PREMIUM upper-medium cars are holding their value despite a massive upsurge in sales over the last two years and a predicted residual value fall as a result, but the future is not entirely rosy.

Glass's Information Services has found that second-hand buyers still covet the three main German premium models, the BMW 3-series, Audi A4 and Mercedes-Benz C-class, despite the increased numbers on the road.

But the situation has to be managed to avoid a big residual value fall in the future, according to Richard Crosthwaite, specialist car editor at Glass's. He said: 'Premium-brand vehicles in this sector may have been more resilient than people expect, but this may change over the coming year. There have been signs in recent months that even higher volumes are now coming into the market.

'This month we have seen a sharper than normal drop in values for the big three in this class due to increased availability and fully stocked forecourts. This may finally mark the start of a trend for heavier depreciation.'

Crosthwaite said the majority of registrations in the sector were two to four-year corporate leases, which will be due on the used market in 2004 and 2005. He added: 'Combine this with the fact that new model replacements are at the earliest two years away and it is easy to see that this sector has some much tougher times ahead.

'The way manufacturers manage their used car supply will be crucial in protecting values. While the benefits of higher sales and market share are obvious, the negative effects of lower values could be detrimental to brand image.'

Premium model sales volumes
Car	July 2001	July 2003	% increase
BMW 3-series	50,538	66,626	31.83
Audi A4	18,826	34,949	85.64
Mercedes-Benz C-class	19,157	34,021	77.59