With only the VW Group being implicated in the emissions scandal and numerous reports already suggesting that a number of consumers are turning their back on the group’s vehicles both old and used, it seems inevitable that their residual values will be impacted. In turn, this will drive up the TCO (total cost of ownership) as the cost of the new car minus the assumed value of the vehicle when it comes to selling it on is naturally increased. Aside from adding to the potential downward spiral of private consumers defecting from VW to other carmakers’ offerings, an increased TCO would also expose the financial institutions offering leasing solutions and undoubtedly hurt VW’s sales to company fleets and the car rental sector.
Focusing on the car rental sector, an article in the Evening Standard on September 30 reported that “According to a recent Morgan Stanley analyst note, Europcar buys 260,000 cars a year, which is about 2% of all new cars sold in Europe. This costs it about €5 billion (£3.7 billion) a year.” Aside from the significant volume of cars involved, Europcar is especially interesting as it is the car rental market leader in Western Europe by a significant margin.
Company Shares, Car Rental Retail Value RSP, Western Europe, 2011-2014
Source: Euromonitor International
Furthermore, Europcar was wholly owned by Volkswagen AG from 1999 until it was acquired by the investment company Eurazeo in 2006. Being once owned by VW, it is hardly surprising that numerous VW, Skoda and Audi cars appear in the Europcar fleet on their website, many featuring the four-cylinder 1.6 and 2.0 litre TDI EA 189 engines that have sparked the entire furore. Ironically, Eco Friendly cars are promoted with a picture of a Volkswagen Polo – although it should be noted that the Polo is not offered with either EA 189 engine.
Much uncertainty still remains about the consequences of the emissions scandal but the fact of the matter is that residual values of not just Volkswagen Group vehicles but diesels in general are bound to be weakened to some extent. All car rental companies will therefore ultimately face higher costs to finance their fleet purchases because of higher TCO and these costs will either be passed on to consumers or simply erode profits. However, it does seem that Europcar could be adversely affected, especially if renters themselves are reluctant to accept a VW Group vehicle, especially a diesel. The upshot is that the emissions scandal undoubtedly poses a threat to Europcar and their significant lead in Western Europe’s car rental sector.