BETTER times are on the horizon for fleets with residual value risks, after a new report forecast that used car values are set for 'dramatic' and sustained improvement compared to the past two years.

But the study, 2001 Used Car Market Report compiled by BCA Europe and Sewells International, warns that fleets must plan a careful disposal strategy to make the best of the recovery in second-hand car prices.

Its analysis predicts that used car values on average will rise by about 3% next year, on top of gains already made so far this year. Latest figures in the CAP Index have revealed that prices for used cars rose 4.4% year-on-year last month compared to a year ago, while the Alliance & Leicester Car Price Index claimed a jump of 13%.

There is also a warning for fleets that traditional three and four-year replacement cycles may not prove to be the best option in terms of minimising depreciation losses.

The commentary says: 'There are signs that used car buyers are moving towards better quality, younger cars - not least because motorists have higher disposable incomes and escalating expectations - causing older car values to fall away, increasing the gap between them and three-year-old vehicles.'

Last year was one of the hardest years on record for the used car market, the BCA report reveals, with used car volumes down by 546,000 to 6.8 million. Sales in the typical ex-company car market - the three- to five-year-old vehicle sector - slumped by 110,000 to 1.78 million, although because of the declining overall market, this sector's share of the used car arena rose from 25.7% to 26.2%.

The average price achieved by dealers for used cars rose by £278 to £5,794, although three- to five-year-old car prices dropped slightly.

• For further findings and analysis – see this week's Fleet News – out on Thursday.