Lex Vehicle Leasing is warning that a general fall in prices will also have a major effect on the price of petrol vehicles.
Jon Walden, the firm's managing director, said: 'The main concern I have is over diesels. There is currently a premium for diesel models, but that will be eradicated.
'Many contract hire companies are seeing an increasing proportion of their fleet made up of diesel and for us it is about 50%. When you consider this alongside a range of other factors affecting the used car market, we think used car values will fall.' The firm has already taken the predicted drop into account when writing new contract hire agreements.
Two years ago, the firm had to write-off £45 million to cover disposal losses on its fleet over three years after unexpected falls in used car prices and said new contracts were now written 'on the assumption of a decline in used car prices.'
Record car sales have already sparked predictions of a major fall in used car values. In December, Len Clayton, chief executive officer, global full service leasing at General Motors Acceptance Corporation, owner of Interleasing, warned of a 5% fall in residual values this year.
He added that in 2003 values would fall a further 3% and by an additional 2% in 2004.