Downside Of More Diesels: Rising Depreciation?

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2013 Volkswagen Beetle TDI

2013 Volkswagen Beetle TDI

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Diesel cars are quite appealing to some drivers, and it isn't hard to see why.

The current choice of diesel vehicles may not be that varied, but those available mix good performance with impressive efficiency (particularly on the highway) and refinement unheard of from their counterparts of yesteryear.

Solid resale value is also an attractive attribute, helping to negate the high initial purchase price of diesels next to their gasoline equivalents.

But with more diesels on the way and existing models selling better than ever, how long will that benefit remain?

Our sister site The Car Connection notes that diesels hold up far better on the used market than their closest gas mileage competitors, hybrids.

According to statistics from ALG, the average compact car, like a Chevy Cruze, retains around 53 percent of its MSRP after three years. The average hybrid, such as a Toyota Prius, around 55 percent.

By comparison, diesel models retain around 63 percent of their original value after three years, thanks to high demand on the used market.

Will diesel values fall?

However, ALG's statistics also suggest that as diesel's market share increases, and more manufacturers release their own diesel products, existing values will start to fall. It's simple supply and demand--currently, diesels are in short supply and high demand--but that will likely change.

Volkswagen rules the roost for compact diesels at the moment, but as Chevrolet releases its Cruze diesel--and the Jeep Grand Cherokee EcoDiesel and Mazda's diesel 6 appear shortly--buyers will have more choice than just "new diesel Jetta" or "used diesel Jetta". The prices of used VW diesels could fall as a result, above the currently inflated late-model used values.

Diesel's market share is currently fairly small, at 1.7 percent, and Bosch's prediction of 10 percent diesels by 2015 is looking increasingly optimistic--so used values aren't likely to tumble too far, even so.

Falling used prices aren't disastrous for everone either. While the new car buyer may not see as healthy a return as they were expecting, lower used prices are great for the used car buyer.

Diesel fuel pricing

There are other market forces at work, too. Fuel prices, for one: Diesels cost more to buy, but also more per gallon to fuel.

If the break-even balance is skewed the wrong way for consumers--i.e. their investment in a more expensive car and more expensive fuel takes too long to recoup--all the choice in the world won't encourage buyers to go diesel. Diesel-biased taxes, like those proposed for Virginia, will also affect sales and values.

On the other hand, as gas prices rise, diesel looks proportionately more attractive unless it rises at an even faster rate.

And neither of these eventualities account for the buyers who simply like the way diesels drive--all that mid-range torque is compelling regardless of the fuel you're putting in the tank.

Whatever happens to diesel values, we're looking forward to the next wave of efficient diesel cars hitting the roads over the coming year--and they'll almost certainly go down well with customers, too.

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