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Market flooded with used cars faces residuals slump

The quarterly index, compiled by in association with Glass's Guide, reveals that prices of two-year-old vehicles have fallen across Europe by an average of 2.5% over the past six months.

It predicts that the downward trend will continue, particularly in countries like the UK, as the European Commission pushes for new car price harmonisation.

The UK has the highest overall residual prices, bolstered by the strength of sterling, though the gap to second-placed Portugal has narrowed. However, two-year-old depreciation rates in the UK are also the highest in Europe, blamed on the culture of dealer discounts and fleet supply deals which undermine the list price. Vehicles are worth 58% of their original value, compared to 70% in Portugal.

Roger Dal Santo, Eurotax international sales and marketing director, said: "The continuing effects of high levels of new car registrations across Europe are bringing unprecedented numbers of used cars onto the market.

"The reduction in residual values is a clear sign that the demand for used cars is failing to keep pace with the demand for new cars, which is resulting in higher used car stock at dealers."

Hubert Jung, Eurotax senior consultant, believes manufacturers can improve control over residual values by focusing on the brand.

He advised brand managers to tighten new car supply by building better alliances with assembly planning departments and to go on a pricing offensive.

"The strategy must make it possible to stand behind the manufacturer's list prices," said Mr Jung. "If you can't control discounts you will have poor residual values and a bad reflection of the brand image."

Residual values could also be affected by an 'I am new' policy. "Re-launching models with small technical improvements, facelifts or changes in badging can influence values' performance," said Mr Jung.

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