Diesel demonisation ends and Brexit anxiety recedes for 2020

10 January 2020

Part two of Autovista’s 2020 predictions considers what to expect in Italy, Spain and the UK. Part one featured France and Germany and was published on 9 January.

Italy

• There are no major amendments planned to regulations in Italy in 2020, with the bonus/malus (bonus/fine) taxation scheme aimed at reducing on CO2 emissions left unchanged. On this basis Autovista expects the market trends for 2020 to be similar to those of 2019. A comparable level of car registrations is expected, albeit with a reduction in the share of private buyers and an increase in the rental channel, especially for long-term rental.
• The new budget law for the year includes a lighter version of the fringe benefit increase for company cars, whereby there are higher taxes for cars that emit more than 160g CO2/km and benefits for vehicles with less than 60 g CO2/km. However, this only applies to company cars registered from July onwards and for vehicles with emissions between 60 g/km and 160 g/km there is no change. Moreover, this broad band accounts for 93% of sales and so we don’t expect a perceivable impact in 2020.
• Demand for used diesels is declining as a few cities have introduced bans on pre-Euro 5 diesel cars, which will lead to a modest decline in their residual values. The bigger impact from the demonisation of diesel has ended though and the fall in diesel volumes and values will decelerate and stabilise.
• A healthy performance in the RVs of hybrid vehicles is expected, especially given the rising interest in lower fuel consumption and emissions that the improving technology provides.
• Similarly, residual values of BEVs will perform better but the used-car market is not yet developed.
• B-SUV and C-SUV models will consolidate as the trendiest vehicle types, maintaining their strong residual values. Demand for estate cars and especially for MPVs will continue to diminish so they will have a negligible market share and weakening values.

Spain

• For the first time since 2012, registrations of new passenger cars fell in 2019, by 4.8%. The private channel spearheaded this decline, largely due to economic uncertainty and ongoing confusion about the future of petrol and diesel engines.
• As expected, the registrations of electrified and gas-powered cars grew by almost 40% in 2019, reaching 151,351 units. However, we emphasise that it is standard, non-chargeable, hybrids that have contributed most to this growth, with the majority of registrations concentrated in the Madrid area.
• Sales of battery-electric vehicles (BEVs) continue to progress very slowly because of their higher prices and the limited charging infrastructure. There are plans for the electrification of the car parc but the lack of a stable government is delaying the definition of the tax framework and sector-specific policies and strategies for the coming years.
• The implementation of WLTP emissions figures from 31 December 2020, as well as Clean Air For Europe (CAFE) regulations, will influence the new-car market in 2020. In this context, the outlook for the Spanish market is pessimistic. A further contraction of about 3% is forecast, with weakness in the first half of the year followed by the start of a recovery in the second half.
• The used-car market has also slightly stalled in Spain, although growth should be positive, with the year-end data expected to show a 1% rise in transactions. Through to November 2019, there were already over two million transactions, with a ratio of 1.7 used cars sold for every new car. We expect a similar evolution in 2020.
• This steady growth will minimise the pressure on used-car prices and Ana Azofra, Valuations and Insights Manager for Eurotax Espana (Autovista Group) expects stable residual values across all fuel types in 2020. The decline in demand for used diesel cars has decelerated and greater stability is expected in 2020.
• The residual values of electric vehicles are likely to improve in the first months of 2020, because of the imbalance between supply and demand, but values are expected to stabilise in the second half. ′The limited charging infrastructure in Spain will not allow greater optimism,’ Azofra comments.

UK

• The UK is entering a period of relative stability. The country has an elected government with a significant majority, meaning that a second referendum is unlikely and a ″leave″ agreement will pass through Parliament, albeit with some minor changes, allowing an orderly exit from the European Union. Over the course of 2020, the UK Government will work on new global trading agreements to reduce the impact of Brexit further.
• With Brexit anxiety reduced, this newfound stability suggests that the appetite for the various fuel types in both the new-car and used-car markets should become more representative of true levels.
• Stability in the new-car market is likely, with forecasts suggesting a similar figure to 2019 of around 2.3 million new-car registrations, unless increased allocations of alternative-fuel vehicles (AFVs) enter the UK supply chain.
• The mix of fuel types is likely to change significantly over the year. The decline of diesel will continue but at a slower overall pace as customers for whom the fuel type is still the best overall solution will continue to purchase new diesel cars.
• The choice of available fuel types will dominate new-car advertising and communications from manufacturers. It is likely that AFV registrations will rise significantly in 2020 as manufacturers attempt to register as many low-emission vehicles as possible to avoid enormous CAFE fines for not meeting the new stringent CO2 targets.
• However, there will still be demand for new petrol and diesel cars, with buyers making informed choices regarding which fuel type is right for their driving needs at the same time as meeting their aspirations and budget requirements.
• It is possible that the UK could see some manufacturers offering incentives for electric vehicles to increase penetration further. Additionally, the zero Benefit-in-Kind (BIK) costs for zero-emission vehicles is creating significant noise in the market from company-car drivers and contract-hire and leasing companies. They have already seen EV interest increasing, with orders doubling after HM Treasury published the new BIK rates in Q3 2019.
• Through 2020, following an orderly Brexit, used-car sales and values will stabilise, with a true levels of demand returning to the market. Residual values came under substantial pressure at the start of 2019 but there was some recovery towards the end of the year. The editorial team at Glass’s (Autovista Group) forecasts continuing recovery into 2020, leading to a relatively strong used-car market.