Sometimes we emerge from our pit to gaze out of the window at the world about us. What we see is our street. And parked in neat rows, lots of cars. Sometimes, they even move, but for the most part they’re just there. These expensive little toys that we like to have. They are used—so it is said—to take people from point A to point B. Sometimes.
The average car in Britain drives circa 10,000 miles per year. Now, some back of ye olde envelope calculations make one realise that at the snail’s pace that’s possible in most of the UK—and we’re including our own version of das autobahn here—that translates into being driven five percent of the time. Yep. That’s it. Fully ninety-five percent of the year, they’re resting there in their neat little rows.
We observe them there. Every so often we can see a five pound note flutter off that BMW there and vanish into a puff of smoke, that Volkswagen further down the street, the Renault, and so on. That’s the car depreciating. Cars, bless their little cotton socks, have this elemental quality of costing the buyer a fortune and when you come to sell it later on, wow, do you get your money back? By half, not.
Some years ago when our wee ones needed to be ferried around the town, my wife insisted we get one of those fancy new people mover thingies. Brand new. Arrived in a trailer. We were surprised they hadn’t simply driven it from the showroom. But no, they didn’t want it to have any mileage. As always, suspicious, we checked. Yep, there it was: 3 miles on the clock. Brand new.
You’re wondering how all this equates to diesel hurt. We’ll get there in a moment.
As you can well imagine if you’ve ever been into a car salesroom, such a beaut wasn’t cheap. Fast forward several years and the little ‘uns are now wanting shinny bright things of their own. Our people mover wasn’t going anywhere. It sat, forlornly, on the road next to others of its kind. Begone, we said.
If you think car salesman are bad news when you’re trying to buy a wee motor, try selling ‘em one. One thingy led to another and—being your dismal scientist type—we did the sums on ye olde motor and realised it had lost 90 percent of its shiny new value despite hardly ever shifting from said space in our street. Aargh! Is really all one can say.
Let’s put some little numbers on what we experienced. Our motor, say, cost £11 grand. (For those of you not used to ye olde colloquial English, a grand is a thousand. Where the inhabitants of these wet and windy isles got the idea that one thousand is grand escapes us at the moment, but we could check it out on ye olde internet in due course.)
We got back one grand; that’s just 10 percent of what we’d paid for it. And we’d hardly run it around the block, honest, guv.
Now assume we’d kept it 10 years, the car depreciated in value—simply due to being around sitting on the street—by a grand each year. (Some wise guy reader’s going to post a comment saying this isn’t exactly how it works. There’s more depreciation in the early years. Yes, yes, yes, we know this, but we’re trying to keep it simple here. It isn’t about the economics of motor vehicles.)
Stop. Yes it is.
That’s why we drive around in the oldest banger they’ll let on the road. We’re economists here and understand all that stuff about costs. Our gloom and doom on costs is why economics is called the dismal science and is probably the least liked occupation after car salesman. But politicos would get first prize there if we included them.
So we’ve established that motors fall in value over time. We should also establish the fact that the buyer of a once loved people mover—and we don’t necessarily mean a used car salesman, by the way, will only pay for what they think they can get out of the ol’ banger. They’ll only buy it if they can run it into the ground, which is what yours truly is trying to do with their 1990s Polo. How it passes the annual safety check is something we don’t ask our friendly mechanic. We just keep on motoring along getting looks of amazement from all sides. It’s probably simply jealousy knowing that all its running costs are simply keeping it going and that golden liquid we pour into it from time to time, each time cursing how much we’ve just sent to Philip Hammond.
But back to the diesel bust.
Now we can see why this is happening. As Tim would say, if at all possible the Grauniad will misunderstand things, but they’re not far off here:
Falling diesel sales more than Brexit behind Nissan’s X-Trail decision
Well, perhaps the Guardian is still as off message as always since everything that happens has to have a Brexit angle. Maybe Nissan’s decision has to, but this is what the Guardian wrote about the underlying reason for the decision:
The market for diesel vehicles has slumped in Europe since the 2016 referendum, in part thanks to the Volkswagen emissions-cheating scandal, which led to much closer political scrutiny of the fuel’s environmental impacts. Buyers have been understandably wary of committing to diesel with the possibility of tougher rules or extra costs hanging over their cars. Nissan had planned to make the diesel model of the X-Trail in Sunderland.
It’s those extra cost things that’s behind Nissan’s decision, really. Higher costs make their cars unattractive (that’s the price, not how they look, by the way.) Why not use Brexit as a convenient fig leaf to can what’ll be a costly mistake! Crafty b*****s.
Politico types—who don’t really understand motivation, though they’re pretty motivated when it comes to an election—can’t really fathom why customers are deserting dirty diesel.
It’s simple, really.
Buyers will have spent a lot on that shinny thing and want to get their money’s worth—even if they secretly know, they’ll never get back what they paid for it. But they’re by and large rational types—at least those we meet down at ye olde Bull & Bush, the salt of ol’ England and whatnot—when it comes to thingies economic and understand that diesel is dead.
Motorists aren’t going to ignore the residual value thingy that you get when you part with your much loved diesel motor.
A nice new BMW X5 diesel has a current RRP of £56 grand (rounded). If we’re tough with the sales representative we might get a bit off. But that’s chicken feed, really.
A quickie look at AutoTrader (for those of you who live on a sunny island with palms and wonder what this is, it’s a trade rag—now a platform—that lists new and used cars). On this, a 2015 vintage diesel engine X5 is on sale for £20 grand. Being generous, let’s say 4 years old. That’s £36 grand of depreciation.
Just having your shinny BMW sitting outside on the street is costing £9 grand per year. And we’re not even talking the possible city bans, and other nasties now being directed at poison-us-all diesel drivers. You’re not going to boast at ye olde Bull & Bush you’ve just forked out a small fortune on a death-dealing machine.
Then there’s the various other “save the planet” initiatives going on. Transitioning to leccy cars for one. By 2040. That’s barely twenty years away. Our Polo’s older than that. Cars built today—perhaps not many—may still be around by then. But knowing you’re not going to be able to use an asset beyond a certain date will reduce its value today. Ask the owners of ye olde coal-fired power stations.
Everything, but everything is working to drive down those important residuals. You do the maths. If buyers of once-loved motors sit on all their five pound notes and insist on the deal of the century, that’s a lower residual price. The fully loaded cost of ye olde motoring with a diesel goes up. Time to switch to something else.
Anyone know of a wind-powered motor out there?