Fall in second-hand car prices as consumers drive hard bargains

Mondeo man may not be feeling so pleased with himself when he steps out to wash his car this weekend.

The price of a used vehicle has plunged drastically this year - with none worse affected than the family saloon, exemplified by the Ford top seller.

The latest Alliance & Leicester car price index - an important industry barometer - shows the biggest drop since the index started in 1998.

It reveals that the cost of a one-year-old vehicle fell by 11.4 per cent in June compared with the previous year. The cost of a used car up to three years old plunged by 13.5 per cent while the downward trend in new cars continued with a 1.2 per cent fall.

Changing tastes in the £45bn UK car market has led to, on average, a 21.9 per cent fall in the value of a family saloon such as the Vauxhall Vectra.

Andy Bayes, head of motor finance at the Alliance & Leicester, said: "The second-hand car market is huge with over 7 million used cars sold every year in the UK compared to 2.5 million new cars in 2002. While new cars are the cheapest they have been for years, those looking for real deals should look to the second-hand market.

"Those prepared to haggle can get a great bargain as dealers desperately try to move the huge volumes of cars on the forecourt."

The flood of second-hand cars can be traced back to a victory won by consumer groups over the British motor industry three years ago. The Consumers' Association, backed by the Government, accused motor companies of overcharging by exercising undue control over dealerships. Motorists were persuaded to stop buying new cars in the UK in a boycott that lasted for about a year.

European legislation outlawing anti-competitive agreements between dealers and manufacturers will be introduced in two years. Meanwhile changing consumer attitudes combined with currency fluctuations have forced prices for new cars down by about 10 per cent.

Alkan Hassan, of the Rushmores dealership in Catford, south-east London, was offering discounts of up to £1,000 on vehicles yesterday. "Very few customers expect to pay the price on the sticker now, probably less than 20 per cent," he said. "Two or three years ago, that was not the case but today people are far more aware of what is going on in the market and they are prepared to bargain pretty hard. We just have to make sure they get that bargain."

Douglas McWilliams of the Centre for Economics and Business Research said the economics of the car market were straightforward.

He said: "As new car prices have fallen in the past three years, so ever-increasing numbers of used cars are coming on the market. The cost of a new average family car is the equivalent of 20 weeks' wages, compared to 30 weeks' wages three years ago." Demand for new cars has been further fuelled by models that are more reliable, energy-efficient and boast a range of mod cons such as computer navigation, CD systems and air conditioning, Mr McWilliams said.

Fleet cars, which account for about half of the new car market, are also contributing to the glut of cheaper nearly-new models.

Changes in the taxation of emissions and company cars, combined with short-term lease agreements, have made it more likely that a business will offload its cars after a maximum of three years.

Fashion too has its part to play. According to Andy Pringle, managing editor of What Car? magazine, there have been clear winners and losers over the past three years. The demand is either for smaller cars or more prestigious models such as the BMW and Mercedes, he said. This has left the family saloon looking particularly undesirable.

Mr Pringle said: "The Mondeo is a fantastic car. It is spacious, comfortable and a great drive. It does not deserve to have stigma but a bloke always prefers to be holding a BMW or Mercedes keyring rather than a Ford."