FRANKFURT -- A German ruling to legitimize bans on high-polluting diesel cars will hit second-hand values and cause inventory levels of used vehicles to rise, ratings agency Moody's said on Wednesday.
"Falling demand for diesel vehicles will mean that residual values may fall substantially short of initial expectations," Moody's said in a note on Wednesday.
Diesel registrations as a percentage of the German auto market dropped from 48 percent in 2015 to 32.5 percent in February 2018, Moody's said.
Under most leasing and financing contracts, automotive banks and dealerships remain on the hook for guaranteeing the residual value of the used car when customers return the vehicle upon contract expiry.
Currently, about 75 percent of German new registrations are supported by a financing contract, predominantly by leases or balloon loans that only partly amortize during the contract term, Moody's said.
The number of days used diesel vehicles remained with dealers as inventory has risen from 80-85 days in the second quarter of 2016, on a par with gasoline-powered cars, to above 90 throughout 2017 and above 100 days since October 2017, Moody's said.