THE continuing residual value crisis in the used car market has prompted the parent company of one of the UK's leading contract hire firms to issue a profits warning. Lex Service said on Monday the continuing debate around new car prices - and its knock-on effect on second hand values - was also taking its toll.

The announcement saw Lex's share price fall 13%, wiping £63 million from its valuation. A pre-tax profits forecast for 2000 from Lex's house broker, ABN-AMRO, has been cut from £62.2 million to £54 million. Lex will announce its half year results on July 27 but in the first six months of 1999 pre-tax profits were £37.8 million on turnover of £789.4 million.

Lex owns the franchise to import Hyundai vehicles and last year bought the RAC. But while the RAC is making an increasing contribution to group results, weak retail demand and falling transaction prices have led to a reduction in Hyundai's contribution and a fall in the price of used cars, sold through Lex Autosales.

Jon Walden, managing director of Lex Vehicle Leasing, said: 'The most significant factor is the uncertainty about the outcome of the Competition Commission New Cars Inquiry and the misconception among consumers that prices are about to fall significantly. The consumer also believes that if new prices are about to fall then prices of all cars will. This belief means we're suffering as a result of a 10% slump in residual values, year-on-year.'