CLEARING THE AIR AROUND DIESEL
CLEARING THE AIR AROUND DIESEL
Consumer reaction following the recent defeat device scandals together with concerns over vehicle access restrictions in certain large cities has led to growing uncertainties around the future of diesel across the European markets. This was the trigger for Arval to issue a white paper on diesel (To download the White paper click on the link below).
As an independent multi-brand lessor of vehicle fleets across Europe, Arval scrutinises all trends and expert views around vehicle technologies and usage, as well as offering its advice and support to clients and drivers to make the best choices when selecting a new vehicle. With these recent questions and challenges expressed around Internal combustion engines in general and diesel in particular, but also bearing in mind that alternative energies are becoming more and more available, Arval has fully reviewed its Total Cost of Ownership (TCO) calculation. The Arval methodology already included a fuel cost element and applicable taxes, but will also integrate the possibility to take specific driver segments into account in terms of total mileage driven, as well as driving patterns and locations; this should enable clients to make a better balanced selection across all vehicle types.
Air quality and Diesel viability
The primary environmental focus over the last 20 years has been on Greenhouse Gas (GHG) emissions and more specifically Carbon Dioxide (CO2). As a result, an uneven playing field in favour of diesel has been introduced in Europe. The CO2 based approach, which is directly linked to fuel consumption efficiency, coupled with rising fuel prices overall, has significantly increased the market share of diesel vehicles across Europe, at the expense of petrol cars.
Recently there has been growing awareness around the discrepancies between the the out of date New European Drive Cycle (NEDC) laboratory test values for fuel consumption, CO2 as well as air pollutants (particularly Nitrogen Oxides – NOx) and those achieved in real life tests measured on the road. The VW emissions scandal in 2015 and the understanding that urban air pollution, in reality, has not improved as much as expected, has accelerated the debate around the environmental impact of different fuel types in particular diesel cars.
As a result, some governments have announced (such as France and the UK) to end the sale of new conventional petrol and diesel cars and vans by 2040, as well as the introduction of Low Emissions Zones (LEZs) in a number of major cities. It should be noted that, in our view, LEZs will not ban all diesel vehicles overnight, but will initially impact older generations first, significantly limiting any negative effects on fleets in the coming years, since fleet vehicles are generally younger.
The NEDC has been replaced with the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and the Real Drive Emission Test Procedure (RDE). The emission figures produced from these new tests should better reflect real driving conditions. A transition period until 1st January 2019 should allow OEMs (Original Equipment Manufacturers) and local governments enough time to adapt, whilst the resulting values should in the eyes of the European commission not directly lead to a higher tax impact, even though it is already known today that variances of 20% (but up to 80%) will exist compared to today’s values.
In order to achieve the 2021 average CO2 reduction targets, all the mainstream OEMs have been adapting their strategies by introducing new technologies, in combination with and sometimes the substitution of diesel and even petrol. Many of these strategies, however, still imply the use of diesel vehicles, some of which will be upgraded and include hybrid versions, the main reason being that such strategies require high investment and time to be executed. It is very likely that diesel will not just disappear overnight since alternative fuel investment costs are high and take a considerable amount of time to execute. Stakeholders should take this into account.
Even though the reputation of diesel has suffered in the eyes of the public in recent months, it is important to understand that much of the recent diesel shift in corporate fleets has moved into petrol, especially in the smaller vehicle segments. This is mainly due to the removal of a more expensive diesel offering from the OEMs in these segments and a partial move into electrified vehicles (essentially hybrid and plug-in hybrid) due to the fiscal incentives.
Evidence suggests that the general public across Europe is shifting away from diesel, so over time, offer and demand will need to be reconciled in the second hand markets as well. There is likely to be pressure on diesel Residual Values (RVs) going forward to the benefit of alternatives available in the short term, mainly petrol, hybrids (including plug-in hybrids) and, to a lesser extent, full electric vehicles.
Arval mission and approach
Arval’s mission is to help clients to make the right choice in this fast-evolving regulatory and vehicle manufacturing environment, giving expert advice on technological choices that make sense in the short, medium and long term. Company car policies will need to be adapted as early as next year. Our Total Cost of Ownership model has been reviewed to take into account these new dynamics.
In our discussions around TCO, we will encourage our clients to include their internal driver segments in the criteria to define and sometimes impose the right choices for, not only the driver, but also for the company and the environment as a whole. Arval’s consulting teams can accompany our clients in their fleet profiling exercise and help them to build or rebuild their car and mobility policies to tackle these new challenges.
As public awareness has grown regarding Climate Change as well as the broader environmental impact of vehicles, Arval believes that Corporate Social Responsibility should be on the agenda of its clients more than ever before. Not only do we intend to inform our clients as soon as the information from the new tests is readily available, we will propose to clients to use our new services, such as Arval Active Link, to better measure, monitor and influence driver behaviour, in order to minimise the true environmental impact of their fleets.
As you will see in this white paper, diesel vehicles will still remain a very valid option in many situations, because of their fuel efficiency and the OEMs taking decisive action to minimise their impact on the environment. However, in progressively more and more cases, hybrid, plug-in hybrid and even full electric vehicles will become better alternatives, besides petrol.
This is a changing political environment and the content in this paper is based on the information available to date and any potential implications and options are not limited to what is detailed in this document.
- White Paper: Clearing the air around diesel