could counteract the benefits that using the technology for transport brings.

For fleet managers, this means uncertainty.

As more manufacturers produce vehicles capable of running on biofuel, and more fleets take steps to reduce their carbon footprint, the attraction of greener vehicles grows.

But should the controversy over the future of biofuelled vehicles put you off?

Will you get a sound return when the vehicles reach the end of their fleet lives?

The European Union backs biofuels and has plans to increase its target for biofuels use in transport from 2% to 10% by 2020.

But there are concerns that increasing production could itself cause environmental damage, and a group of UK MPs recently called the plans reckless.

The EU has dismissed the concerns, but the concerns raise a question about the future of a technology that many don’t see as a long-term solution.

REMARKETING

Crucial to the success and continuation of biofuel vehicles is the infrastructure to ensure a supply is available to drivers.

“This is a real stumbling block,” says Jason King, head of market intelligence at EurotaxGlass’s.

“Fuel companies are reticent to invest in facilities for the supply of another new fuel after not realising the expected returns on the investment they made to accommodate the supply of LPG.

“In terms of residual values, our early forecasts valued biofuel vehicles at the same mark as ‘standard’ petrol equivalents, since these cars are designed to use E85 as well as standard 95-octane unleaded.

“However, early indications indicate that used car buyers are only willing to take biofuel models at a lower price – up to £500 less in some cases.”

Mr King says this lower pricing policy seems only to be evident in the trade values achieved.

“Retail pricing may be equal to or higher than the equivalent standard petrol models – dealers see the green credentials offered by biofuel technology as a potential profit maker,” he says.

“These observations have been made on a very small sample of vehicles since relatively few biofuel vehicles have been registered in the UK so far, thus limiting the turnover in the used car market.”

Tony Gannon, communications director at BCA, agrees that acceptability with the general motoring public is key.

“They will drive the demand in the used market,” he says. “The rule of thumb is where fleets go, motorists follow, and fleets are going heavily with diesel.

"So it is perhaps less a question of future residual values, and more about future consumer perceptions.

“As the majority of modern cars can run on a specific petrol/bio-fuel mix it could be said we are selling biofuel vehicles every day already, but we have yet to see such specialist vehicles as the Ford Focus FFV or Saab 9-5 BioPower to judge how they will perform.”

Rob Barr, group communications director for Manheim, is more positive.

“Consumers are clearly increasingly interested in the environmental impact of motoring but they are also still primarily influenced by economics,” he says.

“We know from all the recent research that if the green box can be ticked, together with a package of tried and tested technology combined with fuel economy, then this will be a vote winner with the motoring public. In turn, there is no doubt that the RVs of such vehicles will always be at the high end of market demand and value.”

There is still considerable uncertainty over what will happen in the future because of the relatively small numbers of cars available.

Jeff Knight, forecast manager for CAP, doesn’t think there is a conviction among manufacturers that biofuels are worth seriously pursuing.

But that doesn’t necessarily mean that those who have purchased biofuel vehicles will be at a disadvantage.

“They will probably achieve very reasonable values because there are so few of them,” he says. “It’s the same as LPG – if you get a good quality model to the right person, they will pay for it.”

Tony Gannon adds: “We have already seen a variety of alternative fuels heralded as the answer to global warming – such as LPG or hybrids – and motorists are understandably wary.

“There still needs to be a sea-change in public opinion before any kind of ‘alternative’ fuels become acceptable.

UK motorists are still motivated first and foremost by price, and getting a good deal on the used cars they buy. Biofuels will have to tick a lot of boxes before motorists will choose them over diesel or petrol and in the short- to medium-term that looks like a hard task.

“This suggests that it is unlikely that UK motorists are ready to wholeheartedly embrace green issues and alternative fuels of their own accord. It might mean that the only way to make UK motorists ‘greener’ is by making it expensive for them not to change their habits.”

If you already have biofuel-powered cars, don’t despair.

“The few examples BCA handles seem to find ready buyers if valued in line with market expectations,” says Mr Gannon.

“Otherwise, the normal rules of remarketing apply – presentation and preparation are as important as for any other vehicle.”
 

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