Budget 2017: Better than expected for retail?

My initial thought immediately after Chancellor Philip Hammond delivered his first Autumn Budget was one of surprise that he’d done nothing to target the most polluting diesel cars on our road – something that everyone expected him to do.

There wasn’t even an increase in fuel duty, which the Petrol Retailers Association chairman Brian Madderson was bold enough to claim ahead of the Budget would happen: “The PRA has been informed by a well-placed parliamentary source, that the Chancellor is likely to announce a 1ppl increase to fuel duty for all diesel drivers in this week’s Autumn Budget.”

However, there was a very clear message that no one should be buying new diesels – at least until the OEMs can develop cars that meet an emissions standard that comes into force in 2020.

The changes to company car tax will put businesses off buying a diesel and the changes to first-year VED rates for diesels will make retail buyers think twice about diesel too.

To me, this seems like relatively good news for retailers.

Let me explain. New car buyers may not choose a diesel, but if they’re seriously in the market for a new car, they will just change fuel type. So the retailer will still sell a car – good news.

But possibly more importantly, the fact that used diesels totally escaped any penalty means that residual values should be stable. Well, at least more stable than if the Chancellor had brought in some kind of tax that applied to them – for instance a VED supplement that applied beyond the first year.

But why would the Chancellor leave all but new diesels alone?

My guess is that the one group he likes to keep happy more than any other is the banks. And who would be most exposed if there was a sharp and unexpected drop in diesel RVs?

Given most retail cars are bought on PCPs and many fleet cars are leased, it’s not the public that is directly exposed to price falls – it’s the banks that are carrying the risk exposure in terms of future values.

And there’s one final bonus for retailers here. Stable residual values mean the banks can keep providing attractive monthly payments which turn shoppers into customers in the showroom.

So perhaps the Budget was a bit better for retailers than it looked at first glance?

 

Tristan Young
Editorial director
Auto Retail Network

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