The change in Ireland's motor tax regime and falling residuals are sending large executive cars the way of the dinosaur writes
Donal Byrne
THE END appears to have come for cars with large and environment-unfriendly engines. While the motor industry lacked agreement on how it would meet its new environmental responsibilities and offered differing alternatives to petrol over the past few years, it was the civil servants who forced the issue with the stroke of a pen. The new tax regime introduced from July 1st has seen the upper end of the market take a battering. Cars with big engines and high emissions are going the way of the dinosaurs and emission-friendly cars are on the way up. The effect of the new tax regime has a number of startling examples in the last of our Merrion Fleet Management analysis of whole life costs for the compact and large executive sectors.
The BMW 3-Series, for instance, has dropped considerably in price because of its lower emissions, and this has resulted in a lower residual value in the short term. However, it becomes a much more popular option for those cost-conscious companies and individuals who are looking at the three-year costs of running a car, rather than the initial purchase price.
Merrion's analysis of the segments shows a running cost of 0.52 cent per kilometre for the 3-Series - taking all relevant expenses into account - but also shows that a Lexus IS 250 petrol model costs 0.88 cent per kilometre by comparison.
"The 3-Series has long been the benchmark within its sector. The car has now dropped significantly in price. We have seen an impact on other cars in the same segment, even where they have not dropped in price to the same extent. We now expect to see an increase in the volume of sales in this class, with the gap in price between it and the family saloon reducing," says Merrion's remarketing manager Graham Armstrong.
He says the current climate is one where people are willing to spend a lot less on a car.
An interesting question is whether the drop in the price of the 3-Series, for example, will affect the exclusivity of the car and its resultant allure for second-hand buyers? Another emerging difference in the cost between diesel and petrol models is illustrated by the servicing costs of the Lexus 2.0l diesel and the 2.5l petrol. This shows the annual tax of the petrol model costing €2,000 a year, compared to the €340 per year tax for the diesel. For the purposes of this analysis, road tax is taken as part of the overall servicing costs.
On the other end of the scale, one wonders what becomes of a car like the Alfa Romeo 159 petrol version with the 1.8-litre engine. It costs €33,750 new and is worth a trade price of €10,925 after three years of running at 0.59 cent per kilometre.
"The large executive sector has been greatly affected by the downturn in the economy and many buyers are moving down a grade, rather than replacing their large executive models - those choosing to stay in their segment are opting for the smaller-engined diesel models. The residual values of these bigger cars have reduced the most, and the difference in upfront costs and overall running costs is driving the switch to diesel," says Armstrong.
Whatever the long-term solution, the short-term answer is emphatically diesel, according to this Merrion analysis. In the meantime, expect to see quite a few cars with large petrol engines simply dropping off the motor trade's price list.
No discount has been taken off the retail cost of the vehicle. Some manufacturers will offer higher discounts than others, and hence would have an impact on these calculations. Opel made this point following a previous exercise.
The standard residual values have been increased by 15 per cent, as an individual would be expected to obtain a higher sale price by selling their vehicle privately rather than our disposal method, which is through the trade. The monthly lease rate equates to a private individual's financing costs with an interest rate increased by 1 per cent, as an individual will incur a higher rate than a leasing company.
It should also be noted that residual values will be lower on a vehicle when it is coming towards the end of its life cycle.
This analysis includes the lease rate - depreciation and interest; maintenance - road tax, servicing (as per manufacturer's specifications/at least once a year), any other vehicle maintenance required outside of routine servicing, a courtesy vehicle for all service and maintenance work, 24-hour roadside assistance, and tyres. It does not include Insurance or repairs required due to accidental damage or driver abuse.
Fuel - calculated using the AA's July national average price of fuel, and manufacturers' consumption figures.
Changes in prices due to the changes in VRT calculation have impacted on used car values. Maintenance figures will also have changed due to changes in road tax. VRT and road tax are based on the CO2 emissions, rather than the engine size, since July 1st.