'If the list price of a new car is reduced by 5, 10 or even 20%, then inevitably those cars' residual values will fall overnight as well,' he said. The issue has come to the fore following the Government's reply to the Department of Trade & Industry Select Committee's Vehicle Pricing report. This saw the Government agree with the Select Committee that local tax differences and the cost of producing right-hand-drive vehicles do not explain why the UK has the most expensive market in Europe for 57 out of the 76 best-selling models.
In the short term the Government has given its backing to motorists who buy their cars in continental markets and import them to the UK. This growing trend is forcing manufacturers to freeze or even realign their UK prices, and improve the 'value' of their offerings by including interest-free finance, and free servicing and maintenance with the sale of a new car.
The danger is that the realignment happens too quickly, according to Jarvis. 'This should be undertaken in a structured and measured manner. This way there will be a gradual reduction in new prices and therefore only a gradual erosion of used car values,' he said. 'The most important thing for the vast majority of consumers is not the list price looked at in isolation. It is the cost of changing an existing car for a new one.'