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'Dealers can sell the bundle separately'

The used car market represents the “best way for dealers to make money”, according to Cap Monitor chief European economist Mark Cowling.

“New cars are a way of creating supply into the used car market,” he added. Mr Cowling criticised the motor industry for “failing to get its message across” to consumers during the current new car pricing debate.

While residual values would not be affected by new car supply, “customers will get a nasty shock in the future on part-exchange prices thanks to the Competition Commission and the Consumers' Association”.

He added: “Residual values come down to supply and demand, matching the buyer with a car.”

If Trade Secretary Stephen Byers succeeds in unbundling services, it will enable dealers to “sell the bundle separately - it could mean larger profits”.

Despite the slump in prices, the market remains 30% higher than January 1990. Mr Cowling predicted a levelling of prices this winter. “There will be a release of pent-up demand towards the end of the year, but it will not be a tidal wave,” he said. “It will be enough to stabilise prices at the level they are now. It will be 18-24 months before prices may start to rise.”

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