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VW auction fallout

Under a cloud: Doubt over the future value of all Volkswagens, not just those subject to the defeat device, means leasing companies are unable to set crucial residual values with confidence.

Leasing pause to hit VW Group as industry looks closely at residual values

13 Oct 2015

VOLKSWAGEN dealers, finance and leasing companies, and VW Group brand owners, are bracing for more bad news as distressing indications start emerging about the likely impact the manufacturer’s diesel scandal will have on residual values in leases, floorplan financing costs on rising stock levels and a sudden buyer disinterest in the brand.

As the drama continues to unfold, the head of the Australia Salary Packaging Industry Association Leigh Penberthy has told GoAuto that his company LeasePlus has recommended its clients stop leasing Volkswagens until the likely effect on residuals can be calculated into new lease agreements.

Meanwhile, dealers have told GoAuto that Volkswagen clearance rates at VW dealer auctions in Australia have dropped dramatically with as many as half the cars offered for sales as dealer used car stock being passed in.

Details are sketchy and a spokesman for the big Australian auto auction group, Manheim, said that the company could not comment on dealer auctions as they were conducted privately between car importers and dealers of that brand and therefore the results were confidential.

Finance companies are also watching dealer vehicle financing closely as floorplan loans are backed by the value of the stock. If VW values drop substantially, finance companies will be asking dealers for more cover for their borrowings – especially on stock that has a current stop-sale order on it from Volkswagen Group Australia.

The problem is also exacerbated by the long pipeline between Australia and vehicles ordered from the factory, with shiploads of cars fitted with defeat devices already on the water and likely to further flood the market with cars that people are now indicating they may want to avoid – even once the fixed is made.

Australia’s biggest online car marketplace, Carsales, has reported that buyer interest in both VW petrol and diesel cars has crashed since the scandal broke although there are some signs of a partial recovery in the past few days.

Carsales charts show that interest in diesels fell from 650,000 views to 300,000 views in the wake of the scandal but are now running at 400,000 views.

Petrol VW models were also hit, falling from 850,000 views to under 500,000 although petrol views are now back over 800,000.

Where the scandal is especially concerning is in the finance and leasing area.

Glass’s Information Services national sales and marketing manager Nick Adamidis said that if 50 per cent of Volkswagen cars were passed in at dealer-only auctions, it could indicate residual rates falling by up to 10 per cent.

“That’s a big number and it means a lot of money would be lost,” he saidMr Adamidis warned that it could be a kneejerk reaction to Volkswagen’s current problems but he expected “some initial deterioration” in Australia in the order of 3-5 per cent.

But he said if lack of demand persisted for six months “a 10 per cent reduction in residual values would be possible”.

Residual values (before scandal/after scandal)
Volkswagen Passat Wagon 130TDI Highline
New Car Price$46,990
3 yr Residual (before)46%
Value in 3 yrs (before)$21,612
3 yr Residual (after)36%
Value in 3 yrs (after)$16,916
Volkswagen Jetta 103TDI Highline
New Car Price$36,490
3 yr Residual (before)43%
Value in 3 yrs (before)$15,691
3 yr Residual (after)33%
Value in 3 yrs (after)$12,042
Volkswagen Tiguan 130TDI
New Car Price$39,990
3 yr Residual (before)53%
Value in 3 yrs (before)$21,195
3 yr Residual (after)43%
Value in 3 ysr (after)$17,196
Skoda Yeti 103TDI
New Car Price$34,390
3 yr Residual (before)44%
Value in 3 yrs (before)$15,132
3 yr Residual (after)34%
Value in 3 yrs (after)$11,693
Mr Adamidis said that residual values for Volkswagen Group products – including Audi and Skoda – in Europe had dropped 2-3 per cent last month while rival brand residuals increased.

Mr Adamidis said if there was buyer backlash to Volkswagen’s emissions deception then it would show up in new-car inventory levels.

“Companies such as Volkswagen order six to 12 weeks in advance. If the sales decline and the inventory remains high, there will be discounting of the brand and that will immediately affect residual values,” he said.

Mr Adamidis said that because the Volkswagen issue involved deception “you may see Volkswagen buyers leave the brand over this”.

LeasePlus CEO Leigh Penberthy, who is also the chairman of the Australia Salary Packaging Industry Association, said that his company was telling new customers to look at vehicles from alternative manufacturers until the Volkswagen problem was solved.

He said the residual price of leased Volkswagens involved in the scandal were likely to take a heavy hit but said that at this stage the future values of new VW product like new SUVs, utes and commercial vehicles that are not caught up in the scandal are unknown.

He said that the new-car volumes and the reaction from bidders at auction houses would be the first telltale signs of the damage of the Volkswagen Group problem in Australia.

“We will be talking to auction houses around Australia to gauge reaction to the Volkswagen problem and that will be used to base our future residual values,” he said.

He said it may take a couple of months to formulate the effect of the Volkswagen emission problem in setting leases.

Mr Penberthy said even his staff members were caught up with owning leased Volkswagens, Audis and Skodas.

“Anyone with those makes, diesel or not, who either own it or lease it, needs to ask: What happens to the price of the car when I sell it? What happens when the fix arrives – will it change the performance and/or economy of the vehicle and if so, should I be compensated? Will it impact on the residual?“The answer to the last one, I believe, is ‘yes’.”Below: Carsales traffic records show a dramatic drop in interest in Volkswagen models since the announcement of the diesel scandal. Even petrol models suffered a reversal. However there are positive signs of a recovery in the past few days.

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