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Used car prices to fall with bleak economic outlook

The price of the average three-year-old car could drop by £400 this year due to the gloomier outlook for the UK economy in 2008.

The prediction comes from EurotaxGlass’s which is also expecting more difficult trading conditions for used car dealers, with retail demand and values both falling compared to last year.

Adrian Rushmore, managing editor at EurotaxGlass’s, said: “By the end of 2007 retail demand for used cars had slipped back to a level that was marginally worse than the expected seasonal downturn.

“The increased cost of borrowing, stagnant house prices and widespread reports of a UK ‘credit squeeze’ are all affecting consumers’disposable income and confidence. These factors will prevail through much of 2008.”

However, Rushmore said the resilience of the market, which enabled dealers to benefit from continued robust sales activity during the first half of 2007 in the face of five interest rate rises since the previous August should not be forgotten.

Sharper declines in used car values could also be avoided thanks to an expected drop in availability. “New car sales in 2005 were down on the previous two years, which means that there will potentially be fewer three-year-old cars arriving in the wholesale market this year,” continues Rushmore. “If new car sales activity is also down on 2007, this will also reduce the number of cars due to be part-exchanged.

There will still be pressure on used prices because, even if the supply is slightly less, this is likely to remain too high in relation to anticipated demand.”

Rushmore suggests that, as new car sales are likely to fall short of last year’s total, it will be even more important that manufacturers do not incentivise their dealers to register more cars.

“Last year the volumes of three- to six-month-old cars reached an all time high, and the effect was to squeeze virtually every last drop of profitability out of nearly new car business. More pressure of this nature will not only threaten the life-blood of the dealer networks but depress late-used prices further.”

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