The UK supply of new cars is reaching saturation point and, as the only major right-hand-drive market, there is nowhere else for thousands of cars to go.
Glass's editor Chris Smith said: 'While the domestic market still has an appetite for new products, this volume can be accommodated, but there may well come a point at which this appetite is satisfied, and there's evidence such a point may be close.
'The UK now has the poorest residual values in Europe – a typical two-year-old car in the UK is worth 59% of the original cost new. In Germany and Spain the figure is 69% and in France 73%. Since the quality of cars is not in doubt, and the market severely limited because of right-hand-drive, the likely cause of this depreciation is over-supply.'
Because of over-supply to the retail market, prices of new cars are being forced down, with traditional second-hand buyers being attracted to buy new cars rather than used. The result of this is pressure on two, three and four-year-old fleet cars.
Adrian Rushmore, managing editor at Glass's, said the number of used cars coming into the market were holding up residuals.
He said: 'The fact that prices have not fallen further is due to the general supply that has remained adequate rather than plentiful. This is due to a combination of factors, including a slightly reduced volume of ex-rental cars, a shortage of good quality part- exchanges from the motoring public and contract extensions on leased cars that have delayed their appearance in the market.'
Glass's reports that despite a fall of 5 to 7% in the market last year, there has been a slight recovery in recent months.