With leasing and contract hire companies dependent on accurate prediction of residual values, industry experts are anxious about supply and demand in the used car market. They fear the strong performance of three and four-year-old cars over the last two years is due largely to the small new car market in the depths of the recession, when sales struggled to reach 1.6 million per year.
In 1997 the new car market is tipped to exceed two million units, which could smother the used car market in three years time. Mark Cowling, CAP's chief economist believes such pessimism ignores key factors which ensure residual values in a market worth £20 billion a year. One factor is consumer spending, which correlates with gross domestic product and both are expected to rise as the millennium approaches, particularly with major construction projects.