Germany's 'diesel fear' sees 4.5b euros in used cars gather dust

[MUNICH] Germany's back and forth over potential bans for diesel cars in cities is sapping demand for the vehicles and causing a backlog of used models on dealer lots that's swelled to some 4.5 billion euros (S$7.22 billion).

A deal earlier this month between Volkswagen AG, Daimler AG and BMW AG to upgrade 5 million newer diesel cars and offer trade-in incentives on older models hasn't removed concerns about pollution from the technology. Citing government tests, German Environment Minister Barbara Hendricks told reporters on Wednesday that the planned software upgrades are "insufficient" for many cities to meet the legal limit for smog-inducing nitrogen oxides in the air.

As a result of the doubts about diesel's future, about 300,000 used vehicles fitted with Euro-5 emissions standards, which were on sale as new cars as recently as September 2015, are piling up, according to a survey published Thursday by German car dealer association ZDK. The poll assumed an average price per car of 15,000 euros.

"The vehicles are hard to sell at the moment because customers are uncertain," Thomas Peckruhn, vice president of the association, said in an emailed statement. "We need clear signals from government if and under what conditions these vehicles might be affected by driving bans."

Car bosses and government officials reached a compromise deal earlier this month to lower pollution. They agreed on software updates instead of more costly hardware fixes that are sought by environmental groups. The measures have been criticised as a slap on the wrist for Germany's biggest industry.

Reflecting the pressure on demand, some 29 per cent of diesel drivers in Germany said they'd try and sell their cars as soon as possible because of concerns about falling values as cities mull driving bans, according to a survey by Deutsche Automobil Treuhand market-research firm. As a result of slow sales, 77 per cent of dealers said they had cut prices, the dealer association said.

The value of used diesel cars is an important factor in the calculations for carmakers' sizable fleet sales, and plunging prices could trigger writedowns in their lease portfolios. In Daimler's case, half of its car sales are either financed or leased by its financial services unit. There are about 6 million diesel cars with the older Euro 5 emissions standard registered in Germany currently, according to the country's Federal Transport Authority.

"The new 'diesel fear' among customers has significant consequences for car companies," Cedric Perlewitz, an analyst at Commerzbank, said in a report Thursday. "Carmakers need to significantly expedite their strategic shift to electric cars."

BLOOMBERG