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Small cars nose ahead of executives in used car market

For a long time now we have seen the phenomenon of Scorpio, Omega and Renault Safrane 'executive' sector cars suffering far greater depreciation rates than smaller cars. And now we are beginning to see the ultimate proof of this with some used small cars retailing at more money.

This is surprising to some people. They assume that more expensive new cars will retain a price gap with models below it throughout their life, but this could not be further from the truth.

So why would a large, luxury car end up worth less than a smaller counterpart? First we need to consider the differing requirements of the typical new and used car customer.

In Britain, there is a major weighting towards the corporate, user-chooser buyer in the new market, where people are not spending their own money - the typical buyer of a new executive car is rarely the private individual.

This leads to a preponderance of large, executive cars bought new as company cars.

But while there are plenty of new executive car customers around, the same cannot be said for the used market. With so many registered new, a significant imbalance emerges between supply and demand as the car begins to age.

For typical used car buyers the prime consideration is A to B transport and economy. The last thing they tend to want is a great 'schlepping' limousine that they cannot afford to run, maintain or insure.

This is not to say that nobody in the used market wants such a car, but most of those who do can only afford to pay a relatively low price.

So, on top of low demand we see a further downward force on values caused by the customers who do want a used executive car. This is why we are seeing the seemingly odd situation of a Peugeot 605 stood next to a 306 at the same retail price. Or a Rover 800 going for the same money as a 200.

##Focus--left##But this phenomenon is also moving down into the typical bread and butter sectors too. It is no longer a shock to see Astra commanding similar money to Vectra and the prospect of a Focus becoming worth more than a Mondeo is growing all the time. The same factors are at work here as in the executive market, with buyers looking to stretch their motoring pound as far as possible. It is, of course, the driving force behind downsizing.

It is also a good illustration of the nature of residual values.

When we set an RV it is not based on the metal, rubber, bells and buttons but the profile of the person who is likely to buy the car in future.

The specifications and build quality now found in the smaller sectors are adding momentum to this too.

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